Editor’s note: This post draws on two issue briefs prepared by the authors with the support of the California Health Care Foundation. The subjects covered below and in the briefs will be discussed in a webinar on Thursday, June 8.
Republicans’ health reform proposals and anticipated regulatory guidance under the Trump administration aim to broaden state flexibility in the design and operation of Medicaid programs. Several of the proposed changes build upon efforts currently underway in states that expanded their Medicaid programs with Section 1115 waivers. These changes include the ability to implement Health Savings Accounts (HSAs), broaden enrollee cost sharing responsibilities, disenroll those who fall behind on monthly contributions or cost-sharing payments, and reward enrollees who engage in certain healthy behaviors.
Evidence remains sparse on whether policies to increase enrollee engagement and responsibility have reduced program costs. However, the experience of states with 1115 waivers can offer useful lessons on the design and effectiveness of these types of Medicaid reforms. The objective of this Blog post is to summarize these lessons.
Health Savings Accounts And Cost Sharing
Several states, including Arkansas, Indiana, and Michigan, have used 1115 waivers to implement HSAs, monthly contributions, and cost sharing, typically in the form of copays. In these states, Medicaid enrollees in certain eligibility categories make monthly contributions to their accounts instead of making payments to an insurer. Most states also contribute to the accounts. These contributions typically are used to cover enrollees’ copays, but in a few states, contributions accrue in the account and can be disbursed back to the enrollee upon departure from the program. Unlike traditional HSAs, Medicaid HSAs do not provide a tax advantage and enrollees receive care without regard to a deductible.
HSAs and cost sharing are generally promoted as having three purposes: they may 1) increase enrollees’ responsibility for their health coverage, 2) familiarize enrollees with private insurance models, and 3) reduce costs to the state. The concept behind HSAs and cost sharing is that enrollees have an incentive to use funds in their accounts thoughtfully because they can be rolled over and used for health care services needed in the future. This approach is intended to encourage people to be careful consumers of services and to reduce unnecessary utilization.
Lower-income individuals are especially sensitive to cost sharing. Research shows that cost sharing can decrease enrollment, decrease access to essential health care as well as non-essential care, increase the use of more expensive forms of care such as the emergency department (ED), and may unfairly penalize enrollees with chronic conditions or disabilities. Experience also shows that states may face increased administrative burden when implementing HSAs and cost sharing.
Another consideration for HSAs is that they may provide too weak an incentive to utilize services carefully, depending on how they are constructed and presented to enrollees. If enrollees view the accounts as reserved for health care spending, they might feel that there is no need to limit spending, at least until they have exhausted the account. In most states with 1115 waivers, enrollees make contributions to their accounts regardless of their service use; in some of the states, monthly contributions are made in lieu of copays.
Most 1115 waiver states have payment enforcement mechanisms in place to encourage enrollees to pay cost sharing, which may include charging copays at the point-of-service, service denial, disenrollment, or lockout from coverage. Until Indiana’s waiver was approved, the Centers for Medicare and Medicaid Services had rejected all proposals to implement a lockout period for enrollees with incomes above 100 percent of the federal poverty level (FPL) who fail to contribute.
The goal of payment enforcement is to encourage enrollees to engage with the cost of their health care. As an example, in Indiana, which disenrolls beneficiaries for non-payment or moves enrollees to a more-limited benefits plan (depending on income), 90 percent of enrollees who paid monthly contributions continued to do so; in Michigan, which doesn’t disenroll beneficiaries for non-payment, only about 38 percent of enrollees who owe monthly contributions have paid them. Without payment enforcement mechanisms, states have little recourse if enrollees do not participate in cost sharing.
Evidence is emerging that restricting or terminating coverage or access to services as a penalty for failing to pay cost sharing reduces access to necessary care, disrupts continuity of care, hinders management of chronic conditions, and increases the likelihood of ED utilization.
In 2003, Oregon introduced a six-month lockout period for enrollees who failed to pay premiums. Enrollees who lost coverage were three times as likely to lack a primary source of care, more likely to not fill a prescription, and four to five times more likely to use the ED as a source of care than people who remained enrolled. Further, one-third of those disenrolled remained uninsured two years later.
Disenrollment and lockout mechanisms may also be unpopular with providers, as they increase the likelihood of providers not being paid for care delivered.
Healthy Behavior Programs
Some 1115 waiver states have used incentives for enrollees to engage in healthy behaviors such as attending primary care appointments, completing a health assessment, filling prescriptions, increasing physical activity, or quitting smoking. Incentives include reducing or eliminating cost sharing, rolling over HSA funds, providing enhanced benefits, or providing cash rewards.
