Medicaid

In early 1993, Tennessee predicted that increases in state Medicaid expenditures and the loss of tax revenues used to finance Medicaid would produce a financial crisis. To avert a financial crisis, control its Medicaid expenditures, and extend health insurance coverage to most state residents, Tennessee converted its Medicaid program into a managed-care health program--TennCare--to serve both Medicaid recipients and uninsured persons. GAO found that although TennCare met its objectives of providing health coverage to many uninsured persons while controlling costs, concerns remain with respect to access to quality care and managed care performance. Specifically, questions have been raised about TennCare's rapid approval and implementation, lack of provider buy-in to the program, and delays in monitoring TennCare's access and quality of care. In addition, the soundness of the methodology for determining and the resulting adequacy of the program's capitation rates have been questioned. This report discusses (1) TennCare's basic design and objectives, (2) the degree to which the program is meeting these objectives, and (3) the experiences of TennCare's insurers and medical providers and their implications for TennCare's future.

GAO found that: (1) TennCare's objectives are to expand health care coverage to the state's uninsured and to control program costs by mandating that Medicaid participants enroll in managed care organizations (MCO) and covering certain uninsured, Medicaid-ineligible persons; (2) Tennessee has cut costs by setting its capitation rates below historical Medicaid costs, applying an additional discount based on the assumption that extensive insurance coverage would reduce charity care costs, and discontinuing certain supplemental payments; (3) in granting the Medicaid waiver, the Health Care Financing Administration has required Tennessee to implement measures to monitor and ensure access to quality care and has limited federal payments over the 5 years to ensure that federal costs do not exceed what they would have been without the waiver; (4) despite the increased number of participants, federal and state TennCare expenditures have increased much less than the national average for Medicaid programs and program costs have actually declined when uncapitated administrative and long-term care costs are excluded; (5) access to and quality of care could not be measured because Tennessee and MCO have not yet set up their monitoring systems, but a survey of beneficiaries revealed significant dissatisfaction with the new program because of the limited choice of doctors and difficulty in finding providers; (6) many MCO and providers lost money in 1994 despite receiving supplemental payments from TennCare; and (7) although TennCare has met its initial objectives, its long-term success is uncertain.