Are There Elements of Consumer Direction in the Proposed Indiana Medicaid Expansion Plan?

Supporters of Indiana’s proposed Medicaid expansion say that Healthy Indiana Plan 2.0  (HIP 2.0) is “an alternative to traditional Medicaid” that promotes “consumerism by requiring members to make contributions” to their individual health accounts. They say that it is modeled after the much smaller Healthy Indiana Plan (HIP) and that HIP is a consumer-directed model that has “demonstrated remarkable success in promoting healthy lifestyles and appropriate utilization of health care services by increasing preventive care and decreasing inappropriate use of hospital emergency departments.”

These claims greatly overstate the case.

HIP has little in common with consumer-directed health care models. The people in it are not allowed to shop for care. They are required to use the services of a single managed care provider. Their individual POWER (Personal Wellness and Responsibility)accounts are prefunded with $1,100 in government money. They must make low monthly premium payments to their accounts, but because the size of the payment is means tested, they have relatively little of their own money at risk, and premium payments were waived for about 23 percent of enrollees in 2012. Aside from monthly premiums, the only out-of-pocket cost current HIP members face is a copay for unnecessary emergency room visits. It ranges from $3.00 to $25.00.

Most HIP emergency room users don’t even pay that. According to the HIP annual report for 2012, of the people who used the emergency room in the past six months, only 28 percent of them, an “extremely small” number, were asked to make a copay. Hospitals may not have bothered to collect it due to the “administrative burden of collecting small co-payments” and “the difficulties inherent in refunding copayments after ER visits were determined to be true emergencies.”

Even the claims that HIP reduced emergency room usage are open to question. Although HIP members did use the emergency room at a lower rate than people in Indiana Medicaid, the lowest income members visited the emergency room at roughly the same rate as regular Medicaid program adults. Although copays may have had some effect — 1,093 out of 16,830 HIP members surveyed said that the copays had made them decide not to go to the emergency room in a 2013 survey — given the irregular collection of copays it is impossible to determine whether the lower rate of emergency room usage was due to the HIP program or to other differences between the Medicaid and HIP enrollees.

HIP 2.0 attenuates the disincentive created by emergency room copays, and adds to administrative costs, by waiving all emergency room copayments if a patient has first contacted a nurse hotline. After that, the copay is $8 for the first unnecessary visit and $25 for subsequent ones.

HIP 2.0 requires more copayments. Supporters defend this by claiming that it encourages consumer involvement and personal responsibility. Unfortunately, the people originally hired to evaluate HIP do not agree. In 2011, Mathematica researchers wrote that the original HIP plan was designed with “a deductible and the POWER account rather than small copayments charged at the point of service, partly because of its earlier experience, which indicated that providers frequently do not collect small copayments. In addition, the evidence available to the state suggested that small copayments do not influence utilization patterns.”

One of the reasons that consumer-directed health care coverage has been successful in controlling costs without harming health is that people are spending what they regard as their own money. They benefit directly from finding ways to save, and they have an incentive to find innovative ways to use medical care. As the successes of consumer directed Medicaid programs like Colorado’s Consumer Directed Attendant Support Services program have shown, people who are chronically ill can often generate large savings. But to do this without harming their health they must be allowed to spend budgeted health care funds as they see fit. They save more when they are rewarded for their efforts by keeping a fraction of whatever they manage to save.

In HIP, the only reward for lower spending is lower required monthly payments when funds in a POWER account roll into the next year. To get a full rollover, people must a) spend less than the amount in their POWER account and b) make all of the “preventive care” visits required by their managed care plan. This is a weak incentive, especially for people who have chronic medical conditions that routinely use all of their POWER account funding.

HIP 2.0 further weakens individual incentives to reduce spending by lowering required monthly payments. In 2012, HIP monthly payments ranged from $7.94 a month for people with money incomes up to $11,170 (under 22 percent of the federal poverty level) to $17.77 a month for those with incomes up to $15,083 (100 percent of the federal poverty level). HIP 2.0 reduces the payments for these income levels to $3.00 a month and $15.00 a month.

HIP stressed individual responsibility by kicking people who did not pay out of the program. HIP 2.0 will only kick people out of the program for 6 months if they fail to pay and their income is above the federal poverty level. People who pay their premiums for 12 months will be rewarded with a free pass to Indiana’s state parks.

HIP 2.0 plans to discipline nonpayers with incomes below the federal poverty line with a demotion from the HIP Plus plan to the HIP Basic plan. The Basic plan does not offer vision and dental coverage, bariatric surgery, and long-term care. It also offers 15 fewer physical, speech, and occupational therapy visits. It has higher copays of $4 per visit for outpatient services, $4 per preferred drug prescription, $8 for non-preferred drug prescription, and $75 per inpatient admission. The much higher copay for inpatient admission makes sense only if HIP 2.0 designers believe that the people in the program have more control over whether or not they are admitted to the hospital than whether or not they visit a doctor’s office.

Though HIP 2.0 supporters celebrate the fact that “HIP members have consistently sought primary and preventive care at higher rates than traditional Medicaid members,” evidence that this translates into better health or lower expenditures is in short supply. In general, higher preventive care utilization rates increase overall expenditures. As the Oregon Medicaid experiment showed, although Medicaid enrollment increased health care utilization significantly, demonstrated improvements in clinical health were minimal. In any case, only about 12 percent of HIP enrollees achieved lower premiums next year by having both a positive balance in their POWER account and the required preventive care visits. Enrollment in HIP chronic disease management programs decreased over time. Whether the programs lowered total expenditures is currently unknown.

