Healthy Indiana 2.0 Is Challenging Medicaid Norms

By Seema Verma and Brian Neale
Health Affairs Blog, August 29, 2016

Last year, the State of Indiana launched the latest version of the Healthy Indiana Plan (HIP), made possible through a series of Medicaid waivers sought by Governor Mike Pence and approved by the Obama Administration.

HIP 2.0’s approval ignited a national conversation about the implications of its consumer-driven design for able-bodied adults in Indiana and potentially other reform-minded states. Having served as Governor Pence’s main advisors throughout the waiver’s development, negotiation, and implementation, we understand the crucial role states play in driving sensible Medicaid reforms.

HIP’s consumer-driven design familiarizes its members with the concepts of commercial health insurance and encourages them to be prudent consumers, comparing cost and quality of health care services. In light of the “churn” present in the Medicaid program, HIP’s policies are structured to be as consistent as possible with standard provisions found in commercial health plans, including Marketplace plans.

In line with commercial market consumer-driven plans, HIP members receive a $2,500 deductible health plan (HDHP) paired with a $2,500 “POWER” account, similar to a health savings account (HSA). The POWER account is HIP’s paramount feature. It acts as both a payment mechanism and a terminal through which HIP’s incentive structure flows. Members use the POWER account to pay for health care services until the deductible amount is met, at which point the HDHP becomes solely responsible for paying any further claims. Preventive services are provided outside the deductible and members do not face any barriers to seeking these services.

Contributions To Savings Accounts

HIP members begin coverage in HIP Plus, which offers benefits similar to those found in the commercial market and also includes modest dental and vision coverage. To maintain enrollment in HIP Plus, members are required to make monthly contributions in the amount equal to 2 percent of their income, comparable to the Marketplace’s premium formula. Unlike premiums, members own these contributions and are refunded their pro-rata share when they leave the program. The member’s pro-rata share is also rolled over from one plan year to the next, thereby reducing the contribution amount required for the upcoming plan year. Rollover amounts are increased for members who complete requisite preventive care services.

HIP respects the dignity of each member by setting a fair expectation of personal investment and engagement in his or her own well-being. Contributions are a way for members to demonstrate personal responsibility, but they also encourage members to stay engaged with their health plan, providers, and overall personal health. Because HIP Plus members’ own dollars are at stake, they have “skin in the game” and therefore an incentive to make cost-conscious health care decisions.

HIP Plus members who fail to make contributions within a 60-day grace period are terminated from the plan. Terminated HIP Plus members below the poverty line are transferred to the HIP Basic plan, which offers a more limited benefit package that excludes dental and vision coverage. HIP Basic members also are subject to co-payments for services, which can easily wind up being costlier than the contribution amounts required to maintain HIP Plus enrollment. Because HIP Plus represents the superior value proposition, members have a strong incentive to avoid falling back into HIP Basic. Terminated HIP Plus members above the poverty line must wait six months to re-enroll, with a few limited exceptions.

The delivery system functions more effectively when people seek and receive care in the right setting, as HIP incentivizes its members to do. When members choose the emergency room (ER) for care that could have been more appropriately provided in a primary care setting, they are subject to an $8 co-pay, which rises to $35 dollars for each subsequent inappropriate use of the ER.

HIP 2.0 Is Just The Beginning

HIP has been successful in meeting its policy objectives, but it also continues to demonstrate the potential for consumer-driven health care as an alternative to the traditional Medicaid model. While HIP has never touted itself as some sort of national silver bullet, it continues to serve as an example for states having similar interest in re-aligning Medicaid with the broader objective of individual empowerment.

http://healthaffairs.org/blog/2016/08/29/healthy-indiana-2-0-is-challenging-medicaid-norms/

Indiana Q&A on HIP 2.0:
http://www.in.gov/fssa/hip/2445.htm

Lewin Group evaluation of HIP 2.0:
https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/in/Healthy-Indiana-Plan-2/in-healthy-indiana-plan-support-20-interim-evl-rpt-07062016.pdf

