Consumer-Directed Medicaid: An Overview Jon Blum June 14, 2007

1. Consumer-Directed Medicaid: An Overview Jon BlumJune 14, 2007

2. Consumer-Directed Models Are A Departure from Traditional Medicaid • Increasing consumer control, and therefore risk, of Medicaid services diverges from the “defined benefits” Medicaid model • Objectives include containing Medicaid expenditure growth, creating incentives for beneficiary use of preventive and lower-cost services, and promoting personal responsibility • States have several tools and options available to develop consumer choice initiatives • Health savings accounts and Health Opportunity Accounts • Section 1115 waiver authority • Deficit Reduction Act (DRA) benchmark plans • Various models are emerging, i.e. the direct services model, the insurance model, or a combination thereof • State examples include Florida, Kentucky, South Carolina, West Virginia

3. Services Funding Cost-Sharing Florida: Consumer-Directed Managed Care Catastrophic coverage for all services above established spending threshold – up to maximum benefit limit Catastrophic Care Managed Care Organization* Risk-Adjusted Premium** Varied Benefit Packages All Beneficiaries State Comprehensive Care Nominal co-pays (varies by plan) Co-pays Other health care services (e.g. OTCs, vitamins) Enhanced Benefits Enhanced Benefits Account $ for participating in wellness activities Employer-Sponsored Insurance *In some circumstances (e.g. rural areas), MCOs may elect not to manage the catastrophic care for beneficiaries. Instead, the state will retain a portion of the premium to provide catastrophic coverage. **Risk-adjustment will be based on eligibility group, age, gender, and health status.

4. Services Funding Cost-Sharing West Virginia: DRA Benchmark and Healthy Rewards Accounts All mandatory and some optional services* Fee-for-Service Provider Basic Plan Nominal cost-sharing Parents & Children Basic benefits plus additional prescription drugs, mental health services, and diabetes care Enhanced Plan Fee-for-Service Medical Home Nominal cost-sharing State Member agreement Physician verifies compliance Medicaid covered services All Others Fee-for-Service Provider Nominal cost-sharing * Services will be more limited than the state’s current benefits.

5. Policy Considerations/Research Findings • Private health plans appear to respond to incentives • Higher cost sharing tends to discourage use of some needed services • Mixed evidence that financial incentives will encourage low-income beneficiaries to obtain more preventive services • Mercy Health plan reported that immunizations increased when parents offered gift coupons1 • California Medicaid managed care plans found that few beneficiaries redeemed gift cards1 • State of risk adjustment does not perfectly predict future healthcare costs • Physician associations argue that access declines under consumer directed managed care 1 Center on Budget and Policy Priorites

6. Questions for Consideration • Will managed care plans continue to participate if budget/reimbursement environment becomes more constrained? • Will mix of cost-sharing and financial incentives encourage the “correct” mix of health care services? • Will state bureaucratic systems respond fast enough to adjust benefits to respond to changing healthcare situations • How can policy encourage provider participation under consumer-directed models? • Will risk adjustors prove sufficiently robust?