Because HIP and HIP 2.0 have so few real incentives to encourage people to make wise health care decisions, their emphasis on tracking small payments and individual accounts may unnecessarily increase administrative overhead. A taste of some of HIP 2.0’s administrative requirements is provided by the abbreviated flowchart given below. The state will have to track weekly hours worked, whether someone with income over 100 percent of the federal poverty level is locked out for 6 months for not making premium payments, whether people eligible for employer plan subsidies have employers who pay 50 percent of their employee health premiums, how many hours someone works each week, and how much households earn to within a few hundred dollars a year. Managed care providers will have to track means tested premium payments and copays and will no doubt charge for it.

Scale matters. There is little evidence that the additional costs imposed by Indiana’s proposed Medicaid expansion will be defrayed by measurable health benefits, the small monthly fees it will try to collect, or its copay window dressing. Whether the “Gateway to Work” program will generate anything but more overhead is unknown. Administrative costs that may have been manageable for the 50,000 people in the HIP program may be much more difficult to control for the 1.6 million people forecasted to be in HIP 2.0. If this is the case, Indiana’s Medicaid expansion will cost more than is currently estimated.


Enrollment considerations, HIP 2.0:


HIP 2.0 POWER Account Contributions and Plans













Comments (9)

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  1. John R. Graham says:

    I wonder how much time people, even those who earn very little, want to spend managing accounts with only a few dollars in them? It seems like the cost to maintain them is very high, given the benefit.

  2. Devon Herrick says:

    This is an example of how the best plans can be thwarted by reality. The small copayments were intended to instill a measure of control and responsibility into health seeking behavior of enrollees. The money itself means nothing: the incentives are what really matters. But I imagine that providers wouldn’t follow through and collect small co-payments. First of all: the amount is so small that it hardly warrants any effort to collect it. Second, once the beneficiary comes to realize that by expressing a nominal amount of abstinence the copayment would be waived. Besides, once in the office, providers want the patient treated since the copayment is designed to limit the incentive for enrollees to visit the doctor unnecessarily. Require providers to collect small sums (~$3) is asking the hospitals to enforce a policy that’s not in ther best interest to do so.

  3. SPM says:

    I agree Devon. Incentives, and scales, matter tremendously in determining how people behave. In order for people to behave the most responsibly with regards to their healthcare decisions, they are going to have to pay a significant enough of a copay to have some skin in the game, and likewise, doctors and other providers have to have enough incentive to even charge the copays to begin with.

  4. Freedom Lover says:

    I am confused as to why Governor Pence would sign on to such a program. This is not going to be the free-market success that the original HIP was precisely because it is not nearly as market-oriented as that previous plan. This is realty a Medicaid expansion in disguise.

    • John R. Graham says:

      I think it is very difficult for governors to resist Medicaid expansion. Good for those who do!

      The hospital lobby is not to be ignored. It is pretty relentless. This is hard to figure out because hospitals also claim that they lose money on Medicaid. So, there is an inconsistency between speech and behavior, which is not unusual in human society (certainly not in politics).

  5. Jack McHugh says:

    Thank you Linda Gorman for a highly useful and accessible piece.

  6. Johnathan says:

    So, given these criticisms of the administrative complexity of HIP 2.0, is there a state Medicaid Expansion plan that NCPA or Ms. Gorman believes would be a good, solid, effective choice that would be administratively simple and cost effective?

    I feel as if HIP 2.0 is criticized from both ends in this piece. On one hand, the complaint is that “HIP 2.0 requires more copayments” but yet “HIP 2.0 further weakens individual incentives to reduce spending by lowering required monthly payments.” So should there be more copays? Less copays?

    I tried to look up the Colorado CDASS program but could not determine if or how recipients are able to keep a portion of the money they save. Perhaps they are able to keep it to spend on additional covered services? I didn’t see any option that actually allowed them to “cash out” their savings. It also looks like Colorado charges no copays for the CDASS program (or home health care in general) and charges smaller copays than Indiana has proposed for other items. Colorado Medicaid MCO members appear to have no copays for any in-network services in some cases.

    • John R. Graham says:

      Thank you. Although we should never say never, I doubt we’d see a Medicaid expansion that we would like. The problem with anything short of a block grant is that the offer of extra federal money creates such perverse incentives among all actors: Political and industry, that it is difficult to imagine a good program coming out of it.

    • Linda Gorman says:

      The original Colorado CDASS program allowed participants to keep half of what they saved. Some participants used the money to purchase things that Medicaid did not cover–things like hands free phones for quadriplegics. Even keeping half, participants reduced program costs by something like 20 percent.

      One of the points of the post is that one has to think beyond copays. For example, pre-Obamacare a lot of people using their own post-tax money to buy insurance chose health savings account qualified policies that didn’t have copays. The policyholder paid the first $5,000 in any year and the insurer picked up all costs after that. This allowed people to precisely control their worst case exposure and meant that the insurer didn’t have to be involved unless the deductible was met.

      I agree with John Graham on the futility of trying to have consumer directed Medicaid without fundamental changes in federal control, and I’d also vote for block grants.

      For more on Colorado CDASS and other similar programs see