NCPA | Study #288, Opportunities for State Medicaid Reform

In the private sector, patients are increasingly required to directly share in the cost of health care. They also have increasing opportunities to make their own choices and manage their own health care dollars.¹⁶⁶ This is the consumer-driven health care (CHDC) revolution. CDHC usually involves health plans in which a person pays some medical expenses directly, usually from a personal account established for that purpose. Evidence has shown that when individuals have the proper financial incentives, they will be better consumers of health care. A decade-long RAND study from the 1970s examined the effect of cost-sharing on the use of health care services. It found that individuals required to make a copayment for their care reduced their use of medical services, compared to those who received free care. After a decade, there were no significant differences in health among the two groups.¹⁶⁷

Health Opportunity Accounts. The Deficit Reduction Act allows 10 state Medicaid programs to set up five-year demonstration projects to provide Medicaid recipients with Health Opportunity Accounts (HOAs), similar to Health Savings Accounts (HSAs) used in the private sector.¹⁶⁸ Proponents hope these accounts will create an awareness of health care costs and inject an element of consumerism into the purchase of medical services. The states that choose to participate will receive federal matching funds to contribute up to $1,000 per child and $2,500 per adult into the HOAs. HOAs can be used to purchase a variety of medical goods and services, and unused funds will be available for future use by participants. Moreover, if patients become ineligible for Medicaid, they have up to three years to use up to 75 percent of their HOA balances to purchase private health insurance.¹⁶⁹ South Carolina, which had already applied for a HIFA waiver to restructure its Medicaid program, has applied to become one of the 10 states. [See the sidebar "Florida's Consumer-Driven Medicaid Reforms."]

Florida’s Consumer-Driven Medicaid Reforms

Florida began implementing an ambitious Medicaid reform plan in 2006 with a federal waiver and the approval of the state legislature.1 It is designed to cover most Medicaid enrollees, including children, parents, pregnant women and disabled persons who are not institutionalized. Under the plan,

Private-sector health care provider networks will compete to enroll various Medicaid populations by offering different benefi t packages to cater to their needs.
Participants can choose among the plans, or use their state-paid premium to purchase employer- sponsored insurance instead.2
Florida pays the networks a monthly, risk-adjusted premium per patient and providers compete by offering innovative care, convenient networks and optional services.3

The competition among providers is similar to private health insurance plans that offer various coverage options. Three basic packages of Medicaid benefi ts will be offered:4

Comprehensive Benefi ts is a basic benefi t package covering all mandatory Medicaid services and needed optional services, although the amount, duration and scope of services may vary.
Catastrophic Care covers those who require more care than is covered by comprehensive benefi ts plans. These patients will be re-insured for all medically necessary services.
Enhanced Benefi ts is an incentive to Medicaid benefi ciaries who engage in healthy practices. Qualifi ed recipients may use accumulated funds in their accounts to purchase additional health care services that are not covered by their plan or use them for employer-sponsored insurance when they become ineligible for Medicaid.

The program will be piloted in Broward County, where benefi ciaries will have a choice of 14 plans, and in more rural Duval County, where they will have a choice of fi ve plans. It will be expanded to three more counties, but the goal is to implement it statewide by 2011, with legislative approval.

See approved waiver proposal, “Florida Medicaid Reform: Approved 1115 Research and Demonstration Waiver Application,” Agency for Health Care Administration, Florida Department of Health Care. Available at http://ahca.myflorida.com/Medicaid/medicaid_reform/waiver/index.shtml.
Susan Konig, “Medicaid Reform: Florida, South Carolina Lead the Way,” Heartland Institute (Health Care News), August 1, 2005. Available at http://www.heartland.org/Article.cfm?artId=17496.
This Provider Service Network (PSN) demonstration project is based on a model in which a provider organization, or network of organizations, provides care to a defi ned population and also agrees to perform associated “insurance” functions. See “Evaluation of Provider Service Network,” Agency for Health Care Administration, Florida Department of Health Care. Available at http://www.fdhc.state.fl .us/Medicaid/quality_management/mrp/Projects/psn/index.shtml.
“Understanding Florida Medicaid Reform,” Florida Tax Watch, December 2005. Available at http://www.floridataxwatch.org/resources/ pdf/BriefingsDecember2005MedicaidFinal.pdf .

A traditional objection to cash-balance accounts is the belief that the poor will forgo needed health care to accrue more cash; but unlike private-sector HSAs, the uses of personal health accounts could be limited. Through a debit card, a state could ensure that a recipient completed certain medical procedures such as child immunizations or prenatal care before accessing any of his or her HOA balance. The recipient could then use the remaining funds for specified health, social, child education or job training needs.

Enhanced Benefit Accounts. A new pilot program in Florida aims to improve outcomes by providing Medicaid enrollees with incentives to become actively involved in their care and treatment. Deposits will be made to personal accounts for enrollees who practice healthy lifestyles. They can use the funds to purchase health care goods and services not covered by their plan. A panel will ultimately decide which activities qualify for this "enhanced benefit credit," but they will likely include such things as participating in wellness programs, obtaining annual immunizations, or partaking in disease management, smoking cessation and weight loss programs. Similar to HOAs, participants who leave Medicaid will have access to the funds for up to three years and can use them to pay premiums for private insurance.¹⁷⁰

However, restricting HOAs and other benefit accounts to health care services may not be optimal. Those who find that their balances are greater than required for their health care needs would have an incentive to simply consume more health care services in order to fully utilize their accounts. Individuals should instead be able to convert health care services into credits that would go toward purchasing private health insurance.

Another objection to allowing Medicaid beneficiaries to exercise choice in health care providers is that the poor, elderly, blind and disabled either lack the ability to choose between plans or may be hoodwinked by unethical sales people. Although this may be true of certain populations, it isn't true for most Medicaid recipients. Evidence shows that for certain services, the poor have just as much ability to choose as the middle class.¹⁷¹ Even individuals with mild cognitive disabilities can participate in decision-making regarding their own care if given the opportunity to do so, according to research by the San Francisco-based Family Caregiver Alliance. This might improve their satisfaction, since their preferences often differ from those of family caregivers.¹⁷²