S.C. Program With Five Participants Should Be Offered in Other States, Republicans Say

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A South Carolina pilot program that essentially funded health savings accounts for Medicaid recipients had only five participants sign up instead of the 1,000 expected, but congressional Republicans would like to see other states offer the same program.

Bills by Sen. Orrin G. Hatch (R-Utah), the ranking member of the Senate Finance Committee, and Rep. Erik Paulsen (R-Minn.), a member of the House Ways and Means Committee, would repeal a prohibition on states' creation of additional health opportunity account programs, or HOAs. The accounts, originally authorized as part of 2005's Deficit Reduction Act (Pub. L. No. 109-171), are established by a state's Medicaid program for recipients to use to pay for some medical expenses in lieu of traditional Medicaid.

Unlike health savings accounts, HOAs are funded by the state and the federal government instead of the recipient but, like an HSA, the money left over annually can accumulate. In the South Carolina program, money in the account once a person loses eligibility for Medicaid could be used for education or job training expenses.

The idea was proposed as a way to inject consumer-driven choice into the health care market but South Carolina officials attributed the low participation to a lack of marketing and reluctance by Medicaid recipients to potentially have to pay modest out-of-pocket costs if the account was completely drawn down.

One Participant Remains.

In a December 2011 report, the Government Accountability Office examined the use of HOAs established as demonstration programs. Under the program, states could set up HOAs that Medicaid beneficiaries could use to pay for some out-of-pocket medical expenses, with the state and federal government contributing up to $2,500 per adult and $1,000 per child annually. Beneficiaries were liable for covered expenses above the amount in the account--between $100 and $250 depending on the account--before expenses were again covered under the regular Medicaid program.

While the DRA authorized the account program, the 2009 law that reauthorized the Children's Health Insurance Program, one of the first laws enacted by President Obama with a Democratic Congress, prohibited the creation of any new HOA state programs. That made South Carolina's program, scheduled to continue through May 2013, the only one unless the law is changed. The state began offering the program in Richland County in May 2008.

“Officials from the South Carolina Department of Health and Human Services (DHHS) told us that although the state's application projected that 1,000 individuals enrolled in its fee-for-service Medicaid program would eventually participate in the demonstration, enrollment since 2008 totaled 2 adults and 3 children. As of Dec. 2, 2011, only 1 child was still enrolled in the program,” the GAO said.

The GAO said South Carolina officials told the agency potential beneficiaries were uninterested in a program that did not yield immediate access to cash in the HOA account, that the HOA program had only limited marketing exposure, and beneficiaries were wary of switching from a managed care option back to conventional fee-for-service Medicaid in order to participate in the HOA program.

“According to state officials, the enrolled children had received preventive services that were not charged to their HOA accounts and the account balances remained high even though some services were paid for out of HOAs. They also told us that the state has never had to pay out any unused account balances,” the GAO said.

Cost Sharing a 'Blunt Instrument.’

Jeff Stensland, director of public information with South Carolina's DHHS, told BNA there were several factors behind the low participation rate, including a change in leadership at the department that de-emphasized the program.

But lack of interest was also a factor, he said. “Everybody liked the idea until they found out there was some risk,” he said.

At the same time, South Carolina was rolling out its statewide managed care option for Medicaid recipients, he said, whose marketing budget was “many times” that of the HOA program. The HOA program was actively marketed for about one year, Stensland said.

Edwin Park, vice president for the liberal-leaning Center on Budget and Policy Priorities, said consumer-driven health care reform ideas like HOAs often do not work because of the cost-sharing aspect.

“Cost sharing is a blunt instrument,” he said. “Even middle- and high-income individuals are affected by even modest cost-sharing increases,” he said. Often, Park said, individuals will put off needed routine care to avoid those costs, ending up increasing costs by needing more expensive urgent care later.

Even with the experience in South Carolina, some congressional Republicans favor lifting the prohibition on new HOA demonstration projects. Hatch sponsored S. 1098, the proposed Family Retirement and Health Investment Act, in May 2011. The companion bill in the House, H.R. 2010, was sponsored by Paulsen. The bill would expand the use of HSAs and also reauthorize new HOA demonstration programs.

“These health plans empower Americans to take control of their health and well-being. Health Savings Accounts and Flexible Spending Accounts allow consumers to make informed decisions about their health care and will help restrain costs by putting people in charge of their health choices,” Hatch said in a statement at the time of the bill's introduction.

A request for comment to Hatch's office about the bill in light of the South Carolina program results was not returned.

Not a 'Referendum.’

While the South Carolina program failed to reach its target of 1,000 participants, neither Stensland or Park thought it was by itself a refutation of health care reform using market-driven tactics.

While Park said most research showed approaches that rely on individuals shopping around for services were often ineffective in bringing down costs, he said it was not clear why the South Carolina program fell short.

“Who knows whether people actually understood what the HOAs were?” he said. “People aren't necessarily making informed choices.”

Added Stensland: “I don't think our experiment should be a referendum on whether this could work or not.”

He said the program showed the need for flexibility in setting up an HOA program and understanding what could motivate Medicaid recipients to move to a program where they could face some financial liability, even if the amount is relatively small.

“I really think the incentives were not correct,” he said.

By Jonathan Nicholson  

The GAO report on the South Carolina HOA programs is available at http://www.gao.gov/assets/590/587073.pdf.