Consulting Firm Proposes Changes to TennCare

The New York-based consulting firm McKinsey on Wednesday presented to Tennessee a list of 25 options for reforming TennCare, the state's Medicaid managed care program, the Memphis Commercial Appeal reports. The state hired McKinsey last year to determine TennCare's financial viability and propose a variety of options to reduce costs (Locker, Memphis Commercial Appeal, 2/12). The first half of the McKinsey study, which was released Dec. 11 found that TennCare costs too much to continue operating in its existing form. According to the study, TennCare's total cost will increase to more than $12.2 billion by 2008 from $6.9 billion currently and will make the program Tennessee's single largest expenditure, accounting for as much as 40% of the state's budget, up from 25% currently (Kaiser Daily Health Policy Report, 2/4). The 25 options McKinsey suggested concern five "broad categories": benefits, case management, enrollment size, pharmacy and the structure of managed-care organizations, the Tennessean reports. Savings from the five categories range from $680 million to $1.135 billion in combined state and federal funds by 2008. McKinsey in part suggested reducing benefits, increasing copayments and using more generic drugs. The firm's report also recommended possibly creating a "pay or play" system in which employers would have to provide health insurance to their employees or pay into a state health insurance pool (de la Cruz, Tennessean, 2/12). Tennessee Gov. Phil Bredesen (D) said he would not support such a system because it would hamper efforts to create jobs, the Commercial Appeal reports. According to the report, TennCare's benefit package is more generous than Medicaid programs in many other states and the employer-sponsored health coverage offered by most Tennessee businesses, the Commercial Appeal reports. Bredesen, who on Tuesday will introduce a TennCare reform package, said that the McKinsey report can serve as a "toolbox" that he and lawmakers can use to overhaul the program (Memphis Commercial Appeal, 2/12).

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Michele Johnson, managing attorney for the Tennessee Justice Center, called TennCare "a balloon," adding, "When you push on one side in terms of cutting benefits or any other proposal in the report, there will be a corresponding bulge elsewhere in the balloon." Craig Becker, president of the Tennessee Hospital Association, said that some of the changes in the McKinsey report could lead to an increase in charity care for hospitals, which would be an additional burden for health care providers. Don Alexander, chief executive officer of the Tennessee Medical Association, said that the association is pleased the report calls for moderate increases in provider payments over the next five years, but he added that TennCare would need to be modernized to do so (Wissner, Tennessean, 2/12). Bredesen said, "I know people would love for a new governor to come in and pull a white rabbit out of the hat and somehow make all these problems go away with some easy answer. ... That's not there" (de la Cruz, Tennessean, 2/12).