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Who pays for Governor Haslam's Medicaid proposal?

governor haslam speaking at podium

What "Insure Tennessee" means for the healthcare customer

"Insure Tennessee" is what Governor Bill Haslam is calling his proposal to expand Medicaid in Tennessee. If his proposal goes into effect, it would not only have a big impact on our state's economy, but also on healthcare consumers.

There has been widespread coverage of how Haslam envisions Insure Tennessee will work. To understand the details, it helps to have some background on how TennCare is paid for in the first place.

Who pays for TennCare?

If you pay taxes, then ultimately you pay for TennCare. Here are the details:

1. You pay your taxes.

2. The federal government offers your tax money to the state governments to set up state-administered Medicaid programs for their lower-income citizens. All states have done this. In Tennessee, it is called TennCare.

3. The federal government does it this way because it believes, on some level, that the states know more about what their lower-income citizens need than the federal government does. As such, it makes sense to let the states administer these programs.

4. That said, the federal government does not completely trust the states to run their own programs. If it did, then it would just send a "block grant" of money to each state and let each state set up and run its own program. But this is not how it works. Instead, the federal government sets minimum requirements for what states have to cover in order to get the federal funding. If a state does not follow the rules, then it doesn't get the federal money.

5. As such, states have given up a degree of autonomy over their own budgets. Why? Because the federal government can raise the "minimum requirements" for what has to be covered in order to get the federal money, which causes costs to go up on the states. More directly, the federal government can lower the overall percentage of what it will contribute toward the costs, thereby also raising the cost to the states.

6. States have addressed this problem by taxing their hospitals for the state's portion of Medicaid spending. The rationale? Hospitals gain the most from more Medicaid spending. Because they are only taxed to cover the state's portion of the Medicaid spending and not the federal portion, the hospitals win.

Let's use an example with some numbers to make this more clear:

1. Say that you pay $25,000 in federal taxes.

2. The federal government takes $2,000 of your $25,000 and offers it to Governor Haslam to use to expand Medicaid.

3. The federal government does not trust Haslam enough to simply send him a check for $2,000 to use as Haslam sees fit. Instead, the federal government is requiring Haslam to use your $2,000 to expand Medicaid to cover more Tennesseans as the federal government sees fit.

4. That said, the federal government is promising Haslam that if your $2,000 turns out not to be enough to cover the cost of what the federal government wants Haslam to do, the feds will be responsible for making up the difference.

5. This promise runs out in 2016, however. After 2016, the federal government will only pay 90 percent of the cost of what they wanted Haslam to do. The other 10 percent will be up to Tennessee.

6. People can only guess as to how much that 10 percent will actually turn out to cost. No matter how much it is, however, the hospitals know that if Tennessee pays its 10 percent then nine times that much money will come to Tennessee from the federal government. So, Tennessee hospitals agree to pay a tax to Tennessee to cover the 10 percent — helping to ensure that they'll get the 90 percent.

One important note to bear in mind in all of this is that whether Tennessee expands Medicaid or not, its taxpayers are paying for the federal government's funding of the states that do go ahead and expand Medicaid.

There are a lot more details to Insure Tennessee. As a healthcare consumer, it helps to have some background as to how this all gets paid for when evaluating the merits of Governor Haslam's proposal.

This column originally appeared in the January 27th edition of The Tennessean

If you enjoyed this post, you may like Healthcare resolutions for Republicans in 2015.

Photo: Jae S. Lee / The Tennessean

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