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TennCare at a Crossroads

by Joe Sullivan

TennCare is a whipping boy for the state's financial plight. Unless and until the rampant growth in this most costly of state programs can be contained, or the need for it explained, the prospects for meaningful tax reform remain slimmer than they might be otherwise.

Unfortunately, state officials haven't been doing a good job of either—and some of both is probably required. Gov. Don Sundquist is expected to announce plans within the next few weeks for routing the 600,000 of TennCare's 1.4 million enrollees who aren't eligible for the mandatory federal Medicaid program onto a different, lower-cost health coverage footing. But whether these plans will prove feasible—and whether they will save the state any money even if they do—remains problematic.

In the meantime, it is useful to examine how TennCare got to where it is today and the contentions of its critics that the program is riddled with excesses and abuses. At the same time, the consequences of lowering or narrowing the health-care safety net on which 1.4 million Tennesseans now rely must also be considered.

From its inception in 1994, TennCare has been fraught with mistakes. The biggest one was the misguided belief that people without access to employer health insurance plans could be added to the indigents on the Medicaid rolls at no additional cost to the state. For a time, the program's overseers managed to hold the line on costs through draconian cuts in payments to hospitals, doctors, and other health-care providers.

According to the Tennessee Hospital Association, hospital reimbursement rates went from 96 percent of cost (as THA defines it) to little more than 50 percent in TennCare's early years. Payments to primary care physicians are harder to compare because they were placed on an entirely different footing, but specialists got little more than half of the Medicare reimbursement rates to which they had been benchmarked under pre-TennCare Medicaid.

As one indicator of the program's unsoundness, only one established health insurer, Blue Cross Blue Shield, was willing to join the ranks of TennCare's managed care organizations (MCO's). Blue Cross took on half of TennCare's enrollees and managed to maintain a provider network sufficient to care for them by forcing the doctors to treat TennCare patients in order to participate in the company's lucrative commercial health insurance plans. But this "cram down" approach, as it was labeled, cost Blue Cross' president his job when its board of directors determined that TennCare tie-ins were jeopardizing Blue Cross' commercial business.

The next two largest MCO's, Access Med Plus and Xantus, were both start-ups that didn't know what they were getting into and were soon overwhelmed both administratively and financially. Providers began deserting their networks in droves, undermining their ability to care for the TennCare enrollees assigned to them.

It wasn't until 1999 that the state conducted an actuarial study of the rates per capita (known as capitation rates) paid by TennCare to the MCO's from which they paid providers. That study by Price Waterhouse Coopers concluded that they needed to be brought up to a level that would support provider reimbursement at 85 percent of the rates paid by Medicare. Hence began a succession of three double-digit increases in TennCare outlays based on successive annual determinations by PWC of funding needed to make the program actuarially sound. State outlays increased from $1.32 billion in the fiscal year ended June 30, 1999, to $1.46 billion in FY 2000 to $1.68 billion in FY 2001 to $1.84 billion budgeted for the current fiscal year. These increases alone have sucked up the better part of the state's revenue growth in each of those three years. When combined with a roughly two-to-one federal match under a Medicaid extended agreement with the state, TennCare's total budget now exceeds $5.6 billion.

Yet this funding growth was barely sufficient to keep the program from collapsing at the beginning of this year. Blue Cross was in the process of withdrawing, and prospective new MCO's were encountering extreme difficulty in getting enough providers to agree to participate in their networks against a backdrop of cumulative frustration with underpayment, delinquent payment and other "hassle factors" imposed by other MCO's. "A year ago I wouldn't have given TennCare more than a 10 percent chance of survival," says Rep. Gene Caldwell of Clinton, who is chairman of the Legislature's TennCare Oversight Committee and is himself a retired pediatrician.

Some would say good riddance and let the state revert to covering only the 800,000 indigent and disabled people mandated by Medicaid. But that begs the question of what would happen to the 600,000 others presently on the rolls—which begs, in turn, more information about the financial circumstances and health-care alternatives of the individuals involved.

