President Bill Clinton ran for office in 1992, he made health care
reform a major domestic policy issue. Although his massive proposal
did not become law, several states soon adopted variations of his
plan to make health insurance more accessible and affordable for
their citizens. Among the most ambitious of these plans is
TennCare, which Tennessee officials proudly described as a less
ambitious version of the Clinton plan.
TennCare covers almost one-quarter of
Tennessee's population and serves a higher percentage of adults,
who on average require more health care, than children. Yet since
its inception, it has failed to achieve its foremost goals.
Although the state may have reduced the number of uninsured, it
also has dramatically increased costs. Moreover, reimbursement
rates have been kept so low that no new managed care organizations
have joined since it started, several have left, and Blue Cross
Blue Shield, which covers about half of the TennCare population
today, recently noted that it intends to exit the program at the
end of 2000.
Rather than provide a model for how
government can improve health care, Tennessee's experience offers
legislators in other states lessons on what they should and should
Not only have state officials expanded eligibility far
beyond the standard that applied when Medicaid began, but they also
have made the benefits package rich and comprehensive. TennCare
covers inpatient and outpatient services, physician services,
prescription drugs, and medical supplies, as well as services such
as lab tests and x-rays. It also covers home health care, hospice
care, and ambulance charges and contracts with behavioral health
organizations to provide comprehensive mental health benefits.
Out-of-pocket expenses are limited for low-income participants.
Others, such as the uninsured, the uninsurables unable to purchase
health insurance because of a pre-existing medical condition, and
those who have lost coverage, pay premiums based on a sliding
Costs and Cuts.
With expanded eligibility and a comprehensive benefits package,
TennCare's costs have soared; the state has appropriated $4.3
billion for the program in the current budget. According to a new
study, health care expenditures increased 69 percent between 1992
and 1999, while personal income increased only 38 percent.
Predictably, when faced with soaring
costs, state officials adopted restrictive reimbursement policies
for the plans. A March 1999 actuarial review by
PricewaterhouseCoopers found that managed care reimbursement rates
were about 10 percent below the level considered actuarially sound.
The report estimated that managed care organizations needed a
capitation rate increase of between 5 percent and 35 percent; their
best estimate was 20 percent. At the close of the 1999 session, the
legislature authorized $190 million in additional state and federal
matching funds, most of it for providers.
An Invitation to Abuse.
TennCare's rich benefits package and ease of entry made it a
magnet for abuse. According to new reports, TennCare spent $6
million covering 14,000 dead enrollees; 16,500 enrollees lived out
of state; of 98,000 enrollees studied, 20 percent were found
ineligible to be in the program; and 450 of those who were
ineligible were state employees who had access to the state's
health insurance plan.
While state legislators may be able to implement reforms that
reduce such fraud, incremental steps will not solve TennCare's
systemic financial problems. Before legislators in other states
pass comprehensive health care reforms aimed at providing universal
coverage, they would do well to look at Tennessee's struggle. Among
the key lessons:
- Don't rush to "do something" for
health care without considering the inherent limits of state
policymaking and the damaging impact of higher health care costs,
which would result from their changes, on individuals and families
and on the number of uninsured.
- Recognize that managed care is not
a panacea for saving money and that one cannot cut reimbursement of
doctors or hospitals without compromising the quality of care.
- Acknowledge that "comprehensive"
health benefit packages will not also be "affordable." In any case,
if the legislature wants to provide government assistance, efforts
should focus on those who most need the help.
- Realize that the only way to
achieve high-quality care at a lower cost is to assure consumer
choice so that patients have a reason for being prudent health care
The Need for Tax Equity.
The major problems of health insurance markets stem not from
inadequate government regulation, but from an outdated set of
federal and state tax policies that provide unlimited tax relief
for persons who have health insurance through their jobs but deny
equal treatment to those who buy health insurance on their own.
Such tax policies unfairly and profoundly distort the market. They
encourage workers to remain in employment-based plans, and thus
frustrate consumer choice of plans and benefits. They also
undermine the access of millions of Americans to alternative forms
of insurance coverage, such as coverage obtained through their
associations, trade and professional groups, and religious and
What to Do.
Instead of trying to adapt portions of the ill-conceived Clinton
plan to address differing conditions in state-based health
insurance markets, the states should urge their federal
representatives to change the tax code to enable a truly
competitive market to flourish. In such a market, individuals and
families would enjoy real consumer choice as health insurance
companies competed directly for consumers' dollars. In a real
market, state legislators' role would be to review outdated rules
and regulations and redesign state insurance laws to promote, not
inhibit, consumer choice and competition.
Merrill Matthews, Ph.D.,
is a health care policy analyst who specializes in federal and
state health care policies. He is currently a visiting scholar at
the Institute for Policy Innovation in Lewisville, Texas.