TennCare--health system reform for Tennessee

TennCare, the health care system reform plan implemented in Tennessee on January 1, 1994, was developed with the dual objectives of controlling the rapidly rising cost of the state's Medicaid program and extending health insurance coverage to most Tennesseans without access to employer-sponsored or other government-sponsored health insurance. Beneficiaries enroll in competing, state-chartered managed care organizations that are responsible for providing broad preventive, inpatient, and outpatient services and are reimbursed by the state on a capitation basis at a rate based on a statewide global budget for health care. The program initially proposed to enroll up to 1,775,000 citizens and was projected to result in a cumulative cost savings to Tennessee and the federal government of $7.2 billion by the end of the 5-year demonstration period. However, major start-up problems encountered by the state and by managed care organizations and limitations imposed by the government have significantly constrained these expectations. At the end of its first year, more than 1.2 million citizens were enrolled, but the program incurred a $99 million deficit. Managed care organizations and hospitals have reported major financial problems, and constituency groups--especially those representing physicians--have attempted to block the program. Our objective is to describe the design and rationale of TennCare and discuss key issues the plan continues to face that may affect its long-term success.