TennCare - History

History

The program was launched January 1, 1994, by then-Governor Ned McWherter, at the beginning of his last year in office. It was established in the hope that it would solve two components of one of the state’s biggest problems: access to affordable health care and a Medicaid budget that was fast consuming the largest portion of the state’s budget. It was one of the nation’s first Medicaid “waivers,” with the overarching requirement that the program be “budget neutral,” or require no greater federal funding than the previous Medicaid program. The state sought to accomplish this by replacing the Medicaid fee-for-service payment method with a managed care model, utilizing 12 statewide managed care organizations that were established to implement the program through a competitive bid process.

The U.S. Department of Health and Human Services granted the state a five-year waiver to conduct a demonstration in which the state would use managed care to reduce Medicaid costs and would use the savings to provide coverage to people who were previously uninsured. The state then shifted more than 800,000 individuals from standard Medicaid coverage to coverage through a managed care company, and extended program benefits to 500,000 more people who were not Medicaid-eligible, but were uninsured or deemed uninsurable due to pre-existing conditions.

In its first year of operation, TennCare enrollment quickly grew, leading to concern that it would exceed the number for which the federal government would share cost. In 1995, after enrollment reached 1.2 million, the state closed eligibility to uninsured adults. People who were deemed uninsurable, meaning that their applications for health insurance had been rejected because of a health condition, were still eligible to enroll.

In 1996, the state separated behavioral health services from the basic managed-care program, contracting with a separate set of behavioral health organizations for mental health and substance abuse services to TennCare participants.

The initial five-year Medicaid waiver was eventually extended through July 1, 2002, when it was replaced by a new program waiver called “TennCare II” that currently extends until June 30, 2010.

Under TennCare II, program eligibility for "uninsured" and "uninsurables" was tightened. New applicants in the "uninsurable" category (now called "medically eligible") were required to have an income below a specified threshold and their ineligibility for standard insurance was required to be verified through a medical underwriting process.

The total annual budget for TennCare increased from $2.64 billion in 1994 to more than $8.5 billion in fiscal year 2005, with essentially no change in the number of participants enrolled. After becoming Governor in 2003, Phil Bredesen hired the consulting firm McKinsey & Company to evaluate the financial sustainability of TennCare and make recommendations for future actions. The McKinsey report, issued in late 2003, concluded that TennCare was not financially viable. A follow-up report in January 2004 identified options that ranged from returning to the original Medicaid program to setting limits on enrollment and benefits. In response to these reports and to stem the growth in costs, in 2005 the state implemented several program changes, including removing about 190,000 participants, imposing limits on the number of prescription medications each participant could receive, and reducing some other benefits.