Could Tennessee adopt the Insure Tennessee Medicaid waiver, fund the state share with a hospital assessment, and back out later if federal funding changed?

Plain-English summary

In January 2015, Governor Bill Haslam announced Insure Tennessee, a proposal to amend the existing TennCare II Medicaid waiver to cover the "Newly Eligibles" population in 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII): adults 19 to 64 with incomes up to 138 percent of the federal poverty level, who were not otherwise Medicaid-eligible. The plan was to fund the state share, when the federal match dropped from 100 percent (through 2016) to 95 percent (2017), through an increased assessment on Tennessee hospitals. The General Assembly's approval was a precondition under Tenn. Code Ann. § 71-5-126.

State Senator Randy McNally asked a battery of structural questions about whether Tennessee could do this safely and how it could exit if needed. The AG's answers, distilled:

1. Could CMS unilaterally rewrite the TennCare State Medicaid Plan or TennCare II Demonstration? No. Medicaid is a Spending Clause program treated as contract-like (Pennhurst, NFIB, Barnes v. Gorman). But Congress (through legislation) or CMS (through regulation or policy) could require Tennessee to make conforming changes, just as they could today. Federal regulations require state plans to be amended to reflect changes in federal law, regulation, policy, or court decisions (42 CFR § 430.12(c)), and the TennCare special terms and conditions impose a similar compliance obligation. Under NFIB, however, the federal government cannot force a "shift in kind" on states through Spending Clause leverage.

2. Could CMS reinterpret a waiver provision later, changing what the state owes? Yes, in general. State plan/waiver interpretation usually follows the state's reasonable reading, but federal statute/regulation interpretation generally follows CMS's reasonable reading under Chevron. Past CMS practice has provided transition periods (66 Fed. Reg. 3148; 73 Fed. Reg. 77904), though nothing legally binds CMS to do so going forward. Bennett v. Kentucky Dept. of Educ. supports the principle that federal interpretations should be informed by guidelines existing when the federal-state agreement was made.

3. Could the Annual Coverage Assessment (the hospital assessment under Tenn. Code Ann. §§ 71-5-801 to -806) fund Insure Tennessee? (a), (b), (e), (f) The current § 71-5-805(d) authorizes use of trust-fund money "for expenditures in the TennCare program," with "include" used as a word of enlargement (per Lovlace v. Copley and State v. Marshall). So funds may be used for any TennCare expenditure, including any state share of Insure Tennessee. But the rate is fixed by § 71-5-804(a) at 4.52%, and the Act expires June 30, 2015 (§ 71-5-806), so new legislation is required beyond FY 2014-15 to keep the assessment going or to raise the rate. (c), (d) No amendment of § 71-5-805(d) is needed for the current purposes; an amendment of § 71-5-804(a) to raise the rate would be lawful, with no apparent legal impediment.

4. Could Tennessee discontinue Insure Tennessee if money ran short? (a) Yes, the state may unilaterally decide to discontinue, subject to TennCare Waiver phase-out procedures at STC ¶ III(9). The amendment to TennCare must be approved by CMS, but CMS has said the state can drop coverage of the Newly Eligibles. NFIB removed CMS's enforcement leverage to force coverage of this category. (b) Yes, the state could expand under the ACA, with CMS-approved amendments. (c) Yes, the state could terminate the Insure Tennessee portion of the waiver without affecting the rest, with CMS approval. (d) Yes, the state could withdraw from Medicaid entirely, with CMS-approved amendments and phase-out compliance. (e)(i) The phase-out requires notice to affected enrollees consistent with 42 CFR §§ 431.206, 431.210, 431.213, plus hearing rights under §§ 431.220 and 431.221 (with exceptions in § 431.220(b) when the sole issue is a federal/state law change adversely affecting all beneficiaries, see Rosen v. Goetz), and benefit continuation pending hearing under § 431.230. The state also had to redetermine remaining-category eligibility per the existing TennCare STCs upheld in Rosen. (e)(ii) The opinion did not have enough information to estimate the maximum time to process 200,000 enrollees through due process.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did Insure Tennessee actually become law?
A: No. The General Assembly did not authorize the program in its 2015 special session. This opinion's conditional analysis was the AG's view of what would have applied if Insure Tennessee had been enacted.

Q: Why was CMS unable to force the state to keep the coverage?
A: The U.S. Supreme Court's NFIB decision held that the ACA's Medicaid expansion was a "shift in kind" that states could not be compelled to implement. The Secretary of HHS lost the ability to use the § 1396c enforcement hammer (cutting off all federal Medicaid funding) to force a state to cover the newly eligible group. That meant states could drop coverage of that group without losing pre-existing Medicaid funding.

Q: What is the hospital assessment?
A: The Annual Coverage Assessment was a fee on covered Tennessee hospitals, set at 4.52% of a covered hospital's annual coverage assessment base for FY 2014-15 under Tenn. Code Ann. § 71-5-804(a), with revenue deposited in the maintenance of coverage trust fund and available to fund TennCare expenditures.

