Innovative State Strategies to Insure Children. Tennessee


I. Overview


A. History and General Description of Program

TennCare is a Medicaid 1115 Waiver program that began January 1, 1994. On that date, Tennessee shifted the coverage of nearly 800,000 Medicaid enrollees into the TennCare managed care program. The state also began offering TennCare coverage to uninsured or uninsurable persons at this time.1 Tennessee residents were eligible for TennCare under the uninsured category if they did not have insurance on March 1, 1993. Approximately 400,000 state residents who qualified as uninsured or uninsurable took advantage of this offer and enrolled in TennCare.

By January 1, 1995, TennCare had reached 90% of its target enrollment,2 and the TennCare program was having problems assuring adequate funding. As a result, the state closed enrollment for the uninsured population. Currently, to qualify for TennCare one must be Medicaid-eligible, uninsurable, or rolling off the Medicaid program. In addition, individuals can apply to remain on TennCare if other insurance is not available to them within a 30-day period after disenrollment.

On April 1, 1997, enrollment into TennCare was re-opened to all children under age 18 without employer-based insurance. There is no uninsurance requirement. There is no intention of closing enrollment to children at any time in the future.

As of February 7, 1998, total enrollment in TennCare is approximately 1,226,283, of which 833,371 are Medicaid eligibles and 392,912 are in the uninsured/uninsurable categories.3

B. Support/Opposition for Program in State

Political support has been instrumental in the TennCare expansion for children, which was enacted April 1, 1997. Both the Republican administration and the Democratic legislature were strongly in support of the expansion, and it has been a top priority in the state.

The effectiveness of TennCare hinged on the participation of Blue Cross/ Blue Shield (BCBS), the largest insurer in the state. However, the state had leverage in dealing with BCBS because the state employees’ contract is a significant chunk of BCBS’s business in the state.

The major opposition to TennCare came from the Tennessee Medical Association (TMA) which had not been included in the initial planning discussions. TMA has unsuccessfully battled the initiative in court, but they appear more opposed to the speed of implementation than to the program itself.

Hospitals were in favor of TennCare because:

It eliminated the provider tax; and

The financing structure included additional financing through pools to facilitate the transition from DSH (disproportionate share hospital) and GME (Graduate Medical Education) payments and to prevent adverse selection.

C. Number of Uninsured Children in State

According to the U.S. Bureau of the Census, the number of uninsured children (ages 0-19) at or below 200% of poverty in Tennessee is 166,000. This figure is based on the March 1995-1997 Current Population Surveys.


II. Program Design


A. Options Considered for Coverage

The most controversial decisions were made at the outset of the TennCare program, such as the decision to utilize a Medicaid expansion to cover the uninsured population, which required a very rich benefits package. The children’s expansion that occurred on April 1, 1997 was not controversial.

B. Target Population

Currently, Medicaid eligible persons, children under age 18 with no access to health insurance,

dislocated workers who previously had health insurance through employers and become uninsured due to a bona fide closure of a business or plant, and persons with proof of uninsurability, are eligible for TennCare coverage.4

The University of Tennessee Center for Business and Economic Research projected that 68,000 children are uninsured in the state. Tennessee set as its target to enroll 50,000 of those children in the program. The General Assembly legislated that if by December 31, 1997, TennCare hadn't enrolled 75% of that target population, enrollment would be opened to all children below 200% of the federal poverty level, regardless of their access to employer-based insurance. As of January 31, 1998, 28,214 uninsured children had been added to the program through open enrollment since April 1, 1997.5

C. Services Included in Benefit Package

Services include: inpatient hospital care, outpatient surgery and care, lab and x-ray, newborn services, hospice care, dental services, vision services, home health care, pharmaceuticals, durable medical equipment, medical supplies, ambulance transportation, transportation, community health services, renal dialysis, EPSDT, rehabilitation, chiropractic services, private duty nursing, speech therapy, sitter services, convalescent care, and organ transplants.

