The Magazine

Tried and Found Wanting

Tennesseeans are especially skeptical of Obamacare--with reason.

Aug 3, 2009, Vol. 14, No. 43 • By FRED LUCAS
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At the Biloxi, Mississippi, gathering of the National Governors Association in mid-July, Tennessee's Democratic governor, Phil Bredesen, told the New York Times he feared the Obama-backed health system overhaul would be the "mother of all unfunded mandates." He was speaking from experience. Bredesen was elected governor in 2002 to fix TennCare--the state's public option, launched in 1994 to replace Medicaid and cover the uninsured. Now, well into his second term as governor, he's still struggling to tame the monster.

You'd think those crafting the federal reform of health care would be interested.

A government-run insurance plan to compete with private insurers, after all, is a central plank of the health care bill sought by President Obama and congressional Democrats. While there has been no shortage of dire predictions of what will happen if a public option is established at the national level, there is already clear evidence of what did happen at the state level.

There are two New England states now experimenting with universal health care--Massachusetts (starting in 2006) and Maine (starting in 2003), both of which are having financial problems--but their programs are too young to be assessed as national models. Rather, it's the southern state of Tennessee that offers the most relevant experience. Its track record goes back to 1994, when TennCare was launched by Democratic governor Ned McWherter on the promise that it would save the state money, reduce costs, and increase coverage. Instead, in a decade, the program went from a budget of $2.5 billion to nearly $8 billion, became mired in litigation, and was forced to make major cuts.

Congresswoman Marsha Blackburn was a Tennessee state senator back when many of the problems began to materialize in 1999. "There is not a credible example of having brought about a cost savings and insured everyone. We have seen that in TennCare," Blackburn told me. "I just find it unconscionable that they are not talking about the lessons that they learned from the TennCare experience, the lessons that are still being learned every day from the TennCare experience."

Blackburn, a member of the House Energy and Commerce Committee, one of the committees that have reviewed health care legislation, had a simple enough question for Health and Human Services secretary Kathleen Sebelius. "I would like to know what lessons the administration has taken from Tennessee's experiment with 'public option' health care; a program known as TennCare," Blackburn wrote.

Sebelius wrote back tersely, "We have learned many lessons from the TennCare experience and recognize its goals, but TennCare is not a traditional public option." The brevity of the response could be chalked up to the fact that it's not in the administration's interest to engage in a dialogue about what happened in Tennessee.

TennCare was conceived primarily as a budget measure, to address the rising cost of Medicaid, the federally funded, state-administered health care program for the poor. McWherter received a Medicaid waiver in November 1993 that allowed the state to leave Medicaid but use the same federal funds for its own managed care plan. The happy McWherter said after the waiver announcement, "For the first time we have the chance to provide affordable health coverage to every Tennessean without bankrupting our state." The plan pulled in the nearly 800,000 people then on Medicaid along with more than 300,000 deemed uninsured or uninsurable.

Initially nine managed care companies participated in the program, essentially as state contractors. In this sense, there was at least a private market (though not exactly a free market) component to Tennessee's experiment. That's by contrast with Obama-care, where the government would likely own and run the public option, which would only accelerate the problems, in Blackburn's view.

On January 1, 1994, the day TennCare was born, the Commercial Appeal in Memphis announced, "The $2.5 billion TennCare program replaces Tennessee's ballooning Medicaid program, promising more care for less money." The article quoted McWherter as saying, "Hundreds of thousands of Tennesseans who are on Medicaid or who are unable to get health insurance will have access to affordable health care under TennCare."

In a costly blow to the program, a federal court in 1996 prohibited Tennessee from reviewing the eligibility of enrollees. By 1998, enrollment had grown by 100,000, as employers moved employees into the TennCare system, which cost them less. "It was a gold plated plan and everything was covered," Blackburn said. "You had people that would leave private insurance and go to the public plan because it was free or very low cost."

In 1999, there was more bad news. A March review by Pricewaterhouse-Coopers found that TennCare paid health care providers 10 percent below what would be considered actuarially sound.

"Most hospitals had between 10 and 14 percent of their care delivered as charity care, indigent care, nonreimbursed care, and one of the promises of TennCare was--with this everybody is going to be in the pool," Blackburn said. "Everybody is going to be participating and have some type of health care coverage. The fact is, our hospitals have not seen the rate of their indigent or uncompensated care reduced."

The state's hospitals were being paid about 40 cents on the dollar for TennCare patients, which eventually rose to 64 cents on the dollar, said Craig Becker, president of the Tennessee Hospital Association.

In the summer of 1999, a state audit showed Tennessee was spending $6 million to insure 14,000 dead people, that 16,500 enrollees lived outside the state, and that 20 percent were not eligible to be in the program. Republican governor Don Sundquist tried to impose an income tax on the state in 2002 to cover the cost of the program (which by this time had 1.4 million enrollees), but failed to get it through.

After Bredesen was elected, he commissioned a report by McKinsey & Company that estimated TennCare would consume more than 90 percent of the state's normal tax growth within five years. The biggest cost: Tennessee led the nation in prescription drugs per capita.

"There wasn't a limit to the amount of prescriptions you could have," Drew Johnson, president of the Tennessee Center for Policy Research, a free-market think tank for state issues, said in an interview. He called TennCare a "good micro-example of how poorly the government-managed health care systems work."

"As a result of that, we had by far the most expensive Medicaid system in terms of percentage of the state -budget and in terms of per capita expense as well," Johnson said.

Taking a mend-it-don't-end-it approach, Bredesen proposed to limit prescriptions to five per person per month, while also limiting the number of doctor visits and days in the hospital. The legislature passed these measures. But it wasn't enough, and by November 2004, Bredesen said it was time to scrap TennCare. That was not well received by interest groups such as the Tennessee Justice Center that were already engaged in litigation with the state over the program.

The governor negotiated a way to keep a dramatically scaled down TennCare in place, with fewer benefits and fewer people on the rolls. And this January, a federal court lifted the court order from 1996 that prohibited Tennessee from reviewing eligibility of enrollees. Thus, the state is eliminating up to 150,000 enrollees. TennCare estimates it spends $1.2 billion a year on covering people who are not eligible.

"By allowing TennCare to remove those individuals who are no longer eligible, the court's ruling will enable the state to reduce or avoid some of the budget reductions we otherwise would have had to make in the state's effort to balance its budget during this difficult economic period," TennCare director Darin J. Gordon said after the order. "This gives us hope that we may be able to realize savings that will help minimize cuts we will have to make."

Already four Blue Dog Democrats from Tennessee, congressmen Bart Gordon, Jim Cooper, Lincoln Davis, and John Tanner, have expressed skepticism about the Obama health plan.

Blackburn, meanwhile, has been working closely with Representative Phil Roe, a Republican from Tennessee. Back when Blackburn was a state legislator trying to figure out how to pay for TennCare, Roe was a physician working under the program.

"It is incumbent on us to look at what has happened with TennCare and to make that point with our colleagues," Blackburn said. "We knew it was a program that was too expensive to afford and that leads to comments that it's too big to fail."

Fred Lucas is the White House correspondent for CNSNews.com.