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Tennessee created TennCare in 1994 to address the needs of "poor and uninsured citizens ... excluded from the health care system." Under TennCare, Tennessee implemented managed care in its Medicaid program and used savings anticipated from the switch to expand insurance coverage to uninsured and uninsurable adults and children. Our analysis of the expansion suggests that it improved access to care, reduced unmet need, and encouraged use of preventive services, particularly for children. These changes coincided with higher levels of satisfaction with care among TennCare beneficiaries.

This paper reviews Tennessee's experience setting, monitoring, and updating capitation rates for Medicaid managed behavioral health care, and draws lessons from those experiences for other states. Our review of assumptions about four components of Tennessee's rate-setting process--data, benefit design, savings expectations, and processes for monitoring and updating rates--suggests that the initial rate established by Tennessee was inadequate, and its inadequacy resulted primarily from the way available information was used to set the rate, rather than from the method of rate setting selected. Tennessee's experiences illustrate how difficult rate setting is and illuminate several key lessons about the rate-setting process.

Interviews with state Medicaid officials reveal that although managed care programs have been implemented in rural areas, participation remains behind that of urban areas. Many states aim to create a statewide Medicaid managed care program and are struggling to overcome barriers that are greater in rural areas, including providers' resistance, lack of commercial managed care, and inadequate supply of providers. Many have modified contracting strategies and shown flexibility regarding interpretations of travel standards, twenty-four-hour coverage requirements, and primary care case management requirements, to implement programs in rural environments.