TennCare: A Closer Look a Legislative Briefing Paper

By Wright, Douglas | Business Perspectives, Fall 2002 | Go to article overview

TennCare: A Closer Look a Legislative Briefing Paper


Wright, Douglas, Business Perspectives


Despite ongoing concerns about TennCare's cost and success, the program has provided health care coverage to Tennesseans at a reasonable price while benefiting the overall health care economy of Tennessee. This article examines some of the questions commonly asked about the TennCare program.

Why Was TennCare Created?

TennCare was created to help solve the state's budget problems. In 1993, Tennessee faced a budget shortfall of over 250 million state dollars caused largely by increases in Medicaid spending. State officials were forced to choose between massive cuts in spending or large increases in taxes. Cutting Medicaid spending would have resulted in the loss of about two federal matching dollars for every state dollar cut, a loss of hundreds of millions of dollars. The alternative would have been massive cuts in the number of Medicaid services. (1)

That same year, toward the end of the legislative session, Governor Ned McWherter proposed a radical new plan called TennCare. The plan would cover hundreds of thousands of additional Tennesseans with health insurance for about what the state was already spending on Medicaid. It would eliminate (2) an unpopular health services tax that generated over $400 million annually. (3) To obtain additional federal matching dollars, the state would instead leverage dollars already spent on the health care system on indigent care and care to the uninsured.

Does TennCare Cost Too Much?

TennCare's cost compares favorably to that of other states' Medicaid programs. Although the current public perception of TennCare may be of a program out of financial control, this is not the case. In 1998, the latest data available from the federal government showed that Tennessee had lower spending per enrollee than any other state. (4) From 1992 to 1998, Tennessee's ranking in payment per recipient went from 14th to 16th place of 16 southern states. (5) In 1999, Tennessee had the lowest average medical services payment per recipient of 12 southern states reporting. (6)

The program's per person cost increase from 2000 to 2001 was similar to increases in private employers' insurance plans. TennCare's recent cost increases reflect the health care marketplace nationwide. TennCare's average cost per recipient increased about 10.7 percent from fiscal year 2000 to fiscal year 2001. (7) A nationwide survey of employers found that health care premiums increased 11.0 percent from spring 2000 to spring 2001. (8) Other nationwide surveys indicate an overall premium increase of 10.3 percent for health plans and an average 13.0 percent increase in large employer health benefit costs for 2001. (9)

TennCare's average costs per person are similar to those of employer health plans. According to a study of 2,734 companies released by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust, average annual premiums for employer-sponsored plans grew to $2,650 for single coverage and to $7,053 for family coverage from spring 2000 to spring 2001. (10) Estimated state and federal spending per TennCare recipient in fiscal year 2001 was about $2,986, excluding long-term care costs. (11)

Has TennCare Wasted Millions of State Tax Dollars?

In fact, when compared to what the state might have spent under its old Medicaid program, TennCare has saved significant state dollars. An analysis by the Comptroller of the Treasury found that the TennCare program cumulatively saved the state over 2 billion state tax dollars. The Comptroller compared Medicaid spending growth for TennCare to spending in Southeastern states for 1993 through 2001. This analysis compared state TennCare expenditures with what the state would have spent if TennCare expenditures had grown at the same rate as that of the Southern Legislative Conference states. The analysis compared 1993 Medicaid spending and other state dollars folded into the TennCare program to TennCare spending for 1994 through 2001. …

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