One public policy issue is that the TennCare benefits package is richer than the public employees benefit package. Dental and vision are not offered to working government staff and their families, but they are offered to TennCare enrollees.

D. Provider Network

Before TennCare, there was only one managed care organization (MCO) with experience with the Medicaid population under the 1915(b) Waiver. TennCare did not do a competitive bid for contracts with managed care organizations. Instead, the state laid out the terms and conditions of their managed care plan and invited plans to participate at the established rates. If plans could prove that they could provide the services, they could contract with the plan. Twelve MCOs contracted with TennCare in the beginning. For the first three years, Tennessee allowed the plans to operate as preferred provider organizations (PPOs). By January 1, 1997, these had to be converted to health maintenance organizations (HMOs). The contracting process has not changed, but it would be difficult for a new plan to enter and to capture enough of the patient population to make the plan viable.

On January 1, 1996, the University of Tennessee-Knoxville MCO sold out to BCBS. On January 1, 1997, Phoenix health plan purchased another small plan based out of the University of Tennessee. Thus there are now only 10 MCOs servicing the TennCare population. Phoenix also recently merged with Health Net, so there will soon be only 9 MCOs in the market.

Each year, enrollees are given 45 days to change their MCO starting with October 1. The MCO change takes effect on every January 1st.

E. Sources of Financial Support for the Program

TennCare was built on the theory of reducing costs through managed care. The reduced costs for Medicaid recipients would allow Tennessee to insure other people, and this would reduce the number of charity cases in the state. It seemed unlikely that providers would lower their charges when charity care fell, and TennCare used this to bargain with the MCOs. However, as a result of no longer admitting the generally healthier uninsured population into the program, the patient mix has been compromised. Charity cases are increasing now, and the TennCare population is unhealthier on average. TennCare did not want to give the MCOs more money without getting more services. By adding another healthy population (uninsured kids) to the patient mix, capitation rates can remain low.

TennCare was financed by pooling federal, state, and local expenditures for indigent health care, including $2.3 billion for the TennCare Program in the 1997-1998 fiscal year’s budget. Managed care savings, family cost-sharing, and discounts on the capitated rate all contributed to the financing of TennCare. Pooled resources total $3.661 billion, of which $2.138 billion is used to fund the current year of the TennCare program.6 The remainder is used to fund long-term care programs, Home and Community Based Services Waiver programs, and Medicare crossovers through the Medicaid system, Medicare premiums, and administration of the total program.

F. Estimation of Initial Costs

Projected costs for FY 1997-98 without reform were $5,993,751,000. Projected costs for TennCare during the same time period are $3,823,901,000. This results in savings of $2.2 billion.7 Program costs were estimated by projections of historical Medicaid data. All services except home care, long term care, and fee for service payments to the Department of Mental Health and Mental Retardation were converted to managed care arrangements.

The per member per month cost was discounted approximately 30% for the reduction in charity care. For example, in the first year costs were estimated at $1,641 and were discounted to $1,210.8 Different rates were established for different rate categories, which have been increased by a percentage since the first year.

G. Cost-Sharing Arrangements

TennCare Premium Sliding Scale9

Percentage of Poverty

















Family Monthly Premium








All enrollees above 100% of the poverty level pay a monthly premium for TennCare that is determined by a sliding scale based on income. Some examples are given above. Monthly premiums for uninsurable enrollees with incomes above 400% FPL are $231.50/month for individuals and $578.75/month for families. There are no co-payments for children.

H. Marketing of Program

The primary challenge of opening up TennCare to all uninsured children on April 1, 1997 was how to do outreach to enroll these children. TennCare mailed applications to every family that had an application denied for uninsured status since January 1, 1995, as well as to all families on food stamps who were not already enrolled. There was also outreach to WIC families. To engender community support, TennCare used local health departments as enrollment sites. State officials held community meetings in all 95 counties in the state. They showed a video on TennCare to help communicate what it is, how to enroll, its purpose, and other information. The easy one-page applications were on hand.

