Insurance Coverage Introduction

Two Grand Experiments

ennessee and Oregon both expanded coverage for the uninsured dramatically in the 1990s by remaking their Medicaid programs — and winning federal waivers to experiment with their approaches.

Tennessee moved most of its Medicaid system to managed care in one fell swoop in 1994. The idea behind TennCare was to use managed-care savings to provide enough money to expand Medicaid to cover Tennesseans whose incomes reached as high as 400 percent of poverty — a level of coverage way beyond what any other state had attempted.

Initially, TennCare appeared to be a national model as the number of uninsured Tennessee residents plummeted. But TennCare had managerial problems from its early days. A change in governors a year after the program’s inception, unrealistic assumptions about cost and a very high rate of managerial turnover led to ongoing difficulties.

The major issue was the state’s reliance on unstable and untried managed care organizations. At the basis of the program’s philosophy was the use of capped fees, but following negotiations with the federal government in 2000, Tennessee leaders reverted to a partial fee-for-service system. Expenditures escalated by 15 percent in both 2001 and 2002 and 13 percent in 2003. A study by McKinsey & Co. in December 2003 concluded that on its current course, TennCare would eat up 91 percent of all new state tax appropriations by 2008. Even with improvement efforts and solid management, “TennCare as it is constructed today will not be financially viable,” the study concluded.

Oregon took a very different tack. Rather than relying totally on controlling provider costs through managed care, it designed a plan to control costs by limiting types of care. The state set up a list of benefits in priority order — treatment for a heart attack was near the top of the list; surgery for back pain was much further down. When dollars ran short, the state would eliminate benefits from the bottom of the list, instead of cutting back on the number of people insured, which is one of the basic ways most Medicaid programs control costs when budgets are squeezed.

This bold plan provided coverage to adults age 19 to 64 who wouldn’t otherwise be eligible for Medicaid. The federal government, however, was uneasy about overt rationing of health services — as opposed to the covert way of rationing through access to insurance. When Oregon needed to cut lower-priority benefits, the feds occasionally agreed but more often refused permission.

Currently, the state is awaiting approval from the Centers for Medicare and Medicaid Services to drop 30 lines of coverage, including treatment for earaches, incontinence and arthritis. “This will be a real test to see if CMS is willing to let us use that tool,” says Lynn Read, Oregon’s Medicaid director. If CMS denies Oregon’s request, the underlying structure of the state’s approach will be compromised. Meanwhile, faced with gigantic budget problems, Oregon has gotten tough about its requirement that adults who don’t qualify for the traditional Medicaid program pay a modest monthly premium. If a payment is missed, the person loses coverage. As a result, enrollment of this group has dropped by about 45,000 individuals.

Copyright © 2004, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc.