NCPA - National Center for Policy Analysis


April 27, 2010

As spectacular failures go, it's hard to do worse than Tennessee.  The Volunteer State's early attempt to dramatically increase health coverage, dubbed TennCare, started off promisingly, says Peter Suderman, an associate editor at the Reason Foundation. 

  • In 1994, the first year of its operation, the system added half a million new individuals to its rolls.
  • Premiums were cheap -- just $2.74 per month for people right above the poverty line -- and liberal policy wonks loved it.
  • The Urban Institute, for example, gave it good marks for "improving coverage of the uninsurable or high-risk individuals with very limited access to private coverage."
  • At its peak, the program covered 1.4 million individuals -- nearly a quarter of the state's population and more than any other state's Medicaid program -- leaving just 6 percent of the state's population uninsured. 

But those benefits came at a high price, says Suderman.  By 2001, the system's costs were growing faster than the state budget.  The drive to increase coverage had not been matched by the drive to control costs.  Vivian Riefberg, a partner at consulting firm McKinsey & Company, described it as having "almost across the board, no limits on scope and duration of coverage."   

Spending on drug coverage, in particular, had gone out of control: 

  • The state topped the nation in prescription drug use, and the program put no cap on how many prescription drugs a patient could receive.
  • The result was that, by 2004, TennCare's drug benefits cost the state more than its entire higher education program.
  • Meanwhile, in 1998, the program was opened to individuals at twice the poverty level, even if they had access to employer-provided insurance. 

In other words, the program's costs were uncontrolled and unsustainable, says Suderman: 

  • By 2004, the budget had jumped from $2.6 billion to $6.9 billion, and it accounted for a quarter of the state's appropriations.
  • A McKinsey report projected that the program's costs could hit $12.8 billion by 2008, consuming 36 percent of state appropriations and 91 percent of new state tax revenues.  

Source: Peter Suderman, "Health Care's History of Fiscal Folly; Expanding health coverage busted state budgets. Will it bust the federal budget too?" Wall Street Journal, April 23, 2010. 

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