A consumer group also helps with outreach. Flyers have been sent to every school and day care center in the state for children to take home to their parents. This has proven to be a very inexpensive and effective form of marketing.

I. Eligibility Criteria

Eligibility requirements for children currently entering the program are only that they are state residents, under 18 years of age, and uninsured on the day they apply.

J. Verification Process

While presumptive eligibility exists for pregnant women, there is none for children. To provide proof of uninsurability, individuals must have a letter of denial from an insurance company that is licensed in the State of Tennessee. To verify which individuals do not have access to employer coverage, TennCare mailed a form to all employers, except the major ones whom they knew offered insurance, and asked them to specify whether or not their employees were offered health insurance.

The Tennessee Department of Human Services determines Medicaid eligibility for most categories. The Social Security Administration makes decisions regarding eligibility for Medicaid for disabled individuals. The Tennessee Department of Labor determines bona fide closures of businesses or plants.

K. Enrollment Process and Waiting Period

When the program began, TennCare applications were processed through a central location and enrollees received notice of their acceptance by mail. This was a problem because no one had direct communication with TennCare officials, and enrollees had little opportunity to learn about managed care. Less than 5% of Tennessee residents were enrolled in managed care prior to TennCare, so this presented quite a problem. The application was eventually reworded, and local health department staff were asked to conduct a 15-minute enrollment interview with each prospective enrollee. By asking the questions in person, the staff is able to immediately tell the applicant if they are eligible or not, ascertain that the applicant understands the enrollment questions, collect premiums, and do patient education about managed care and preventive services (e.g. EPSDT). Applicants schedule an appointment at the health department, bring a check stub, and bring the form filled out by their employer stating that they have no access to insurance. Unemployed applicants simply bring in a statement that they are unemployed. For the applicants’ convenience, the Health Department will make a copy of the application, date stamp it, and keep it on file. A TennCare application can also be received by calling the TennCare Hotline.

On April 1, 1997, TennCare re-opened enrollment to all uninsured children in the state through a HCFA(now known as CMS) approved initiative. There has been an influx of children since then. Approximately 70,000 children were estimated to be eligible. Due to TennCare’s previous experience and expertise, this enrollment process has been a smooth one. In each of the 95 county health departments, there is a computer system tied into the main TennCare system through which health department staff can enroll children. Children are eligible for services on that day in an emergency, and normal enrollment into the program requires only three days. The process has gone very smoothly because families understand managed care much better now, and they come prepared to choose a physician and enroll all members of the family in the same MCO.

A listing of the provider networks is available at each health department along with a phone number that they can use to ask questions of the MCOs. In this way, enrollees can make educated decisions about which health plan to join. Health department staff are also trained to assist enrollees in the grievance and appeal process if a claim is denied. Community acceptance of TennCare has skyrocketed with this new arrangement, since local health departments have always been a well-respected entity throughout Tennessee.


III. Implementation


A. Amount of Time it Took to Implement the Program and Begin Enrollment

TennCare was developed and implemented in one year. The concept of TennCare was approved in April 1993, the waiver was submitted in June 1993, and the program was implemented in January 1994. There were two primary reasons why the program was implemented so quickly:

The state wanted the fiscal savings immediately; and

There was a desire to have the program well under way while the legislature was out of session to avoid lobbying against it.

As a result of the speed of the initiative, however, there was limited involvement by most key stakeholders. Enrollment increased by 400,000 in the first year (one-third of the estimated 1.2 million eligible). Eligibles enrolled into MCOs through the mail (and were given one of top three choices of health plans).

Implementation problems included: the speed of change, limited enrollee and provider education about the new system, the substantial volume of telephone inquiries, and problems with illiteracy. In addition, many plans had not fully formed their provider panels due to the lack of time, so beneficiaries could not get a list providers associated with each plan or ask their physician which plans they were going to be in. Due to these problems, 40-50% of Medicaid eligibles did not select a plan and were assigned one.

