28 November 2004

Medicaid fix a tale of caution for state

To cope with rising Medicaid costs, Florida is working on a health care program similar to the one Tennessee adopted, which is ready to implode.

Squeezed by spiraling health care costs a decade ago, Tennessee officials hatched a bold idea: Replace Medicaid with a health care program that has fewer federal strings attached but caps federal funding.

Led by a popular governor, state lawmakers quickly approved the proposal, which they said would stretch state health care dollars further.

But soon a sluggish economy and rising health care costs hammered the state: The 10-year-old program has created a deficit in the hundreds of millions of dollars.

Still, Tennessee's troubles haven't stopped Florida from pursuing a transformation of its costly Medicaid system with a strikingly similar proposal.

Gov. Jeb Bush and the Florida Legislature have fretted for years over rising state Medicaid costs. They have vowed to restructure the state-federal health care program for the poor, and may seek a cap on spending.

They are moving forward even as TennCare, as Tennessee's program is called, threatens to implode under its own weight. The federal spending cap is too low, leaving Tennessee on the hook for hundreds of millions of dollars.

Tennessee Gov. Phil Bredesen's initial plan to save the program involved rationing care, mainly by limiting a patient's annual doctor visits, prescription drugs and hospital visits.

But then he proposed scrapping TennCare altogether and returning to a bare-bones Medicaid program without the optional programs states can offer - such as prescription drugs or care for medically needy people. That would cut hundreds of thousands of people from the program, a move some economists say wouldn't produce sufficient savings. Several lawsuits have been filed, and all decisions are on hold while a last-ditch solution is sought.

"By any reasonable measure I should say "it's over' and move on," Bredesen, a Democrat, said last week.

"But before I go down the road of taking 430,000 people off the rolls; more specifically, before I can face even one of them individually and tell them that it is over, that I can no longer help, I need to be clear in my own heart that I've done everything that I know how to do to solve this. ... I'm not there yet."

Bush and his policy directors say they are taking note of Tennessee's problems even as they struggle to shape their own plan for Medicaid, a priority for Bush in the 2005 legislative session.

Legislative leaders and their staff are awaiting a rough sketch of Bush's proposal, which must be approved by federal Medicaid officials before state lawmakers can take it up. But so many meetings with Bush's staff have been postponed that some at the capital say they wonder whether Bush's plan has hit a wall.

Not so, says Bush. Tennessee is a good reason for caution.

"I wouldn't want to be in Tennessee right now," Bush said last week.

But even some Republican supporters say they worry Florida could become the new Tennessee if it isn't careful. Embracing HMOs

TennCare was the brainchild of former Tennessee Gov. Ned McWherter, a Democrat, who presented it as a way to relieve some financial pressure and extend subsidized coverage to thousands of uninsured people. McWherter said he hoped that would lower overall health care costs by reducing emergency room visits by the uninsured for routine care.

The $7.8-billion program covers 25 percent of Tennesseans. In contrast, Florida's $17-billion Medicaid program covers about one of every eight residents.

Like Bush, McWherter sought a waiver of federal Medicaid rules. Relaxing those rules meant Tennessee could take different approaches to delivering Medicaid services, such as caring for elderly residents at home or using HMOs. Waivers frequently are sought for small pilot programs, but McWherter sought to revamp the state's entire Medicaid program, just like Bush.

But when the federal government waives its rules, it also caps federal spending at the amount that would usually be spent.

Under a waiver, it's possible for a state to negotiate a better reimbursement rate from the federal government. For example, for every dollar Tennessee spends on TennCare, the federal government spends two. Florida's federal reimbursement rate isn't so generous: 61 cents in federal money for every 39 cents in state spending.

But if a state underestimates how much federal money it will need, it must make up the difference.

That's why Sen. Dennis Jones, R-Treasure Island, says he wants Florida to move slowly. When lawmakers wrote a bill earlier this year transferring Medicaid elder care services in the Interstate 4 corridor to an HMO, Jones had Pinellas County removed.

"You just can't open the flood gates," said Jones, a member of the Senate Health Care Committee. "We need to tread water and move forward slowly." Deficits grew quickly

From the start, the directors of TennCare struggled to estimate the program's costs.

Barely a year into its life, TennCare already was being blamed for $99-million of a $225-million state deficit. Tennessee was suffocating under sudden and severe price increases in prescription drugs and other health care costs. Worse, the program was collecting only about one-fifth of the money it was owed in premiums from working poor families whose insurance was subsidized by TennCare.

When TennCare directors renewed the terms of their waiver several years ago, they failed to keep costs in line with predictions and the federal spending cap. By 2004, TennCare had a projected deficit of $650-million.

Tennessee Rep. Kathryn Bowers, D-Memphis and co-chairman of the legislative TennCare Oversight Committee, defends the program but says it has had insufficient oversight.

"We have lost millions and millions of dollars with the managed-care organizations," Bowers said.

To increase profits, some HMO's denied claims in violation of federal rules. Others weren't financially stable enough to absorb the risk their contracts demanded; TennCare paid most HMOs a flat fee per patient per year. The HMO kept any money left over. But if patients used more than the budgeted amount, the HMO made up the difference. And one HMO even embezzled state money. Bowers said Tennessee's difficulties shouldn't scare Florida away from trying it. But the state needs to make sure it knows what it's doing and that it has accurate information from the start.

"It's kind of hard to reverse something that has been signed and sealed," Bowers said.

Florida lawmakers say the same thing can happen here. Should Florida waive its entire Medicaid program, under-estimating actual costs could be catastrophic.

Given the size of Florida's Medicaid program - nearly $17-billion next year - the state would lose $1.6-billion in federal funds over five years if costs exceeded predictions by just 1 percent, according to health care economists. Under-estimating costs and enrollment growth by 1 percent would mean losing $3.38-billion.

Sen. Nan Rich, D-Weston, is an opponent of big transfers of Medicaid to HMOs. Rather than restructure the entire program, Rich said she favors smaller pilot projects.

"I'm not an obstructionist. I do think we need to try things but in smaller pieces to see if they work," Rich said.

Still, Bush points out that the federal money Florida could lose pales in comparison to growth in spending Florida has faced in the past few years. Medicaid is expected to grow by another $2-billion next year alone, or 20 percent in 12 months.

"That's unacceptable," Bush said. "We're going to fight hard for our reforms."

By J. Bradford Delong
Special to the Los Angeles Times

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