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Medicaid: Health Opportunity Accounts Demonstration Program

GAO-12-221R Published: Dec 16, 2011. Publicly Released: Dec 16, 2011.
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What GAO Found

We found that only one state—South Carolina—applied for and was approved to implement a demonstration prior to CHIPRA. According to a CMS official, two factors that may have prevented more states from applying were (1) the fact that states paid up front to set up the HOA for a generally healthy population that could keep any remaining amounts if they lost Medicaid eligibility, and (2) the difficulty of implementing the required electronic debit card system to access the accounts.

South Carolina began implementing its HOA in Richland County in May 2008, and faced several barriers to enrollment. 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 December 2, 2011, only 1 child was still enrolled in the program. Officials told us that children were more likely to qualify than adults because the state’s Medicaid income eligibility requirement for children was 200 percent of the federal poverty level compared to 50 percent for adults who are not pregnant or disabled. According to state officials, other factors contributing to low enrollment may have been:

  • a lack of beneficiary interest in a program that did not yield any immediate access to the cash in the HOA account

  • competition from the state’s Medicaid managed care program that was also being launched at the same time with extensive marketing compared to limited marketing for the HOA program; and

  • the reluctance of beneficiaries who were already enrolled in a Medicaid managed care plan to switch back to fee-for-service Medicaid in order to participate in the demonstration.

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 the HOAs. They also told us that the state has never had to pay out any unused account balances.

Why GAO Did This Study

The Deficit Reduction Act (DRA) of 2005 established a 5-year demonstration program allowing up to 10 states to test alternative health benefits under Medicaid, a joint federal state program that finances health care coverage for certain low-income individuals. States participating in the demonstration program were required to establish savings accounts—known as Health Opportunity Accounts (HOA)—that beneficiaries could use to pay for out-of-pocket medical expenses. The state and federal government could fund the accounts with up to $2,500 annually for an eligible adult and $1,000 for a child. The HOA had to be offered in conjunction with a high-deductible health plan, and withdrawals from the account had to be conducted electronically, without cash. Generally, Medicaid-eligible healthy adults under age 65 and children could voluntarily enroll in the program, subject to annual renewal.Beneficiaries who subsequently lost Medicaid eligibility could pay for medical or certain other expenses with the unused balances in their accounts. Although the demonstration program began in January 2007, Congress prohibited the approval of any new state HOA demonstrations in the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) in February of 2009.

The DRA directed that we evaluate and report on the HOA demonstration program at the end of the 5-year period. Specifically, we examined how many states had established an HOA program, and the barriers to enrollment that they faced.

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