From Crisis to Stability: How TennCare Survived Near-Bankruptcy to Serve 1.6 Million Tennesseans

Oct 30, 2025

TennCare: Tennessee’s Medicaid Transformation Story

From Crisis to Cornerstone: How Tennessee Rebuilt Its Healthcare Safety Net

I’m sitting in the Tennessee House, Finance, Ways and Means Committee listening the a presentation by Tenncare Commissioner Steve Smith. The issue of Tenncare and Medicare is very complicated. I thought I’d share some information and add the presentation for those who care about this issue.
The landscape of American healthcare, few states have experienced as dramatic a transformation in their Medicaid programs as Tennessee. TennCare, the state’s managed care Medicaid program, has evolved from a bold but troubled experiment in the 1990s to become a stable, comprehensive system that serves as a lifeline for more than 1.6 million Tennesseans.

The Ambitious Beginning

TennCare launched in 1994 with revolutionary ambitions. Governor Ned McWherter’s administration sought to solve two critical problems simultaneously: control escalating Medicaid costs and expand coverage to Tennessee’s uninsured population. The program replaced traditional fee-for-service Medicaid with a managed care model, contracting with private health plans to deliver services.

The initial vision was sweeping. TennCare would not only cover traditional Medicaid-eligible populations but also extend coverage to the “uninsurable”—people with pre-existing conditions who couldn’t obtain private insurance—and the “uninsured”—working Tennesseans who earned too much for Medicaid but couldn’t afford private coverage.

At its peak in the early 2000s, TennCare covered approximately 1.4 million people, including nearly 500,000 who would not have qualified under traditional Medicaid rules.

The Years of Crisis

What began as an innovative approach soon spiraled into crisis. By the early 2000s, TennCare was consuming nearly one-third of the state’s budget and growing at an unsustainable rate. Several factors contributed to the program’s near-collapse:

Enrollment Explosion: The program grew far beyond initial projections, straining state resources.

Cost Overruns: Healthcare costs skyrocketed, particularly for prescription drugs and specialist care. The program’s broad benefits package, which included virtually unlimited pharmacy benefits and extensive mental health services, proved financially unsustainable.

Fraud and Abuse: The rapid expansion created vulnerabilities in oversight, leading to significant fraud by some providers and beneficiaries.

Legal Challenges: Advocacy groups filed lawsuits to prevent benefit reductions, creating legal entanglements that complicated reform efforts.

Provider Dissatisfaction: Many physicians opted out of TennCare due to low reimbursement rates and administrative burdens, creating access problems for beneficiaries.

By 2005, TennCare was facing a $650 million deficit, and state officials projected the program would bankrupt Tennessee within years if dramatic action wasn’t taken.

The Painful Restructuring

In 2005, Governor Phil Bredesen made the controversial decision to drastically reform TennCare. The restructuring included:

Disenrollment of approximately 170,000 adults from the program who didn’t qualify under traditional Medicaid rules
Benefit limitations, including caps on prescription drugs, doctor visits, and hospital days
Enhanced fraud detection and program integrity measures
Increased cost-sharing for some beneficiaries

The cuts were wrenching. Stories emerged of chronically ill Tennesseans losing coverage, safety-net clinics overwhelmed with newly uninsured patients, and families forced to make impossible healthcare decisions. Advocacy groups fought the changes in court, and healthcare providers struggled to absorb the uninsured.

Yet state officials argued the reforms were necessary to preserve TennCare for the most vulnerable—pregnant women, children, elderly residents, and people with disabilities—who would have lost coverage if the program collapsed entirely.

Building a Sustainable Foundation

The reforms, though painful, stabilized TennCare financially. Over the following years, Tennessee focused on building a more sustainable program structure:

Managed Care Partnerships: The state refined its relationships with managed care organizations (MCOs), implementing stronger oversight, quality metrics, and accountability standards. Today, three MCOs—BlueCare, TennCare Select, and UnitedHealthcare Community Plan—serve most TennCare members.

Technology Modernization: Tennessee invested in electronic health records, data analytics, and fraud detection systems to improve efficiency and reduce waste.

Payment Reform: The state experimented with value-based payment models that rewarded quality outcomes rather than volume of services, aligning incentives for better care coordination.

Targeted Expansions: Rather than broad eligibility expansions, Tennessee pursued targeted improvements, such as enhanced postpartum coverage and services for specific populations.