There were 481,618 children covered as of June 1997. As of January 31, 1998, there were 28,214 uninsured children added through open enrollment since April 1, 1997.10


IV. Administration


A. How Program Fits within the State Structure

TennCare was moved out of the Department of Health in 1995 to the Department of Finance and Administration. In 1997 it was moved back to the Department of Health. This seemed more logical, as it is now in the same department as the local health departments and maternal and child health.

B. Administrative Costs of the Program

Administrative costs account for 3.57% of total program costs.11 This includes eligibility verification, claims administration, application processing, outreach with the Department of Health, and benefits education. Costs are kept low by maintaining a small staff. The focus is on provision of services to enrollees rather than on administration.

A major overhaul of the grievance and appeal process occurred last fall, when all program staff were trained to assist enrollees in this process. TennCare and health department personnel serve as advocates for their enrollees during this process.

C. How Premiums, Copays, and Deductibles are Collected

Plans are paid a monthly capitated rate for each covered life, which is adjusted by age, sex and disability ($113 per member per month for MCO services). Mental health and substance abuse services are provided by two behavioral health organizations (BHOs) under the TennCare Partners Program administered by the Tennessee Department of Mental Health/Mental Retardation. The BHOs are paid $22.93 per month per TennCare enrollee and each of the 1,250 non-TennCare enrollees.12

D. Cost-Shifting to Medicaid


E. Interaction with other Children’s Programs at the State Level

Currently, much formal and informal contact occurs between the Bureau of Maternal and Child Health (MCH) and TennCare. MCH has an official TennCare liaison who meets with officials at TennCare once a week. There are 10-15 grassroots organizations that are currently monitoring TennCare. MCH works with TennCare in responding to any inquiries or concerns that those organizations present. In addition, MCH gave daylong courses in understanding TennCare to all of the county clinic nurses in Tennessee’s 95 counties. The education of the nurses has been tremendously helpful to TennCare enrollees who have been denied services by their MCO, since the nurses are now able to assist in filing an appeal to the MCO.

Many other children's health programs in Tennessee have coordination of referrals through the local health departments; although they do not all have the same application. WIC eligibility is determined at the local health departments based on income and health problems. Children's Special Services (CSS) is undergoing the most radical change in their operations as a result of TennCare because their rolls are dropping. CSS has had to alter its mission to focus on care coordination rather than on direct service provision. CSS acts as an advocate for patients when they receive care from other sources.

F. Coordination with Medicaid


G. Coordination with Other Children’s Programs

Ninety percent of children with special health care needs are enrolled in TennCare. Therefore there is a lot of interaction between TennCare’s MCOs and the Department of Maternal and Child Health. There are eleven MCOs currently participating in TennCare, so MCH spends a lot of time negotiating with individual plans about the proper provision of health care services for children with special needs. In cases where the child is denied services, appeals to the plan, and is denied again, MCH will often provide the services through the CSS program. This usually does not occur with direct medical care, but rather with therapies or special medical devices.

H. State Laws the Program is Required to Comply With

The program must comply with the laws that formed TennCare. The agency and program are constantly under scrutiny.


V. Policy Issues


A. Adverse Selection

Three MCOs in TennCare have experienced adverse selection with children:

Vanderbilt, which contains a large children's hospital in its network; A charity care hospital in Memphis which also has a children's hospital in its network; and The University of Tennessee-Knoxville.

These three MCOs have adverse selection because most of the sick children in the state were affiliated with physicians in their networks before the advent of TennCare. When the children enrolled in TennCare, they chose the MCO that had their physician.

B. Substitution of Employer Coverage

Substitution is not a problem for TennCare, because families with access to employer-based insurance are not eligible for TennCare. There is a direct computer link between TennCare and the Department of Labor, where employers report their insurance offerings, so that the county health centers that do enrollment can immediately see if the prospective enrollee is eligible for other insurance.

