TennCare

TennCare is the State of Tennessee’s health care insurance program, designed to expand health insurance to the uninsured through the state’s Medicaid program by utilizing managed care. Launched in 1994 by then-Governor Ned McWherter, it was hoped the program would solve of the state’s biggest problems: access to affordable health care insurance and a Medicaid budget that was fast consuming the largest portion of the state’s budget. It was one of the nation’s first Medicaid “waivers,” with the overarching requirement that the program be “budget neutral,” or require no greater federal funding than the previous Medicaid program. The state sought to accomplish this by replacing the Medicaid fee-for-service payment method with a managed care model. At the time, managed care was fairly new to Tennessee health care providers.

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The state moved more than 800,000 Medicaid recipients into competitively-bid managed care insurance companies, and extended the same benefits to 500,000 more people who were not Medicaid-eligible, but were uninsured or deemed uninsurable due to pre-existing conditions.

In its first year of operation, TennCare enrollment quickly grew close to the federal cap of 1.5 million people, meaning the federal government would not share in the cost of the number above that. In response to the growth in enrollment, in 1995 the state closed eligibility to adults who were uninsured.

In its first five years, TennCare saved the state money – providing health care insurance to many more people at a cost that was less than a traditional Medicaid program.

In 1996, the state carved out behavioral health services, contracting with behavioral health organizations for mental health and substance abuse services.

In its first four years, TennCare accomplished what the state set out to do: stop the escalating costs of Medicaid, a problem that drove many other states to subsequently explore alternatives. But through those years, problems began to develop related to the operation of the seven managed care organizations (MCOs). A first one simply pulled out of the program, and the state shifted enrollees to the other managed care organizations. But then two other MCOs developed financial problems, and physicians began complaining loudly that they were not being paid. The state was forced to take over one contractor, and attempted to keep the MCO afloat through receivership. Another larger MCO was bailed out by the state before it was finally liquidated. In both cases, health care providers were left with millions in unpaid bills. Though the state tried to pay off the debt, it was never able to fully compensate providers.

By 1999, it was clear that a reform was necessary. Doctors and hospitals lobbied the state to require that a certain percentage of the money paid to the MCOs in the form of monthly capitation payments be routed on to providers. More problems developed, as the MCOs were unable to manage care or costs under the constraint of the new mandate.

In 2002, the state’s waiver agreement with the federal government was renewed, but CMS would not agree to many of the funding mechanisms Tennessee won in its original waiver, making the program even less cost-effective. In addition, although the state’s Medicaid eligibility remained intact – with Tennessee offering more eligibility categories than most other states – enrollment in the so-called “waiver” population was curtailed. After the new waiver went into effect, enrollees were (1) either Medicaid-eligible or (2) both uninsurable and below 250% of the federal poverty threshold.

That same year, with Governor Don Sundquist ending his second term in office, TennCare continued to be a statewide topic. The governor’s race featured “fixing TennCare” as the central focus of the campaigns of both frontrunners. Democrat Phil Bredesen won the election, voters confident that with a successful health care background, he would be able to reform TennCare. Not only was the program’s budget once again consuming all the state’s new revenues, but despite the more stringent agreement with the federal government, the perception continued across the state that people not eligible for TennCare were finding ways to get on the program illegally.

By the time Bredesen took office in 2003, the MCOs were doing little more than processing claims from providers, with the state absorbing any managed care risk.

Bredesen almost immediately hired McKinsey & Co., an international consulting firm, to provide a comprehensive assessment of the financial stability of TennCare and to provide options for reforming the program. McKinsey reported that the program, as structured, was not viable and threatened the fiscal health of the state. Their recommendations ranged from returning to a traditional Medicaid program to placing both enrollment and benefit limits to save costs – or offering smaller benefits to everyone while maintaining the size of the program. However, Bredesen chose to ignore the recommendation from McKinsey that returning to a Medicaid-only program would in fact cost the state more money overall. The McKinsey report soon vanished from the state's official Web sites as the administration chose actions in direct contradiction with the recommendations of the report.

Bredesen faced another challenge with the TennCare program: lawsuits filed by advocacy attorneys and subsequent court orders that would prevent many of the changes recommended by McKinsey and attempted by state policy groups. After failing to make reasonable attempts to reach agreement with legal advocates, Bredesen moved to return to traditional Medicaid while preserving coverage for all children on the program.

By 2005, approximately 160,000 people who were not Medicaid eligible were removed from TennCare. In addition, the program’s benefits were trimmed. At the time, Tennessee was one of less than a half-dozen states in the nation with no limits on pharmacy benefits. The state set the limit at five prescriptions per month for most enrollees, with exclusions for children, pregnant women, nursing homes and emergency care. Limits were also placed on doctor visits and hospital stays, but the greatest expected savings would come from limiting access to prescription drugs. Tennessee had the notoriety of being the top state in the nation for per-capita prescription drug use – and like many of its neighbors, the state had a huge bill for prescription painkillers.

Bredesen also established a fraud unit for TennCare to battle the strong perception that the program was rife with abuse. This unit was created despite the fact that the Tennessee Bureau of Investigation had for years operated one of the most effective Medicaid fraud units in the country. The Office of Inspector General began operation in February 2005 and in its first year of operation over 200 people were charged with TennCare fraud.

Bredesen also made the state the first in the nation to establish a state-funded “safety net” to assist those who were lost TennCare coverage and $100 million was set aside to help them access generic prescription drugs, pharmacy assistance programs, and provide for people who had severe mental illnesses. Separate help was established for specialty populations, such as diabetics who needed insulin and supplies, cancer patients who had begun chemotherapy when disenrollment began, and others. The state’s help for disenrollees was provided outside the TennCare program, thus ensuring that the state would receive no federal matching funds.

In June 2006, Bredesen introduced Cover Tennessee, also outside TennCare and Medicaid, and four programs were set into place: CoverRX, offering prescription drugs – with copayments - to low-income people; AccessTN, a high-risk pool featuring basic health coverage with premiums and copayments; CoverTN, a partnership with small businesses to offer health care insurance to the working poor; and, CoverKids, basically the same Children’s Health Insurance Program offered in other states for low-income children.

CoverRX is actually a rebranded version of Rx Outreach, a program already offered by Express Scripts. The only significant difference is that Tennessee pays the monthly fee for those who qualify. CoverTN has such limited coverage that less than 5,000 employees have signed up for the coverage. By making it a state funded program outside of Medicaid, the state is foregoing millions of dollars in federal matching funds that it could have received. AccessTN, like most high-risk pools, has premiums so high that most Tennesseans cannot possibly afford the coverage.

Related links

• Tennessee Justice Center
• Ned McWherter
• Don Sundquist
• Phil Bredesen