Different River

”You can never step in the same river twice.” –Heraclitus

January 17, 2005

TennCare Nearly Bankrupts State

Filed under: — Different River @ 9:18 pm

TennCare is the program sponsored by the state of Tennessee, with the goal of providing health insurance for just about everyone in the state. Basically, it expands Medicaid both in terms of who’s eligible and what’s covered.

TennCare was introduced 1994, after the failure of the Clinton health care proposal, and it was supposed to serve as a model for the nation of how health care could be provided for the uninsured without a government takeover of the entire health care system. It was also supposed to save the state money. (The link is to a pro-TennCare web site.)

It turns out TennCare has serves as a model for the national of how a program that ignores basic economic facts — like the fact that when you give something away for free, people will take more of it — can nearly bankrupt an entire state government. TennCare is being seriously cut back by a Democratic governor who was elected on a pro-TennCare platform. 45% of adults on TennCare are losing their eligibility, and there are going to be limits on care (for example, no more than 12 doctor visits per year).

Captain Arbyte explains the whole thing, so I don’t have to. His post is really, really good. Read the comments, too.

(Thanks to this week’s Carnival of the Capitalists at Small Business Trends for the pointer.)

3 Responses to “TennCare Nearly Bankrupts State”

  1. Dave Schuler Says:

    I’m not convinced that the commentary on TennCare has been correct. For example, the studies of the effects of TennCare suggest that it was successful in reducing the number of expensive emergency room visits in favor of presumably less-expensive PCP visits. With the cutbacks in TennCare we can expect a return to the status quo ante. So what we’ll see is a transfer from people purchasing health insurance (who’ll pay more as hospitals attempt to recoup their losses) to taxpayers (who’ll presumably pay less in taxes with the cutbacks in TennCare). How is this actually an improvement?

    The criticisms of TennCare specifically and consumer behavior in health care generally is that people are using it frivolously. And yet I’ve never seen any actual data that supports this idea and it flies in the face of my personal experience. I don’t go to the doctor for fun or because I’m lonely. I go because I must and I think that’s true of most people. How about you?

    Where is the discussion of the role of health care suppliers in the equation?

    TennCare succeeded in its objectives by causing health care consumers in the state of Tennessee utilize medical resources more efficiently. That’s what the actual results say. I think the real conclusion from its failure is that reform of the health care system can’t be done without cost controls.

  2. Different River Says:

    While it’s certainly possible that TennCare resulted in the substitution of less-costly primary-care visits for emergency-room visits, the fact is that total spending increased. It’s reasonable to draw the conclusion that while TennCare may have saved money in certain ways, it cost money in other ways that exceeded the savings. (Remember, those emergency room visits “saved” would also have been paid for by Tennessee Medicaid.)

    One possible expalanation is that by providing state-sponsored health insurance at premiums based on income (rather than actuarial costs), TennCare reduced the need for employees to demand health insurance from employers, and thus reduced the incentive of employers to provide it.

    We’d have to look at the private insurance figures to confirm this, but I’ll bet a the proportion of workers in jobs TennCare-eligible wages with employer-provided health insurance dropped from 1993 to 2003.

  3. Dave Schuler Says:

    It’s reasonable to draw the conclusion that while TennCare may have saved money in certain ways, it cost money in other ways that exceeded the savings.

    Health care costs rose everywhere, not just in Tennessee. I think it’s equally reasonable to conclude that not enough cost savings can be realized as the result of optimizing consumption patterns.

    We’d have to look at the private insurance figures to confirm this, but I’ll bet a the proportion of workers in jobs TennCare-eligible wages with employer-provided health insurance dropped from 1993 to 2003.

    I’m sure you’re right on this one, Different River. I want to reiterate the basics of my case: health care costs are rising faster than the non-health care rates of inflation, market forces (such as they are in health care) aren’t sufficient to restrain costs, the proportion of people without health care insurance is rising, there isn’t a lot of evidence that actions to control costs by controlling consumption is doing much, the collapse of TennCare suggests that local efforts to control costs (TennCare was an attempt to control costs) aren’t likely to be effective—even if they do what they were designed to do (which TennCare did).

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