If TennCare is opened up to all children below 200% FPL in 1998, it is likely there will be a substitution impact. The greatest concern is that employers might drop coverage due to such an expansion. Although there has been no evidence so far that employers are dropping coverage due to TennCare, the University of Tennessee is analyzing this issue in its annual report on the program. The incentive is great under open enrollment for employers not to offer family coverage. This will not adversely affect the children, but it may lead to spouses not being covered. Also, by opening the program to this population, it may put strains on the capacity of TennCare to cover all its enrollees. Consumer advocates, however, have pushed the state to open coverage to all children since they say that the TennCare premiums are high enough above 200% FPL to provide a disincentive to families to purchase TennCare.

Tennessee has not pursued using TennCare as a group insurance package, nor does it plan to in the future. TennCare enjoys a "Cadillac" package of benefits, and therefore they have had to be very stringent in quality monitoring. It is not easy for MCOs and providers to coordinate with their requirements, and it is much easier for them to control their services directly with employers.


VI. Program Impact


A. Impact on Number of Uninsured Children in State

Of the original 400,000 uninsured individuals who enrolled in TennCare, approximately half were children. Since enrollment was opened to all children, they have been enrolling 1,000-1,500 more children per week.13 As of January 31, 1998, there were 28,214 uninsured children added through open enrollment since April 7, 1997.14

Many more children are insured than were prior to TennCare; however, a question to pursue is whether there has been a change in the quality of care received by the previous Medicaid enrollees because of the switch to managed care. There is a lot of concern about whether children are getting adequate EPSDT visits. They are starting three studies to determine this:

A parent survey to see if children are being offered the services by their physician and whether they are actually receiving them;

Quality assurance chart reviews for EPSDT; and

An examination of provider data from MCO records.

B. Other Direct Impacts

TennCare is beginning to get the first quality assurance reports. The first one stated that pregnant women enrolled in TennCare have better birth outcomes than the commercial population in Tennessee.


VII. Future of Program


A. Lessons Learned

A year ago, TennCare began contracting for managed care mental health services through two behavioral health organizations (BHOs). This program is called TennCare Partners. Each enrollee is assigned a BHO. There have been a lot of problems with people not receiving the treatment they feel they deserve.

The expansion for children has been a tremendous success. That process will be emulated in many future expansions. As more children are enrolled, however, outreach will become more difficult, and it will become harder to identify eligible children. The children who are already enrolled are the easiest children to reach. Families must sometimes be convinced of the importance of providing insurance for their children. TennCare is identifying the pockets in communities that need to be targeted. For example, local ministers have been asked to read from the pulpit about TennCare in the Shelby County African American community.

TennCare has learned from the mistakes made during the initial implementation phase. The involvement of local health departments could have been used earlier to help people enroll and to advocate on their behalf. It has proven much more effective for people to enroll in person than to do mail-in enrollment. TennCare has created a system that is not burdensome to either the enrollee or the health department. The local health departments are open in the evenings and on Saturday for appointments. The enrollment process has become more meaningful, since the health department staff take the time to assure that the enrollee understands the benefits.

B. Vision of the Future of the Program

News releases, radio announcements, the participation of the Tennessee Medical Association, pediatric associations, and local health departments have all boosted enrollment. TennCare will continue to look for small ways to open enrollment to the uninsured, with the eventual goal of opening enrollment again to all uninsured Tennessee residents. A pressing goal of TennCare is to stabilize the carve-out for mental health. The eventual goal is to reunite the BHOs and MCOs, and offer them as one benefit. In the future, there will be an increased focus on quality assurance, especially for children. TennCare is inspecting MCO compliance with well-child and EPSDT requirements, as well as services for special needs children. Tennessee is analyzing its options for Title XXI funds.



3. 2-7-98 website figure at

4. Eligibility information was updated on the TennCare website as of 9-4-97.



7. Interview, Summer 1997.

8. Interview, Summer 1997

9. Source:


11. Interview, Summer 1997