Health Care Reform Through Medicaid Managed Care: Tennessee (TennCare) as a Case Study and a Paradigm
TennCare is a Medicaid demonstration project that allows Tennessee to require all Medicaid beneficiaries to secure medical care through a mandatory managed care system. Enrolles contract with private managed care organizations ("MCOs"), which are responsible for organizing a network of care providers and delivering medical care to covered beneficiaries. Driven by rapidly escalating Medicaid costs, TennCare's mandatory managed care program has succeeded in saving money for the state in its Medicaid program. To secure the federal waiver that allowed the program to proceed, the state included non-Medicaid-eligible uninsured and uninsurable residents as TennCare beneficiaries. Federal matching funds accrue for all TennCare expenditures, including those for non-Medicaid-eligible enrollees, but federal matching is subject to a global cap. Cost savings from managed care were to pay for the improved access. The program covers about 1.3 million persons, 38% of whom are nonMedicaid-eligibles. The Medicaid component of TennCare has been stable, but the non-Medicaid-eligible TennCare population has risen by about 41% in the last two fiscal years, stressing the fiscal capacity of the program. The Article provides background on the development of TennCare, describing the political effect of the federal matching (cooperative federalism) aspect of TennCare on both state-level and federal-level decisionmaking. The Article identifies what it describes as the political moral hazard dimensions of these federal-state partnerships on state political decisionmaking and the correlative lock-in effect of the program on the state. Federal matching funds make program enhancement appealing and make cutbacks extremely painful. The interaction of state and federal program incentives is considered in depth, and both the state responses (use of private funding and provider-focused taxation) and federal responses (limits on federal matching for those sources of state revenue) to these incentives are described and analyzed. The Article considers and analyzes elements of TennCare's design and implementation from a legal and policy perspective. It concludes that, in contrast to the contemporaneous Clinton Administration plan for improved access, TennCare's design demonstrated the triumph of pragmatism over ideology. It focused on reform of Medicaid rather than comprehensively encompassing the entire health care market; it adopted a pluralistic rather than a unitary approach; and, at least nominally, it adopted a standard of adequacy rather than equality in defining the scope of the public's obligation to TennCare beneficiaries. Because the 1997 Balanced Budget Act allows states to adopt mandatory managed care for Medicaid, TennCare's managed care features can be replicated by other states without the need for a waiver. Finally, the Article reports on empirical findings about such issues as quality of care, hospital profitability, and patient and physician satisfaction. The Article concludes that quality of care, in general, has not suffered, that patient satisfaction has been good, that physician participation rates in the program exceed those of the pre-existing Medicaid program, that hospital capacity has been decreasing at levels above the national average, that hospital profitability overall has not suffered, but that levels of physician satisfaction are very low.
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