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TennCare reductions

The CBPP takes a look at the effects of the recent TennCare cuts on the economy of Tennessee:

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 2008.2 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.

This analysis uses information about Tennessee’s Medicaid matching rate and economic multiplier estimates derived from an economic model developed by the U.S. Department of Commerce’s Bureau of Economic Analysis to estimate the impact of the TennCare budget reductions on the state’s economy. These are rough approximations of the actual impact. We have not tried independently to estimate the budget savings due to the new policies, but simply based our calculations on the Governor’s budget estimates. The economic multiplier estimates are approximations based on general reductions in health care spending, rather than being tailored specifically to the components of the new TennCare strategy.

Given those caveats, our analyses indicate the new TennCare cutbacks would result in:

  • A loss of federal matching funds that rises from $550 million in FY 2005 to $1.8 billion in FY 2008.
  • A total reduction in TennCare expenditures of $850 million in FY 2005 and $2.8 billion in FY 2008.
  • A substantial reduction in total economic activity in Tennessee. The economic activity lost caused by the reduction in federal matching funds alone is almost $800 million in FY 2005 and rises to $2.4 billion by FY 2008.
  • Thousands of jobs lost in Tennessee. The number of jobs lost due to the reduction in federal matching funds would be almost 7,000 in 2005 and about 20,000 by 2008.

Looks pretty grim.