With most of the media’s attention focused these days on missing telegenic white women, few outside the State of Tennessee have bothered to follow the spectacular collapse of this nation’s most ambitious experiment in socialized medicine.

Tennessee’s expanded version of Medicaid started in 1994 amid the Clintonian attempt to socialize the entire nation’s medical care system. What Tenncare did was to expand Tennessee’s existing Medicaid program from 700,000 in 1994 to 1.2 million by 1995 by covering potentially ALL uninsured Tennesseans up to 400% above the Federal poverty line. This included patients who were considered to be uninsurable because of pre-existing chronic conditions requiring expensive care. But wait! That’s not all!

Tenncare also provided an expanded and extensive list of services most of which were previously not covered under regular Medicaid. These covered services included full inpatient and outpatient medical care, dental care, vision care, all medications with few exceptions, full psychiatric treatment (both inpatient and outpatient), 10 days of substance abuse detox for adults, organ transplantation, physical therapy, something called “Convalescent Care”, medical supplies, “sitter services” and “Private Duty Nursing” (are you kidding me?), non-emergent ground transportation (which can be several hundred dollars a trip), and even limited chiropractic services! This list exceeds coverage by most private insurance.

However, Tenncare soon ran into budgetary problems. In 1994 the old Medicaid system reportedly consumed 24% of the state budget. By 1999 the total bill for Tenncare was up to 3.9 Billion and in 2002 it was up to 5.6 Billion. For fiscal 2005 Tenncare’s total bill is projected to be 8.7 Billion to cover about 1.3 million participants, which comes out to a hefty $6,600/patient. Federal “matching” Medicaid funds cover about 64% of the total cost so the state has to come up with 35% or about 3 Billion dollars and this is 34% of the state budget.

But it is the projected future cost increases ($12.2 Billion by 2008) coupled with a push in Washington to shift more of the Medicaid burden to the states that has the Tennessee government in a panic. In December 2004, reform minded Governor Phil Bredesen (a former HMO executive) threatened to completely dismantle Tenncare unless reforms were allowed to go through and in January of this year he announced a plan to eliminate 323,000 from the Tenncare rolls and reduce benefits for 400,000 other adults.

How did it come to this? Tenncare was supposed to actually SAVE the state money by directing funds through private managed health care organizations (HMOs) which would pay for health care products and services via capitated (lump-sum) payments to health care providers. In this way the HMOs were supposed to control costs and the patients didn’t have to worry about things like co-payments, deductibles, limits on the number of covered medications or the number of doctors visits, or any of that nasty crap that patients paying out the nose for private insurance have to deal with. Even HMO denials for treatment (the standard way HMOs use to try and contain costs) were rendered nearly useless by Tenncare as the Wall Street Journal pointed out.

“If TennCare denies a claim for a drug or any other type of care, an appeal can be filed for next to nothing. Fighting each appeal costs the state as much as $1,600 in legal fees. With 10,000 appeals filed every month, it’s often easier and cheaper to pay a claim, regardless of the merits.”

Despite these problems, cost increases for Tenncare were actually well controlled in the mid 1990’s. But then again so were the health care costs for the entire nation at a time when the economy boomed and HMOs successfully kept health care costs artificially low. Throughout this period Tenncare continued to enroll more and more people and expand its list of covered services. Then two unfortunate things happened. The economy dramatically slowed (the internet bubble burst followed by 9/11) and the managed health care system unraveled. Yet, Americans continued to consume health care at record rates and combined with expensive advancements in medical science this resulted in huge increases in health care costs.

Without effective mechanisms for controlling health care utilization and containing health care costs, Tenncare was particularly vulnerable to cost increases starting about 1999. Medication costs have been particularly bad and were the largest growing part of the Tenncare budget (up 23% last year alone). In 2003 Tenncare spent $1.8 Billion just on medications. Governor Bredesen himself acknowledged that Tenncare spent more on just two drugs (the new antipsychotic Zyprexa and the cholesterol lowering drug Zocor) than was spent on the entire budget for the University of Tennessee medical school. It was found that Tenncare patients were utilizing three times more prescription medications than the national average. Tenncare patients could get any medication paid for by the state, even over the counter medications without restrictions!

This type of freewheeling spending without limits was the same sort of mess that we saw in the late 1960s and early 1970s when Medicare and Medicaid were brand new Federal programs! Apparently nobody in Tennessee bothered to study their history of government social programs and they were doomed to repeat it.

Then there were the problems with waste, inefficiency, and fraud that have plagued Tenncare. In 1995 Tenncare had to drop 80,000 people from the program for nonpayment of premiums. It seems Tenncare had neglected to inform the new enrollees of the costs for their participation and then didn’t bill them for several months resulting in big bills for back-owed premiums that many couldn’t pay. In 2002 an audit found that $48 million went towards the health care of people who didn’t even live in Tennessee and $465 million was spent to ensure 130,000 people who only gave a PO Box number as their address (in violation of Medicaid rules). Tenncare was also found to still be paying the health care insurance of several hundred people who were already dead.

