JIM LEHRER: Many states have been grappling with the costs of Medicaid. Cuts in the program was a major agenda item when governors met in Washington this week. Susan Dentzer of our health unit has a look at Tennessee, a state with some of the most serious problems.
SUSAN DENTZER: The face of Lori Smith is one of the faces of TennCare, Tennessee's Medicaid program. Smith suffers from lupus and multiple sclerosis, which plague her with painful symptoms.
LORI SMITH: Extreme fatigue, running a fever for over six months, easily bruising, had rashes over my entire body, joint pain, joint swelling, blisters in my mouth --
SUSAN DENTZER: Smith's medical expenses are so high that she's deemed "uninsurable" by private health insurers. And the small Nashville advertising agency she works for does not provide health coverage. So for years, TennCare, the state program, has stepped in to pay Smith's medical bills.
LORI SMITH: In one month -- and this is not typical, but it's not uncommon at the same time -- I incurred $12,000 of medical expenses. If not for insurance, I would have had to pay for it out of my own pocket, put it on the credit card.
SUSAN DENTZER: But now Smith is one of 323,000 Tennessee adults who stands to lose her TennCare coverage altogether. Phil Bredesen, Tennessee's Democratic governor is proposing huge cuts in TennCare to deal with a state budget crisis.
GOV. PHIL BREDESEN: I truly do not know of another way to get through this next year without doing some serious disenrollments of people, and it's just a place we've come to in TennCare by trying to give too many benefits to too many people without really a plan for doing it that's sensible about the finances.
SUSAN DENTZER: Gordon Bonnyman is a Nashville public-interest lawyer and TennCare advocate, who heads the Tennessee Justice Center.
GORDON BONNYMAN: It's a personal tragedy, I think, for the governor because I think he's disappointed to get to where he's gotten. But, more importantly, it's going to be a personal tragedy for hundreds of thousands of people in Tennessee, who are going to be directly affected by it.
SUSAN DENTZER: To understand how Tennessee got to this position requires some background about Medicaid. It's the nation's largest public health insurance program and a critically important safety net. It now provides assistance to more than 50 million Americans, with the federal government and the states sharing the roughly $300 billion annual cost. Medicaid covers a range of people, says Diane Rowland of the Kaiser Family Foundation; the foundation supports the NewsHour's health unit.
DIANE ROWLAND: The federal government requires states to cover low-income children and some pregnant women with the Medicaid program and then gives the states options to provide broader coverage to additional adults and children.
SUSAN DENTZER: Broad as this Medicaid safety net is, it often leaves out millions of other people, like Lori Smith. And depending on the state, Medicaid may or may not cover people like diabetes patient Cora Jones.
CORA JONES: I have a heart condition, I have a heart murmur. I have two medications, like, a hundred dollars, over a hundred dollars each, and the other one, the third one is about $80. So with the others, it mounts up to close to $600 a month.
SUSAN DENTZER: That $600 in monthly drug costs almost exactly matches what Jones earns in her part-time job as a teacher's aide. So she's one of tens of thousands of people across the country considered "medically needy." States have a choice of deciding whether or not to cover them.
With thousands of Tennesseans like these falling through the cracks, the state concluded in 1993 that it had to act. Back in those days too Tennessee was facing a budget crisis and needed to get a grip on Medicaid spending.
So the state cut a deal with the federal government that gave it more money and approval to use the funds to stretch the state's safety net. Thousands of uninsurables, like Smith, got coverage. So did "medically needy" people like Jones. And so did disabled, mentally ill people like Teresa Godsey. She suffers from glaucoma, diabetes and severe bipolar disorder that once made her delusional.
TERESA GODSEY: Because my last name was Godsey, I felt I had this kinship or certain affiliation with God that nobody else experienced. You have all the energy. You're creative. You're talented, or maybe not, but you think you are. It's just a state of euphoria, and you have no sense of reality.
SUSAN DENTZER: With TennCare now paying the bill for her costly medications, Godsey says, the bipolar disease is under control.
SUSAN DENTZER: Another part of Tennessee's deal with the federal government was an agreement to try to get a handle on soaring Medicaid costs. Taking its best shot, the state put everybody on Medicaid into HMOs and other managed care organizations. In 1994, all of this came together in the new state Medicaid program called TennCare --ultimately covering one out of every four people in Tennessee.
