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

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

Florida: Consumer-Directed Managed Care Services Funding Cost-Sharing 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 State All Beneficiaries Comprehensive Care Nominal co-pays (varies by plan) Co-pays Enhanced Benefits Enhanced Benefits Account Other health care services (e.g. OTCs, vitamins) $ 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.

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

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

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?