Will the New TennCare Cutbacks Help Tennessee’s Economy?

Publication Date: July 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Leighton Ku

Research Area: Health

Keywords: Economic projections; State budgets; Health insurance; Health care costs

Type: Report

Abstract:

The state of Tennessee recently enacted legislation that would make major cutbacks in the state’s Medicaid program, called TennCare. The new law would make numerous changes in the health insurance program for low-income people, including limiting the number of doctors’ office visits to ten per year, limiting the number of prescriptions to six per month, eliminating coverage for antihistamine and gastric acid reducing medications, mandating the use of the lowest cost prescription drugs, and creating a new definition for “medical necessity,” which will be used to determine which medical treatments are permitted under the insurance plan. The state plans to submit a waiver to the federal Medicaid agency to approve most of these changes in the near future.

Gov. Bredesen’s office has stated that the new TennCare policies will substantially reduce state expenditures in the coming years. The cutbacks are estimated to lower state expenditures by $300 million in FY 2005, an amount which rises to $1.0 billion by FY 2008. While these policies would lower state budget expenditures, they also would adversely affect Tennessee’s economy and job creation because they would lead to a substantial reduction in federal revenue flowing into the state. Every TennCare dollar saved by the state also would lead to the loss of almost $2 in federal matching funds.

The combined loss of state and federal dollars means that hospitals, physicians, pharmacists, nursing homes and other health care providers throughout the state would have lower TennCare revenues in the coming years. In turn, this means that these providers would employ fewer staff, purchase fewer medical supplies, and so on. In many parts of the state, particularly rural areas, the reduction in TennCare revenues would make it harder for clinics or other health care facilities to keep their doors open or to offer the breadth of services they now provide. For many health care providers, TennCare is a major revenue source, and a reduction in TennCare funds can have substantial repercussions for their operations.

Additional ripple effects would be felt in other parts of Tennessee’s economy. Health care workers use income earned directly or indirectly from TennCare payments to pay their mortgages, buy food, fuel their cars, etc. While the budget savings from the state’s share of TennCare spending arguably might be used in ways that create alternative jobs and income in the state, the loss of the federal Medicaid revenue that matches the state dollars would create economic losses that would multiply through other parts of the state economy.