Shock treatment for a sick system - TennCare, Tennessee's health care reform plan - includes related articles

Business & Health, March, 1995 by Stuart Schear

Stuart Schear, who lives in Brooklyn, N.Y., writes often about health care. Research for this article was done while he was a Kaiser Family Foundation media fellow.

Controversial TennCare has staved off crippling state deficits, extended health coverage to thousands, and broken down the marketplace's barriers to managed care.

Like lawmakers in dozens of other states in the late 1980s, Tennessee's elected officials knew that the state's health system needed surgery. Doubledigit percentage annual increases in health costs threatened other services and raised the specter of a major fiscal crisis. While other states--notably Washington, Florida, Minnesota, and Oregon--were debating and passing comprehensive reforms, Tennessee decided to tackle the one government program that seemed to be at the heart of the problem--Medicaid. The radical proposal: Scrap it, and try something completely new.

Thus TennCare was born, an ambitious program that attempts to provide health care for the poor--and to several hundred thousand working Tennesseans who were previously uninsured. Now a year old, the program is being closely watched by other states, Congress, and employers nationwide. Most observers are cautiously optimistic that it will work.

"TennCare has shaken up the physician and hospital communities in this state," says Mike Head, vice president for human resources at Ingram Industries Inc., a

Nashville-based distributor of computers. "There has been a lot of wailing and gnashing of teeth, but people are quickly adjusting to living in a managed-care environment. I think it will have a positive effect in the private sector."

But TennCare's start-up has been far from smooth. Doctors and some insurers have been highly critical of the program. They say it's underfunded, fiscally unsound, disorganized, and even detrimental to health. More people than projected have also flooded into TennCare, straining its budget. That forced the state late last year to impose a one-year freeze on new enrollment by the working uninsured (except those with pre-existing medical conditions). The Medicaideligible can still enroll.

These problems led newly elected Republican governor Don Sundquist to act on a campaign promise to conduct a top-level review of TennCare; the review began in late January. He also ordered an immediate audit of the financial status of the program, which is projected to cost $3 billion this year and is already $100 million in the red. About $62 million of that is attributed to the higher-than-expected enrollment and savings that didn't materialize, the rest to uncollected premiums. TennCare officials downplay the shortfall, however, asserting that the state's health funding deficit would have been much bigger--close to $1 billion-had TennCare not replaced Medicaid.

Sundquist also took steps last month to strengthen the state's permanent oversight and management of TennCare. This included a shift of control of the program from the health department to the Department of Finance and Administration. In addition, he created a seven-member advisory committee to review complaints from physicians, hospitals, and consumers.

EARLY GOALS ARE MET

Despite the problems, TennCare appears on track to achieve its primary goal: to contain the cost of providing care both to the poor and all the newly insured. Cost savings from moving Medicaid beneficiaries into managed care are now financing health coverage for a large proportion of the state's working poor as well as for the "medically uninsurable."

As of last month, one in four state residents was enrolled in TennCare. That number includes 877,000 former Medicaid beneficiaries and 418,000 previously uninsured residents. An estimated 250,000 people in the state, about 5 percent of the population, still lack coverage.

TennCare has also added impetus to changes in the state's private-sector health marketplace, giving a giant boost to what had been for years a fledgling and laggard managed-care industry. In a take on managed competition, TennCare enrollees select from among 12 health plans: eight HMOs and four PPOs. The state pays the plans an annual capitated rate--$1,274 this year--for each enrollee. TennCare also funds a range of additional services for the state's poor, elderly, and mentally ill.

Enrollees are allowed to switch plans during an annual open enrollment period. The first of these took place last November, amid a barrage of radio and newspaper advertising by health plans touting their cost and quality. Blue Cross and Blue Shield of Tennessee's PPO emerged the winner, gaining an additional 5 percent of the market to give it just under half of TennCare enrollees. Most of the other 11 plans lost a small portion of their TennCare members.

Who pays for TennCare?

The lion's share comes from federal and state funds previously budgeted for Medicaid. The U.S. government also kicks in money that had gone to subsidize uncompensated hospital care in the state. About half of one percent of TennCare's budget is raised through premiums paid by enrollees whose incomes exceed the federal poverty level. Where funding doesn't come from is any new general taxes, a feature of TennCare that lawmakers and employers are particularly happy about.