GORDON BONNYMAN: It was the most exciting thing in my life when it started in 1994 because I and other people, who had been either literally or figuratively sitting at the bedside of people who were dying without health insurance, knew immediately that this was not just about saving the budget, this was about saving lives.
SUSAN DENTZER: But it wasn't long before aspects of TennCare began to fall apart. Health costs rose steeply, in part because of the poor health status of much of Tennessee's population.
Dr. Bruce Steinhauer is president of the state's largest public hospital, the Regional Medical Center at Memphis, known as the Med. It's in the heart of a region known for high rates of strokes.
DR. BRUCE STEINHAUER: There's no question that the Mississippi River Basin is the stroke belt, and that's been observed for years, and nobody really quite knows why that is. We do think we have more uncontrolled hypertension than in other parts of the country and we have a considerable amount of obesity.
SUSAN DENTZER: For other reasons that aren't fully understood, Tennesseans are also the nation's heaviest users of prescription drugs. That's a phenomenon especially evident in the TennCare population.
Dr. Melissa Appleton directs the HIV/AIDS clinic at the Med in Memphis, where about two-thirds of the patients are on TennCare. Almost all are on multiple drugs.
DR. MELISSA APPLETON: If we are going to start someone on antiretrovirals, generally it will be four drugs, because one is used as a booster. And that doesn't include the medications that we need to treat actual opportunistic infections like histoplasmosis, which we see a lot of, or mycobacterium avium or toxoplasmosis or peptococcus. I don't know what we're going to do.
SUSAN DENTZER: Tennessee Representative David Shepherd is a Democrat who sits on the legislature's TennCare oversight committee. He also says that state government made missteps, including specific settlements it agreed to in TennCare lawsuits brought by advocates like Bonnyman.
DAVID SHEPHARD: The program has probably been poorly managed in the last two or three years, some of which is because of agreeing to the consent decrees and not realizing the financial impact that it would have on the state.
SUSAN DENTZER: In particular, says Shephard, those settlements effectively loosened constraints on what drugs could be prescribed TennCare beneficiaries. With controls out the window, he says, costs soared.
Bredesen, a former HMO executive, campaigned on a platform of fixing TennCare. But by the time he came into office in 2003, the situation was clearly out of hand.
GOV. PHIL BREDESEN: The program today in Tennessee is about an $8.5 billion program, it's growing at around 15 percent a year, which is way in excess of even the national Medicaid growth rates. Our pharmacy benefit grew by 24 percent last a year. I mean, there's no way to tax or revenue your way out of that, you have to tackle a growth rate at that level in some underlying, underlying fashion.
SUSAN DENTZER: An effort to negotiate a way out with advocates like Bonnyman broke down with both sides disagreeing over why. So in January, Bredesen announced cuts slated to take effect later this year. Off the program would go people like Smith and Jones -- in fact, nearly half the adults on TennCare. And many of the remaining 1 million people on the program would see substantial cuts in benefits.
Those cuts include a limit of 20 days a year for an inpatient stay at a hospital, and four prescriptions a month for people covered by TennCare.
DR. MELISSA APPLETON: Big breaths for me. Just in and out…
SUSAN DENTZER: At the Med, Dr. Appleton is worried about the effect of that drug limit on her HIV/AIDS patients.
DR. MELISSA APPLETON: It's ludicrous, you know. And our patients have everything that everyone else has. They have hypertension, diabetes, dislipodemias, you name it. I don't want to be melodramatic, but I think, yes, the short answer is HIV patients will die.
SUSAN DENTZER: Bredesen is now waiting to see if the federal government and the courts will approve his TennCare plan.
Meanwhile, he and other governors meeting in Washington this week called for broader Medicaid reforms. And most governors strongly resisted a Bush administration plan to make federal cuts in Medicaid. They warned such cuts would increase the odds that other states would end up sharing Tennessee's fate.
JIM LEHRER: For the record, our health unit which produced that report has been funded for the past seven years by the Henry J. Kaiser Family Foundation. That partnership is now ending, and we want to express our thanks to them for its support.
We welcome a new partnership tonight with the Robert Wood Johnson Foundation, which will now fund our health unit.