Center on Budget and Policy Priorities critique:

http://www.cbpp.org/research/health/indiana-medicaid-waiver-evaluation-shows-why-kentuckys-medicaid-proposal-shouldnt-be

Health savings accounts (HSAs) have been touted by conservatives as a way of placing the health care consumers (i.e., patients) in control of their health care spending. As they say, “having skin in the game” (cringe) makes the patients more efficient health care shoppers. But it is not the HSAs, rather it is the very high deductibles of the associated insurance plans that cause patients to forgo often beneficial health care services because of the lack of affordability, thus reducing total health care spending.

With high deductibles, patients have to use their own funds before the deductible is met whether those funds come out of their pockets or out of designated HSAs. The HSA is merely a tax advantaged account that favors the healthy and wealthy. Tax expenditures are applied regressively with the wealthy receiving considerable taxpayer support and lower income individuals receiving little or nothing in the way of tax advantages.

Also the healthy who do not spend down their accounts can use the HSA funds as additional retirement benefits – benefits of which those with greater health problems are deprived. Thus HSAs represent the opposite of public policies that we should be pursuing since they disfavor the sick and poor to the benefit of the healthy and wealthy. It is perplexing how officials in Indiana ever conceived the idea that HSAs – know there as POWER accounts – would benefit low-income Medicaid patients with their higher than average medical needs.

So how do the POWER accounts work? First it is important to understand the complexity of the establishment and administration of these accounts because there are so many variables depending on whether the recipients are above or below 100 percent of the federal poverty level (FPL), which plan they participate in (Regular Plus, Regular Basic, State Plus, State Basic, plus HIP Link), whether or not they are classified as medically frail, whether they are Native Americans, whether or not they use preventive care services, and so forth. The description that follows applies differentially depending on these variables but will be presented as if it were a uniform program since these features represent the general drift of HIP 2.0. The actual details can be found in the Lewin Group report (link above).

The POWER accounts are funded mostly by the state with a contribution from the patient amounting to about 2 percent of income, up to a combined maximum of $2500 (mostly from the state). They are used to pay for the first $2500 of care (except for preventive services) and then a managed care plan begins paying. The payment by the patient is so small that it has very little impact on the government’s share of the costs. But most of these patients have no discretionary income thus even these small payments can be a financial burden to them, having to displace spending on other essentials.

If the individual uses no medical services, their contributions can accumulate in their POWER accounts and they can take their funds with them when they leave the program. But the maximum in the account can be only $2500, and their contribution is only a fraction of that. It is obvious that the meager amount that would be returned in no way could be used as an additional retirement benefit – defeating one of the purposes of HSAs.

If the patients fail to contribute to the POWER account, and their income is over 100 FPL, they completely lose their coverage and cannot reapply for a minimum of 6 months. If their income is under 100 FPL and they fail to contribute to the POWER account, they are shifted to the Basic plan and then are exposed to copayments, and they lose services such as dental and eye, and are limited in their prescription benefits.

These accounts are supposed to increase consumer awareness, but many of the participants do not know that the accounts exist, and many of those who do don’t really understand them. This hardly advances the conservative concept of consumer-directed health care.

Obviously these POWER accounts are not based on any sound health policy science, but they are merely a fabrication of ideologically-driven bureaucrats who want to pretend or maybe have fooled themselves into believing that they have created a poor man’s version of health savings accounts. HSAs actually provide benefits, albeit primarily for the healthy and wealthy. Medicaid was designed as a prepaid health care system for those with low incomes. The Medicaid Power accounts do the opposite of HSAs in that they penalize those who do not participate, taking away traditional Medicaid benefits, thereby adversely affecting particularly those with the lowest incomes.

This is a perverse program designed to satisfy the ideology of the Indiana stewards. (Kentucky is next.) One of the Indiana stewards and a strong supporter of POWER accounts – the governor – is currently a candidate for the vice-presidency of the United States. Programs like this expose the souls of those who support them.