Staff Photo by Patrick Smith BlueCross BlueShield of Tennessee Miller Building.

A 43-year relationship at BlueCross BlueShield of Tennessee is breaking up.

The Chattanooga-based division of BlueCross has handled Medicare hospital claims in Tennessee since the government program began in 1966. But next month, the two part ways and a subsidiary of Alabama BlueCross is taking over the contract.

The end of the federal contract for Tennessee BlueCross will cut 118 jobs in Chattanooga, BlueCross spokeswoman Mary Thompson said.

"After 40 years of service to the Centers for Medicare and Medicaid Services, we are disappointed that we will no longer be administering the contract for the Medicare fee-for-service program," Ms. Thompson said. "We are focused on minimizing the impact on 118 of our employees who have been the face and voice of the Medicare program."

In response to new federal rules for insurers handling Medicare claims, the Tennessee BlueCross plan teamed up with a Cigna insurance division in Nashville to bid for the Medicare business last year. Under the 2003 Medicare modernization act, the federal government replaced 42 separate state contracts for Medicare fiscal agencies with 15 new regional contracts.

BlueCross' plan -- known as Riverbend Government Benefits Administrator Inc. -- handles Part A hospital claims, while Cigna's Nashville operation, which handles Part B Medicare payments to other health care providers. But the combined units lost their bid for the Medicare business in Tennessee, Georgia and Alabama.

The Alabama-based plan, known as Cahaba Government Benefits Administrator ,will take over the three-state Southeast regional Medicare contract on Aug. 3.

Ms. Thompson said BlueCross in Chattanooga is trying to find other jobs for the displaced employees of the BlueCross Medicare program once the current Medicare contract expires.

BlueCross currently has dozens of positions listed on either its internal or external job postings, but there are currently fewer vacancies than the number of jobs being cut and some Riverbend employees said they have been unable to qualify for the available jobs because of differing skill needs.

BlueCross's managed care organization for TennCare -- the Volunteer State Health Plan -- picked up the East and West regions of the state in the past year and BlueCross has added 194 employees to staff those new contracts, Ms. Thompson said.

Through the end of the month, the Riverbend employees will continue to work in a four-story office building at 730 Chestnut St., which the city plans to eventually demolish.

A few workers may continue to be employed by Riverbend while the Medicare claims business for the Volunteer State is transferred to Cahaba, Ms. Thompson said. Those who do not find jobs elsewhere at BlueCross will receive a severance payment, officials said.