The vast majority (96 percent) of these TennCare enrollees have incomes of less than two times the federal poverty line (FPL). That equates to income of less than $1,373 per month for an individual or $2,313 per month for a family of three. A simplified rule of thumb that emanates from health-care think tanks is that 5 percent of lower income levels is all that can be reasonably afforded for health insurance premiums. But the $250-per-month typical cost of an individual policy or even an employee's $100-a-month share (at 50 percent of a $200-a-month group plan) is well in excess of that.

So where does that leave these people? Clinics for the working poor, such as Interfaith Health Clinic here, are capable of treating a certain number, but nothing like the number that could be dumped from TennCare. Hospital emergency rooms are required by law to accept all comers, and doctors who treat them there have an ethical obligation to continue doing so. But the cost of the charity care that would result could have enormous impact on the financial health of the state's hospitals. "The unintended consequences of moving quickly off of TennCare would be devastating," asserts Tony Spezia, CEO of Covenant Health.

Even the polemics of TennCare's most strident critic, the Tennessee Institute for Public Policy, acknowledge that, "Unquestionably we need to be sure that the poor and chronically ill have access to medical care." But the institute makes numerous claims that need to be vetted:

* At least 20 percent of non-Medicaid TennCare enrollees are ineligible

TennCare's overseer John Tighe has acknowledged that ineligibility approaches this level, but the state has been under a court order restraining it from removing them from the rolls. The court order is one of many that Tennessee's pre-eminent social services advocate, Nashville lawyer Gordon Bonnyman, has been able to obtain shackling the state for failures of due process. Under a March consent decree, TennCare can begin terminating people as soon as new notification and verification procedures are in place. But the consent decree also stipulates that for every person removed from the rolls, TennCare must take on a new uninsured enrollee in their stead. So there does not figure to be any savings to the state resulting from the removals. (Tennessee is fortunate to have an advocate as adept as Bonnyman, but he has made the state pay dearly for its ineptitude.)

* TennCare has become a dumping ground for employers and insurers to avoid covering workers, especially ones with health problems, under their health insurance plans.

It is against the law for employers and insurers to exclude any employee from a group health plan. Nor is there any evidence that employers have dropped their health benefits altogether (which they are allowed to do) as a result of TennCare. Insurers may deny coverage to individuals or exclude pre-existing conditions, but once individuals are covered, they may not be dumped or have their premiums jacked up as a result of health problems.

No doubt many employees have managed to get on TennCare at lower cost rather than their employer plans because of TennCare's past laxity. But these are the very individuals who are now in the process of being declared ineligible if it can be established that they have access to employer coverage. (Children in households with incomes below 200 percent of FPL are an exception to this rule.)

* TennCare has a disproportionate number of "uninsurables" on its rolls.

It is true that TennCare has more enrollees so classified (125,000 at present) than the total number of participants in what are known as "high-risk pools" in all 28 states that offer them. Where TennCare's critics miss the mark in making this point, however, is by failing to recognize that high-risk pools are aimed at a different set of people than the bulk of TennCare's uninsurables. High-risk pools typically carry premiums that are 50 percent higher than regular commercial plans, which makes them affordable only to those who are relatively well-off (though pools are still subsidized by some combination of surcharges on insurers and other state contributions). By contrast, only 13,000 TennCare uninsurables have incomes in excess of 200 percent of FPL. And effective July 1, they are paying premiums that range on an income-based sliding scale from $100 to $550 per month.

Again, no doubt Tennessee has become something of a haven for people with dreaded diseases. But it's also noteworthy that Tennessee is the only state that has succeeded in getting federal matching funds for coverage of adults without dependent children, who comprise a large part of the uninsurable population. And it must be borne in mind that the U.S. Supreme Court has precluded states from discriminating against new residents in offering services.

Next week, this column will assess Sundquist's expected plans for reshaping TennCare along lines proposed by his Commission on the Future of TennCare last fall. These proposals key, in turn, to recommendations of the National Governors Association for giving states more flexibility in obtaining federal matching funds—recommendations which Sundquist championed and which President George W. Bush publicly endorsed last Saturday.

In the meantime be persuaded that, for all of TennCare's mistakes, it would be an even bigger one to curtail the program now.

August 9, 2001 * Vol. 11, No. 32
© 2001 Metro Pulse