TennCare Costs Exceed Estimates, Forcing Benefit Cuts

Published December 26, 2009

In Tennessee the potential dangers of trusting low cost estimates for state health care expansion are making themselves evident as TennCare beneficiaries face significant benefit cuts amid funding problems and cost overruns.

Tennessee’s health care program was launched in 1994 in an effort to establish managed care for all of the state’s Medicaid population while reducing the numbers of uninsured or uninsurable in the state. Currently some 1.2 million Tennesseans are enrolled in the program.

Officials anticipate budget cuts of up to 9 percent for the 2010-2011 fiscal year will be required. During departmental budget hearings they outlined cuts totaling $773 million, cutting the overall annual budget from $7.6 billion to $7.04 billion.

TennCare had already planned $730 million in funding reductions in anticipation of the ending of the federal stimulus program next year.

Rapid Cost Increases

“There are three main reasons why TennCare has cost taxpayers so much,” says Drew Johnson. president of the Tennessee Center for Policy Research, a public policy organization in Nashville.

“First, before reforms made in 2005 there was no cap on the number of prescription drugs recipients could receive. This led to overuse and abuse, including fraudulent reselling of drugs,” said Johnson. “In fact, before the 2005 reforms Tennessee had the highest number of prescribed drugs per capita in the United States.”

Over the years the program’s costs have increased dramatically. For the 2009-2010 fiscal year TennCare’s budget was $7.6 billion, including both state and federal funding.

“The second reason for the high costs is that the federal poverty level threshold to qualify was set too high. This resulted in extremely high enrollment levels, even providing an incentive for those insured through their employers to leave the private insurance market,” Johnson said. “There was no disincentive discouraging people from overusing benefits.”

Benefit Cuts Proposed

To curtail costs, benefit cuts are being proposed. These could include a $10,000 annual cap on hospital stays for non-pregnant adults.

Another potential spending reduction may come in the form of a cap on state reimbursements to hospitals by creating a ceiling limiting reimbursement to 100 percent of the level under Medicare. Other cuts could include a limit of lab and X-ray procedures to 15 per year, plus cutting all physical, occupational, and speech therapy for nonpregnant adults.

“The cuts could be good in that they may remove the incentives for doctors and hospitals to take advantage of a system funded by the government rather than coming from what they may see as the individuals’ pocket,” said Johnson.

Lessons for National Reform

Johnson says TennCare should serve as a warning for those who assume estimates for costs under health care reform at the national level will be accurate.

“If you give people an incentive not to get private or employer provided insurance, they will take it and government insurance rolls will expand, crowding out private insurance,” Johnson explains, “And we’ve learned from TennCare that when government rolls expand, there are waiting lines and doctors spend less time with each patient, lowering the quality of health care.”

This view was echoed by Tennessee Governor Phil Bredesen, a Democrat, when testifying about TennCare’s funding problems in November in his annual budget hearing.

“I wish every member of Congress would sit in this room and listen to the real world of what is going on in Medicaid today,” Bredesen said, shaking his head. “How can you listen to this stuff and the stuff you are eliminating just to get through this, and then talk about adding a whole bunch of new expenses on to the state?”

Johnson said, “Obviously if government removes the incentives for people to care for themselves and make wise health care choices, such as visiting a clinic rather than an emergency room for the sniffles, people become more frivolous with cost and less conscious of their health. TennCare has proved that this will strap the system and lead to exorbitant costs.”

Sarah McIntosh ([email protected]) teaches constitutional law and American politics at Wichita State University in Kansas.