Vanderbilt Law Review

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TennCare is a Medicaid demonstration project that allows Tennessee to require all Medicaid beneficiaries to secure medical care through a mandatory managed care system. Enrollees contract with private managed care organizations ("MCOs'), which are responsible for organizing a network of care providers and delivering medical care to covered beneficiaries. Driven by rapidly escalating Medicaid costs, TennCare's mandatory managed care program has succeeded in saving money for the state in its Medicaid program. To secure the federal waiver that allowed the program to proceed, the state included non-Medicaid-eligible uninsured and uninsurable residents as TennCare beneficiaries. Federal matching funds accrue for all TennCare expenditures, including those for non-Medicaid-eligible enrollees, but federal matching is subject to a global cap. Cost savings from managed care were to pay for the improved access. The program covers about 1.3 million persons, 38% of whom are non- Medicaid-eligibles. The Medicaid component of TennCare has been stable, but the non-Medicaid-eligible TennCare population has risen by about 41% in the last two fiscal years, stressing the fiscal capacity of the program.

The Article provides background on the development of TennCare, describing the political effect of the federal matching (cooperative federalism) aspect of TennCare on both state-level and federal- level decisionmaking. The Article identifies what it describes as the political moral hazard dimensions of these federal-state partnerships on state political decisionmaking and the correlative lock-in effect of the program on the state. Federal matching funds make program enhancement appealing and make cutbacks extremely painful. The interaction of state and federal program incentives is considered in depth, and both the state responses (use of private funding and provider-focused taxation) and federal responses (limits on federal matching for those sources of state revenue) to these incentives are described and analyzed.