TennCare was started in 1994 to save money. Costs for the federally mandated Medicaid program were skyrocketing. For example, Medicaid spending was 3% of the budget in 1969 but 26% of the state budget in 1993---this increase was all before TennCare started and was the reason for the development of TennCare. Why the increase? Health care costs have gone through the roof over the last thirty years–this includes all healthcare costs and has nothing to do with TennCare specifically.

There were other issues as well. Like most states, Tennessee had a rising number of uninsured people–this included people who didn't have insurance because they had no access to a health plan and those who didn't have it because they had been denied coverage due to health problems. But uninsured people still get sick and "charity care" was expensive for hospitals, doctors, and ultimately for the state, which paid providers to cover the cost of care.

As a way to control costs, the state introduced managed care (HMOs) to the Medicaid program. The Medicaid program is a federal "match" program — this basically means that for every dollar the state spends we get two dollars from the federal government. The state also "bundled in" people who were uninsurable (because of poor health) and otherwise uninsured (because of lack of access). This way, the state got the federal "match" money to cover a lot more people.

The state does pay more now than it did in 1993. Our increase in healthcare costs is comparable to the other southern states (none of which have a TennCare type program). Let's look at the numbers carefully. Let's look at the 800,000 people who were on Medicaid in 1993. If TN would have kept the same Medicaid program and had NOT introduced TennCare and NOT covered more (uninsurable, uninsured) people, they would now be spending $486 million dollars MORE than they are now. In other words, we are spending $486 million less to cover 600,000 more people!

In 1999, TN spent an average of $2611 per person on TennCare. Average state Medicaid spending in other Southern states was $3218 per person.

(1)Managed care keeps down costs (2) An emphasis on primary and preventative care decreases the need for emergency room visits and other expensive care. (3) Having such a huge number of enrollees allows TennCare to negotiate for better rates on things like prescription drugs. (4) TN is able to get federal matching money to cover a lot more people.

It's not a free ride. People who are eligible for Medicaid are eligible for TennCare–that’s a federal requirement. Everyone else typically pays premiums which are based on income and are comparable to private insurance plans. The people who pay premiums are actually funding some of the program. It’s not a free ride.