TennCare Slashed

I'm in Oregon, so wouldn't ordinarily blog about something happening in Tennessee, but this is important.

Tennessee Governor Phil Bredesen (D) has announced changes in the state's "TennCare" public insurance system (emphasis added):

Under the basic TennCare plan 323,000 adults will be cut from the plan. The remaining 396,000 individuals eligible for Medicaid will continue to receive "reasonable" but reduced benefits. The reductions do not affect the 612,000 children on the plan.

"It might not be the level of care we want to provide, but it's the level of care we can afford without bankrupting our state," said Bredesen. "We're putting limits into what has been the most generous healthcare program in the nation."

Bredesen had long maintained that many of TennCare's problems were the result of extensive pharmacy and hospital allowances granted to attendees. Doctor visits, prescriptions, and in-patient hospital stays, which had been unlimited under the original TennCare plan, have been reduced significantly under the basic plan. Enrollees will now be limited to 12 doctor visits a year, four prescriptions a month, and 20 days of in-patient hospital care. These and other reductions are expected to save the state $575 million during the next fiscal year.

The failure of this system was predictable. If you give away something valuable, people will clamor for it. You don't make an expensive thing cheap by giving it away. You do, however, encourage over-use and a horrible squandering of resources. And a crippling shortage when you're finally unable to pay for it all.

These cuts will save the state half a billion dollars. Shockingly, that's not a budget cut. Even with these changes, the TennCare budget is actually increasing year-over-year:

New fiscal projections indicate TennCare "as is" would require $647 million in additional state revenue in order to sustain it in the 2005-2006 fiscal year — approximately $322 million more than the State anticipates collecting in total new revenue. Under the revised plan, TennCare will require no more than $75 million in new revenue. [source]

Even more shockingly, these figures hugely understate the actual cost of TennCare. The program was an extension of federal Medicaid, and was subsidized with federal dollars. This half-billion dollar reduction in state expenditures also means a $1.2 billion reduction in federal matching funds.

This program bankrupted the state of Tennessee, even though on the margin the federal government was paying for two-thirds of it!

Of course, the "well-intentioned" don't yield to the plain economics of the program, and complain about how awful this is and that the right solution would have been to make other people pay for it — even more than they already were. (Quoting again from the first link:)

Enrollee advocate and attorney Gordon Bonnyman, who has long opposed reductions to TennCare, called the "basic" plan cuts "worse than any natural disaster that the state has ever experienced." Bonnyman, a lawyer with the Tennessee Justice Center, has argued that the TennCare cost problems could be fixed in part by soliciting additional federal funds for the program.

"Instead of very drastic and dramatic cuts, there are other things that other states have done that we haven't, said Bonnyman. "I would work with the federal government … and if it means making the case for federal relief, then I would do it and I wouldn't be bashful."

Leaving alone Bonnyman's appallingly insensitive hyperbole, let me see if I understand this correctly. I, a resident of Oregon, am supposed to help pay for Tennessee's brave new collapsing socialist experiment? By what right? I can't seem to shake the phrase "no taxation without representation" from my mind.

But I, and all Americans, are already paying for part of it through federal taxes. It's outrageous. This socialist — and I emphasize, single-payer — program has been such a stunning failure that I have to visualize this sentence counted out on my fingers for emphasis. Look at what happened:

1. Despite an enormous federal subsidy,
2. this socialist single-payer program was so expensive
3. that it bankrupted the state government,
4. so obviously that even the government admits the problem,
5. and it's serious enough that a Democrat pushed to reform it.

Wow.

If you want socialist health care, you have to choose between the TennCare outcome of financial ruin, or rationing as in Canada and England.

Economically, it cannot be any other way. Maintaining below-market prices for something requires a subsidy, or the resulting shortage will require resource distribution by some method other than price (e.g. waiting, rationing, political connectedness&hellip).

Given the alternatives, a free market in medical care is clearly the way to go. Tennessee is beginning to learn this. Let the rest of us be the wise people who learn from others' mistakes, rather than making those same mistakes ourselves.

UPDATE 2005-01-11 15:25:07 UTC: Welcome, Instapundit readers. I'd like to link to other TennCare reactions, so drop me a line if you've blogged about it.

Have a look around, enjoy your stay. Front page is here.

UPDATE 2005-01-12 03:42:16 UTC: The trouble with living on the west coast is that it's very late for everyone else by the time you get home from work. Ah, well. Thanks to everyone who wrote, especially those from Tennessee.

Mark writes about his experience with health care in Tennessee:

I recently had to seek health care for the first time since tenncare was instituted, the folks at the hospital simply couldn't wrap their minds around the concept of "uninsured, but not indigent". I managed to get my gallbladder removed anyway, without signing up for TennCare, but it took more time arguing with the administrators than seeing doctors (not counting the actual surgery).

