3. Health Savings Account Reform Option
A health savings account (HSA) is a vehicle to set aside funds on a tax-free basis to pay for health care related services. In practice, HSAs are paired with so-called high deductible health plans (HDHPs). Under an HDHP, the insured individual would be subject to high cost sharing, but the funds in the HSA have been set aside to cover these costs.
The main theory behind the HSA/HDHP model is that by being more aware of the cost of health care services, the insured individual will have a greater incentive to reduce costly overuse of unnecessary or duplicative health care services.
Under Section 6082 of the Deficit Reduction Act of 2005 (DRA), Congress provided for up to 10 demonstrations of the efficacy of an HSA model in state Medicaid programs. Under the Health Opportunity Account (HOA) provision of the DRA, states could enroll Medicaid beneficiaries in a coverage model where up to $2,500 per adult or $1,000 per child is available in an HSA-type account. After exhausting the funds in the account, participants would be eligible for full Medicaid benefits.
There are limitations on the beneficiaries who can be enrolled into the HOA program: persons age 65 and older, the disabled, pregnant women, and those who have been eligible for less than 3 months cannot be enrolled. In addition, the HOA program does not waive the cost-sharing limitations in effect in Medicaid. This has the practical effect of negating the benefit that many people see in an HSA type arrangement: namely, that the consumer has a personal financial stake in how much is spent on health care.
There has not been a strong take-up of this option. The only state to have tested an HSA-like design for Medicaid is Indiana. The Healthy Indiana Plan (HIP), which was implemented January 1, 2008, created an HSA/HDHP model for uninsured parents and childless adults who are otherwise ineligible for Medicaid or Medicare.
Under HIP, beneficiaries have an HSA-like account called a POWER account, which loosely stands for Personal Responsibility and Wellness account. Only after the POWER account funds, which are $1,100 per person, are exhausted does the HDHP coverage kick in. Unlike the HOA accounts, the POWER accounts are partially funded by participant contributions, on a sliding scale according to income. The remainder of the account is funded by state and federal funds.
Unused funds in the POWER accounts can be used to reduce the enrollee contribution in the following year, but only if the individual has received all recommended preventive care. This is intended to address any incentive to save money by not accessing preventive care.
Indiana’s reasons for pursuing the HSA/HDHP model in a section 1115 waiver instead of through the DRA had to do with the limitation on putting new enrollees into the model (the state wanted to use this as an eligible expansion vehicle) and the state’s desire to require enrollees
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