Q: What is a § 1115 waiver?
A: A demonstration project authorized by 42 U.S.C. § 1315, allowing states to test alternative ways of administering Medicaid. TennCare has operated under § 1115 waivers since 1994. Waivers are time-limited and renegotiated with CMS.

Q: Why does it matter whether "include" is a word of enlargement?
A: Because if "include" enlarges the list, the listed uses are illustrative and the trust-fund money can also be used for other TennCare expenditures. If "include" were restrictive, the listed uses would be exclusive. The AG followed Lovlace v. Copley and State v. Marshall for the enlargement reading, then bolstered the conclusion by comparing § 71-5-805(d) to the parallel nursing-home assessment statute (§ 71-5-1002), which expressly uses restrictive language. The contrast supports the broader reading of the hospital assessment statute.

Background and statutory framework

Medicaid is the federal-state health-coverage program for low-income people, created in 1965 under Title XIX of the Social Security Act. Federal matching rates vary by state. Section 1115 of the Act lets HHS waive specified Medicaid requirements for experimental projects, which is how TennCare operates. The ACA expanded eligibility to the Newly Eligibles group at federal matching rates of 100 percent (through 2016) tapering to 90 percent (2020 onward) under 42 U.S.C. § 1396d(y)(1). NFIB then made that expansion optional for states.

Tennessee considered Insure Tennessee as an alternative-design implementation of the expansion, with conditions and program features intended to fit the state's policy preferences. The hospital industry agreed to bear the state-share cost through an increased assessment. The AG opinion was structured to give the legislature confidence on the legal mechanics: contract-style protection from unilateral federal change, statutory authority to use hospital assessment revenue, and exit ramps if the financing ever broke down.

Citations and references

Constitutional provisions:

• U.S. Const. art. I, § 8, cl. 1 (Spending Clause)
• U.S. Const. art. I, § 9, cl. 7 (Appropriations Clause)

Federal statutes and regulations:

• 42 U.S.C. § 1304 (right to amend)
• 42 U.S.C. § 1315 (Medicaid demonstration projects / § 1115 waivers)
• 42 U.S.C. § 1396 et seq. (Medicaid)
• 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) (Newly Eligibles)
• 42 U.S.C. § 1396c (Secretary's enforcement authority)
• 42 U.S.C. § 1396d(b), (y)(1) (federal medical assistance percentage; ACA expansion match rates)
• 42 CFR § 430.12(c); 431.206, .210, .213, .220, .220(b), .221, .230 (state plan amendments and Medicaid fair hearings)

Tennessee statutes:

• Tenn. Code Ann. § 71-5-126 (General Assembly authorization for Medicaid expansion)
• Tenn. Code Ann. §§ 71-5-801 to -806 (Annual Coverage Assessment Act of 2014)
• Tenn. Code Ann. §§ 71-5-160(a), 71-5-1002(f)-(h) (maintenance of coverage trust fund; nursing home assessment trust fund)
• Chapter 909 of the Public Acts of 2010

Cases:

• Pennhurst State School and Hospital v. Halderman, 451 U.S. 1 (U.S. 1981) (U.S. Supreme Court; Spending Clause as contract)
• National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (U.S. 2012) (U.S. Supreme Court; Medicaid expansion optional)
• Barnes v. Gorman, 536 U.S. 181 (U.S. 2002) (U.S. Supreme Court)
• Harris v. McRae, 448 U.S. 297 (U.S. 1980) (U.S. Supreme Court; voluntary state participation)
• Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (U.S. 1984) (U.S. Supreme Court; agency deference)
• Bennett v. Kentucky Dept. of Educ., 470 U.S. 656 (U.S. 1985) (U.S. Supreme Court)
• Good Samaritan Hospital v. Shalala, 508 U.S. 402 (U.S. 1993) (U.S. Supreme Court)
• INS v. Cardozo-Fonseca, 480 U.S. 421 (U.S. 1987) (U.S. Supreme Court)
• Rosen v. Goetz, 410 F.3d 919 (6th Cir. 2005) (Sixth Circuit; TennCare phase-out due process)
• Tennessee Supreme Court statutory-construction line: Carter v. Bell, 279 S.W.3d 560 (Tenn. 2009); In re Adoption of A.M.H., 215 S.W.3d 793 (Tenn. 2007); Brown v. Erachem Comilog, Inc., 231 S.W.3d 918 (Tenn. 2007); Calaway v. Schucker, 193 S.W.3d 509 (Tenn. 2005); State v. Strode, 232 S.W.3d 1 (Tenn. 2007); Memphis Housing Auth. v. Thompson, 38 S.W.3d 504 (Tenn. 2001); State v. Lewis, 958 S.W.2d 736 (Tenn. 1997); Howell v. State, 151 S.W.3d 450 (Tenn. 2004); State v. Marshall, 319 S.W.3d 558 (Tenn. 2010); Gragg v. Gragg, 12 S.W.3d 412 (Tenn. 2000); Lovlace v. Copley, 418 S.W.3d 1 (Tenn. 2013)

Subject

Opinion No. 15-06, Insure Tennessee, January 26, 2015

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-06.pdf

Original opinion text

Full opinion text unavailable from the official source. See the linked PDF or landing page above for the complete text.