It's obviously possible to simply pay for services received in this state, but its far more of a fight than even I suspected it might be, and I'm cynical about these things. Assuming anyone else wants to receive medical care without being forced to apply for tenncare or its successor or getting some other form of insurance, my advice is bring a letter of credit from your bank, just like you were going to an auction.

This phenomenon is true in Oregon as well. I have a friend without health insurance who needed some simple medical attention (some glass was embedded in her skin) a few months ago, but kept getting turned away by doctors simply because she didn't have insurance. Even if you tell them you're paying cash, they're not interested.

CJ of The Unmentionables connects an earlier post about cheating on disability payments to the importance of whistleblowing on such people to hold down costs of programs. I have no idea how much direct cheating there may have been in TennCare, but I'm confident that even totally legal forms of overuse (because it's "free") contributed hugely to its costs. Even nearly frivolous consumption of health care can have some benefit for the patient, and if they pay no cost for treatment, they're incentivised to consume as much as they're able.

Lynn of Vorticity has written about TennCare costs and cuts.

Another letter from "z" (no name provided) mentioned legal price floors in medical care:

Medical cost increases come from government interference, trial lawyers and courts deciding proper medical procedures, and middleman insurers. I have a doctor who refuses to deal with insurance companies, beyond filling out claims forms for his patients. He tells me he cannot charge less than he does, but he could charge a lot more. When asked why, he told me that Medicare and Medicaid set prices on "healthcare" and will indict any doctor or other provider for fraud should they dare charge less. Government criminalizes competition, increasing "healthcare" costs. Private companies are prosecuted for price-fixing and collusion for the same activity.

In economic terms, government is preventing price discrimination, which I believe could be an important way to provide medical care to the truly needy while actually making providing health care more profitable (if providers at least recoup their "variable costs" for that care.) The essay in that link is focused on prescription drugs, but price discrimination can be applied on a larger scope.

UPDATE 2005-01-12 05:22:57 UTC: Skip Oliva, who does great work over at Citizens for Voluntary Trade, has this to add:

The other side to the "price discrimination" ban is the FTC's policy of prosecuting any physician group, under the antitrust laws, if they try to negotiate higher fees with payers. (And the FTC, in turn, decides whether to prosecute based on how far the private contracts deviate from the government-set Medicare rates.) In many cases, the FTC will charge a physician group for simply trying to enforce the terms of an existing contract. The Bush administration's first FTC chairman worked as a managed care lobbyist, and he openly used his FTC position to attack physicians that crossed paths with his former clients. One such case is now before the FTC and we're filing an amicus brief on Friday in support of the doctors.

Jeffrey Tucker at the Mises blog, one of my daily reads, notes that Tennessee is forced to behave fiscally responsibly because it can't print money like the federal government could.

Bill Hobbs describes TennCare as a nice idea gone wrong and blames previous Gov. Sundquist for ruining it, and patient advocate groups for blocking reforms.

Finally, Bob writes about his experience as a foster parent that I want to post in its entirety:

We were foster parents for a number of years. When our natural children were sick, we used to make a serious judgement as to whether or not to visit a doctor. Yet when a foster child was sick, there was no such need — as the visit was "free". Many kids actually expected to visit a doctor for a cold -- and often wondered why we didn't take them to the Emergency Room for even minor maladies.

When we took children for any well care check-ups, we had to pay for our own children, but foster children always received the service "at no charge" — at least to us.

We had a young lad who wore special — and expensive — glasses. He broke them regularly, and the State would simply call in a prescription for a replacement pair. The child didn't care (because they were free) and the state didn't care because it was only "government money".

The experience really soured me on the concept of socialized medical care and made it obvious to me that such a program could never work without massive outlays of money.

The message was so self-defeating — be responsible and take care of your children and you pay. Totally ignore your responsibility, and the state will reward you by taking care of them for you. And all those other suckers will pay for it.

It's heart-wrenching to think of children absorbing the entitlement mentality based on their own experiences, thinking it's normal and natural.

UPDATE 2005-01-12 04:57:54 UTC: Warren Duzak at Tennessee Indymedia writes about lessons from the TennCare experience he hopes progressives will take to heart for the future. He doesn't mention — even dismissingly — that the cost of TennCare was an important factor in its being cut.

Here's a more valuable lesson: You can't win a debate you don't engage. Ignoring the cost doesn't make it go away. You're doing your readers a disservice by not addressing it.

UPDATE 2005-01-24 04:10:28 UTC: More updates here.