TennCare Today: By the Numbers

As of 2024, TennCare serves approximately **1.6 million Tennesseans**—roughly one in four state residents. The program’s reach is substantial:

Over 800,000 children receive coverage through TennCare and CoverKids (the state’s Children’s Health Insurance Program)
Pregnant women receive comprehensive prenatal and postpartum care
Elderly residents and people with disabilities access long-term services and supports
Low-income families who meet strict eligibility requirements

The program’s annual budget exceeds $14 billion, with the federal government covering approximately 65% of costs through Federal Medical Assistance Percentage (FMAP) funding.

 Comprehensive Services

Today’s TennCare offers a robust benefit package that includes:

– Primary and specialty medical care
– Hospital services
– Prescription drug coverage
– Mental health and substance abuse treatment
– Dental and vision care for children
– Home and community-based services as alternatives to nursing home care
– Transportation assistance to medical appointments

The program has particularly focused on maternal and child health, preventive care, and chronic disease management—investments that improve long-term outcomes while controlling costs.

Ongoing Challenges

Despite its transformation, TennCare continues to face significant challenges:

Provider Participation: Reimbursement rates remain below private insurance levels, and some areas of the state—particularly rural communities—struggle with provider shortages. Many specialists limit the number of TennCare patients they accept.

Coverage Gaps: Tennessee is one of twelve states that has not expanded Medicaid under the Affordable Care Act, leaving approximately 300,000 low-income adults in a coverage gap—earning too much for traditional TennCare but unable to afford marketplace insurance.

Health Disparities: TennCare beneficiaries face significant health challenges, including higher rates of chronic conditions, maternal mortality, and infant mortality compared to the privately insured population.

It Administrative Burdens: The Medicaid “redetermination” process following the COVID-19 public health emergency led to coverage losses for thousands of Tennesseans, many due to paperwork issues rather than true ineligibility.

Rural Healthcare Access: As rural hospitals close across Tennessee, TennCare members in these communities face increasing barriers to care, including long travel distances and limited specialist availability.

Innovation and Future Directions

Tennessee continues to innovate within its TennCare program:

Block Grant Proposal: The state has explored a controversial Medicaid block grant proposal that would give Tennessee more flexibility in exchange for capped federal funding—a plan that garnered both support and strong opposition from various stakeholders.

Behavioral Health Integration: TennCare has invested heavily in integrating physical and behavioral health services, recognizing that mental health and substance abuse treatment are essential to overall health outcomes.

Social Determinants of Health: The program increasingly addresses non-medical factors affecting health, such as housing instability, food insecurity, and transportation barriers.

Telehealth Expansion: The COVID-19 pandemic accelerated adoption of telemedicine, which has proven particularly valuable for rural TennCare members and those with mobility challenges.

A Program Valued and Debated

TennCare’s transformation from near-collapse to stability represents both a success story and an ongoing policy debate. Supporters point to the program’s fiscal sustainability, comprehensive services for vulnerable populations, and innovations in care delivery. The program provides essential healthcare to Tennessee’s most vulnerable residents—children, pregnant women, people with disabilities, and low-income elderly—who would otherwise lack access to care.

Critics argue that Tennessee’s refusal to expand Medicaid under the ACA leaves hundreds of thousands without coverage, that reimbursement rates inadequately support provider participation, and that eligibility requirements remain too restrictive for working families struggling with healthcare costs.

Healthcare providers, advocacy groups, and beneficiaries themselves have mixed experiences. Some praise TennCare’s care coordination and comprehensive benefits; others describe frustrating bureaucracy, access barriers, and coverage limitations that compromise care quality.

 Conclusion: An Evolving Commitment

TennCare’s journey from ambitious experiment to fiscal crisis to sustainable program reflects broader tensions in American healthcare policy: the challenge of balancing comprehensive coverage with fiscal constraints, the difficulty of serving vulnerable populations within limited budgets, and the ongoing debate about government’s role in healthcare.

For the 1.6 million Tennesseans who rely on TennCare—the child with asthma, the pregnant woman seeking prenatal care, the elderly resident needing nursing home care, the person with disabilities requiring home services—the program represents more than policy debates. It is the difference between receiving care and going without, between health and illness, sometimes between life and death.

As Tennessee looks to the future, TennCare will continue to evolve, shaped by fiscal realities, political priorities, healthcare innovation, and the fundamental question of how society cares for its most vulnerable members. The program’s transformation demonstrates that sustainable Medicaid programs are possible, even as debates continue about how comprehensive and inclusive those programs should be.

Whatever challenges lie ahead, TennCare has proven remarkably resilient—surviving near-collapse, adapting to changing healthcare landscapes, and continuing to serve as Tennessee’s healthcare safety net for those who need it most.​​​​​​​​​​​​​​​​