Health Care Reform Through Medicaid Managed Care: Tennessee (Tenncare) as a Case Study and Paradigm

Abstract

Tennessee's Medicaid managed care program TennCare, is widely regarded as one of the nation's most innovative and comprehensive attempts to reform Medicaid and expand coverage to the uninsured through Medicaid managed care. This paper begins with an analysis of historical developments within the Medicaid program in the early 1990s that forced Tennessee to dramatically change its Medicaid program to cope with rising costs and threatened revenues. It then considers the strategic considerations that led Tennessee to dramatically expand the population covered by its program by nearly half a million uninsured and uninsurable non-Medicaid eligibles to the program (about 38% of total TennCare) in the face of a perceived fiscal crisis. (These strategic considerations would be quite different for a state seeking to adopt a TennCare-like program now since the Balanced Budget Act of 1997 allows states to adopt mandatory managed care for Medicaid without expanding eligibility.) The paper discusses next the waiver application that made possible the creation of TennCare. The paper proceeds with a policy and legal analysis of TennCare's design and implementation, focusing in particular on the political calculus that led Medicaid beneficiary advocates to accept limitations on patient choice in exchange for expansion of population coverage. Next, special characteristics associated with running a public benefits program through the use of state purchasing contracts, and in particular the status of MCOs as state actors, are considered. Finally, the paper reports on original empirical work considering utilization, outcomes, and recipient and provider satisfaction. The paper concludes with an overall favorable evaluation of TennCare, noting that it has expanded access, controlled costs, and not resulted in measurably lower quality of care (although it has resulted in high levels of physician dissatisfaction).

JEL Classification: H7, I00, I11, I18, K00, K10, K32