1. Consumer-Directed Medicaid: An Overview Jon Blum June 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. 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.

4. 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.

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?