Since lower-income populations have higher rates of obesity, smoking, substance abuse, heart disease, diabetes, and stroke than the general population, encouraging healthy behaviors could be valuable. Research has shown that financial rewards in Medicaid have been effective incentives for one-time or short-term activities, such as getting vaccinations, accessing preventive health services, or attending follow-up appointments with providers.
However, there is little support showing that healthy behavior incentives are effective in changing behaviors that require maintenance, such as a healthy diet, exercise, weight loss, or smoking cessation, which often are the behaviors that influence health care costs the most. Low rates of enrollee participation, often due to lack of understanding, can also influence the overall effectiveness of healthy behavior programs. Further, the administrative costs to implement healthy behavior programs may be high. Several states with healthy behavior programs noted that they did not accurately gauge the amount of money and staff time needed for implementation, requiring the state and health plans to devote additional resources.
Five Takeaways for States Considering Implementing HSAs, Cost Sharing, Payment Enforcement, And Healthy Behavior Programs
Keep Programs Simple
Complex programs decrease program compliance and increase administrative burden and costs. Keeping programs simple will help minimize some of the burden of implementation for the state and complexity for the enrollee. For example, under its Arkansas Works waiver, Arkansas implemented HSA-like accounts, called Independence Accounts, and imposed enrollee cost sharing in 2014. Tracking enrollees’ health spending, income, and account contributions was administratively burdensome and costly for the state, and as a result, Arkansas terminated account contributions and copays for enrollees between 50-100 percent of FPL in 2015. With this change, the state Medicaid agency projected that the administrative costs of the waiver program would be cut in half — from $12 to $6 million.
HSAs were kept in place for enrollees above 100 percent of FPL. However, less than 1 percent of these enrollees were contributing to their accounts. This likely weighed in to the state’s decision to terminate Independence Accounts for all enrollees in December 2016.
Communication Is Key
Providing clear and frequent communications about the role, purpose, and expectation for HSAs, cost sharing, payment enforcement, and healthy behavior programs increases compliance and reduces the need for a punitive approach. Healthy Michigan Plan (HMP) enrollees above 100 percent FPL are required to complete a healthy behavior activity. According to an HMP report, however, only 17 percent of beneficiaries enrolled in a health plan for at least six months completed the required activity. Furthermore, most enrollees did not understand what the incentives were or the connection between the activity and the incentives.
In addition, many HMP enrollees described the HSA statements as long and complicated. The state gathered feedback from enrollees and is now working to make improvements to the account statements to make them clearer, simpler, and more effective.
Carefully Target Waiver Elements
States should be mindful of which enrollees are responsible for waiver provisions, what they’re responsible for, and when. This may include targeting cost sharing to certain enrollees or for specific services, giving a “grace period” before the start of contributions and cost sharing, limiting contributions and or cost sharing to enrollees above 100 percent FPL, and making healthy behavior incentives optional for enrollees below 100 percent. The crucial role of judiciously targeting program components is demonstrated by Arkansas’ finding that the administrative costs of tracking contributions to and spending from HSAs by enrollees from 50 percent to 100 percent of FPL accounted for half the costs of its entire waiver.
Use A Combination Of Carrot And Stick Approaches
Monetary penalties, incurring debt to the state, disenrollment, or lockout from coverage can reduce enrollees’ access to care, increase uncompensated care, increase administrative costs to the state, and may cost more in the long run. These disruptions in care may be problematic, and even counter-productive from a cost standpoint, for lower-income individuals and for those with chronic conditions or behavioral health needs. The experience of the Healthy Indiana Plan (HIP) illustrates the importance of carefully balancing carrots and sticks. HIP enrollees above 100 percent FPL who don’t make contributions are disenrolled from coverage and subject to a six-month lockout. In HIP’s first two years, 5 percent of enrollees with incomes above 100 percent FPL had their coverage terminated and were then locked out of coverage. Unaffordability and confusion about the payment process were the most common reasons cited.
Individuals who were disenrolled were less likely than HIP enrollees to make appointments for routine and specialty care and to fill a prescription. They were also far less likely to have insurance coverage: Only 47 percent of disenrolled individuals reported they had coverage at the time of the HIP enrollee survey.
Consider Provider-Driven Alternatives
With limited Medicaid resources, states may want to consider strategies to improve access to health services, better coordinate care, and better integrate health and social services. These strategies may work better than implementing program components that may be a burden on enrollees and costly to administer. States could take lessons from Congress’s Medicare reform directives, which have focused on the provider and service delivery side, rather than on enrollees.
As states consider changes to their Medicaid programs, it will be vital for them to balance the desire for cost control and accountability against the evidence about administrative costs and burdens for states and enrollees. If states do implement these Medicaid reforms, frequent and objective evaluation will be important to determine if program changes achieve their intended goals, and if they have unintended consequences for enrollees and states.