And what kind of access to care do the participants of Tenncare receive? A 2002 survey found that only 19.6% of all Pediatricians in Tennessee accepted Medicaid (i.e. Tenncare) for office visits and a third of children under Tenncare had problems finding a doctor (via Medpundit). Why is this? Because Tenncare reimbursement is so poor that private physician practices risk losing money on every Tenncare patient they see. The poor reimbursement rates were even hurting private hospitals as early as 1999. Because by law they have to treat all Medicaid patients, hospitals that are forced to lose money usually resort to cutting services and personnel. Ironically Tenncare, which was intended to improve the access to health care services for millions of Tennesseans, might actually be slowly worsening access for all people in the state.

But the biggest blunder was likely Tennessee’s attempt to try and achieve near universal health care coverage with this massive expansion of Medicaid. Even though Tenncare costs appear to be comparable to other state’s Medicaid programs it covers far more people (estimates say 151 out of every 100 poor people in Tennessee) then it needs to. The purpose of a “safety-net” social program like Medicaid is to be a source of help as a last resort to people who really need it. It was never intended to be a means by which people could get ultra cheap health insurance just for being poor.

In the last few years Tenncare has come full circle from an ambitious social health program seeking to try and cover all the state’s uninsured to an embattled mess with plans to cut hundreds of thousands from its rolls, sharply cut back on covered services, and impose restrictions and co-pays. In short, Tenncare is starting to look like the old 1994 Medicaid system again with Gov. Phil Bredesen (a Democrat) calling for national Medicaid reform to create a system that looks more like a social safety net and less like nationalized government health insurance.

The last act in this tragedy belongs to the liberals who after hearing about all the drastic cuts in Tenncare went ballistic and tried repeatedly to block the cost saving reforms in court. The Tennessee Justice Center (TJC) in particular has been fighting every cost saving measure since 1998. Talk about entitlements! To hear all the rhetoric from the TJC you’d wonder just how Tennessee’s poor managed to survive all those years before Tenncare!

So if ever they try and impose a nationalized health care system on the United States it is very likely to evolve in much the same way that Tenncare did. It is likely to look something like this;

1. In 2009 President Hillary Clinton will resurrect her long dead dream of nationalized government health insurance. Medicare and Medicaid will be combined and expanded into a massive program that will cover every American. It will be administered by the states and further subdivided into “managed care regions” which will act similar to the old HMOs.

However, in order to get this massive legislation passed Mrs. Clinton promises that the new government health insurance will cover almost every service and treatment that Americans have grown accustomed to having. She also promises that co-pays and other out of pocket expenses will be kept to a minimum and that there will be few limits on medications or office visits. Physicians and hospitals will remain “for profit” and people will be free to chose any health care provider they wish.

2. The legislation passes with great fanfare but quickly runs into problems. The costs alone just to create and implement the massive bureaucracy required for such a nationalized system consumes tens of Billions of dollars. Because Americans continue to utilize a huge amount of health care resources just as they had previously, the total cost of the program quickly exceeds $1 Trillion dollars in the first year which amounts to over half the total Federal budget!

3. With few curbs on health care spending and utilization the annual costs of this program approach the $2 Trillion mark within only a few years. Ironically most of this spending increase comes from tens of millions of previously uninsured, mostly poor Americans. Before they got their free government health insurance the only disincentive against excessive utilization of health care resources was simply the fact that this group lacked any health insurance. But because there are few initial limits on utilization or cost control measures with this new government health insurance, over-utilization increases for all demographic groups across the board.

4. With health care costs consuming almost 70% of the budget the administration is in panic mode and first tries to control costs by slashing reimbursement rates. Physicians start dropping out of the program and stop accepting government insurance. Many rural and a few urban hospitals have to close or severely cut back on services.

5. Health care costs continue to increase as people crowd into expensive ERs while health care access shrinks.

6. New harsher restrictions go into effect. Co-pays dramatically increase and limits are placed on medications and doctor visits. Because Federal law prohibits people from being dropped from the program many with “high incomes”, those without families, or those with few medical problems find that their co-pays and deductibles are increased to almost 100% out of pocket.

7. Facing economic collapse many physicians quit, retire, or go on strike. In order to preserve access to health care services in most parts of the country the Clinton administration nationalizes the physician work force and initiates new programs to train more physician assistants and other ancillary staff to fill in for the dramatically shrinking physician population.

8. Costs continue to rise and so more drastic measures are introduced. Dialysis will only be covered for patients under the age of 65. Expensive treatments such as chemotherapy where the chance of success is <10%>