Consumer-Directed Health Care for Medicaid Patients: Past and Future Reforms

With the election of Donald Trump and unified control over Congress, Republicans are poised to reshape health policy in the United States. Although attempts to “repeal and replace” the Affordable Care Act (ACA) have exposed rifts within the Republican party, one target of reform with broad appeal among Republicans is Medicaid, which provides health insurance for low-income and disabled Americans. Congressional Republicans and Trump’s selections to lead the Department of Health and Human Services and the Centers for Medicare & Medicaid Services, Tom Price and Seema Verma, respectively, have proposed capping the amount of federal support for Medicaid, leading states to seek creative solutions for cost savings. One potential solution to future budget constraints is using consumer-directed principles to craft Medicaid programs.¹

The phrase “consumer directed” has been used in health care to suggest a variety of policy mechanisms. Consumer-directed principles have traditionally been framed as a means to incentivize higher-quality health decisions² and to provide flexibility and choice for patients. In the context of Medicaid reforms, consumer-directed principles—defined here as premiums, cost sharing (e.g., deductibles, coinsurance, and copayments), health savings accounts, and healthy behavior incentive programs—now signify that patients take on greater financial burden and clinical decision-making. Consumer-directed principles in Medicaid incentivize desired behaviors among low-income patients with great financial stakes. Advocates of these principles contend that they encourage patient awareness of costs and decision-making through the creation of financial and behavioral incentives.

Such policies align with Republican ideals of personal responsibility and reliance on free-market principles. However, evaluations of the effectiveness of consumer-directed principles have highlighted the potential shortcomings of these components.³ Here we highlight a shift in the spread and use of these principles in Medicaid that the Trump administration is likely to push even further, with concerning potential effects on the most vulnerable.

To evaluate how states have incorporated consumer-directed principles within Medicaid programs, we performed an analysis of Medicaid state plans, amendments, and waiver applications within three Medicaid populations—Section 1931, ACA Medicaid expansion, and Section 1115 expansion states—highlighting changes in the use of these Medicaid principles over time (Table 1). Section 1931 of the Social Security Act was part of the welfare reform legislation signed by Bill Clinton in 1996, creating a new category of eligibility for low-income parents in all 50 states.⁴ Yet, with state-defined eligibility thresholds, many low-income parents remained ineligible for Medicaid.

TABLE 1—

Consumer-Driven Components of Medicaid Programs in Medicaid Expansion Waiver States: United States, 2014–2017

	Premiums		Cost Sharing		Health Savings Accounts		Healthy Behavior Incentives
State	Section 1931 Expansion	Section 1115 Expansion	Section 1931 Expansion	Section 1115 Expansion	Section 1931 Expansion	Section 1115 Expansion	Section 1931 Expansion	Section 1115 Expansion
Arkansas	No	Yes	Yes	Yes	No	Yes	No	Yes
Indiana	Yes	Yes	Yes	Yes	Yes	Yes	No	Yes
Iowa	No	Yes	Yes	Yes	No	No	No	Yes
Michigan	No	Yes	Yes	Yes	No	Yes	No	Yes
Montana	No	Yes	Yes	Yes	No	No	No	No
New Hampshire	No	No	Yes	Yes	No	No	No	No

Note. Data were collected from individual state waiver applications (https://www.medicaid.gov/medicaid/section-1115-demo/demonstration-and-waiver-list/waivers_faceted.html). Premiums are required financial contributions made by the beneficiary to maintain coverage. Cost sharing is an amount of money paid out of pocket by a beneficiary for medical care and includes coinsurance, copayments, and deductibles. Health savings accounts are financial instruments used to help beneficiaries pay for medical care. Healthy behavior incentives encourage health-promoting activities via financial rewards.

The ACA’s optional Medicaid expansion gave states the flexibility to further expand coverage to all low-income adults living below 138% of the federal poverty level, regardless of their parental status. Of the 31 states that have expanded Medicaid under the ACA, six (Arkansas, Iowa, Michigan, Indiana, New Hampshire, and Montana) have used Section 1115 waivers to modify their Medicaid programs, allowing them to design programs that do not meet all federal regulations and permitting experimentation with Medicaid structure and administration. Those states obtaining expansion waivers have largely done so to include Republican-inspired features, such as consumer-directed principles, in their Medicaid programs.⁵

Over time, as Medicaid eligibility has expanded, states have further pushed the use of consumer-directed principles. Among the states with a 1931 adult expansion population (all 50 states have such a population), 39 require cost sharing for beneficiaries, with 36 requiring payment for all beneficiaries regardless of income (Table A, available as a supplement to the online version of this article at http://www.ajph.org). Cost sharing was the only commonly used consumer-directed principle by states prior to the ACA. Under Verma’s guidance, Indiana was the only pre-ACA state that required premiums or used health savings accounts for Medicaid beneficiaries.

Although states that have expanded traditional Medicaid under the ACA continue to require cost sharing for some of the newly eligible, the trend toward consumer-directed principles in Medicaid is particularly manifest among Section 1115 waiver states. All six waiver states require cost sharing, with four requiring cost sharing for newly eligible beneficiaries regardless of income. All waiver states except New Hampshire have implemented a monthly premium for their Medicaid programs. Premiums among ACA expansion states are unique to waiver states; no state that has expanded “traditional” Medicaid includes them.

Four of the waiver states have made further changes in premiums or cost sharing by attaching disciplinary measures for failing to make contributions. For example, Indiana Medicaid beneficiaries are provided a high-deductible health plan in conjunction with a health savings account to which they are required to make monthly contributions; failure to do so results in expulsion from health coverage or transfer to a less robust benefit package.

Healthy behavior incentive programs, which employ insights from behavioral economics to offer financial rewards to patients who make good health decisions, are a second policy change increasingly implemented by waiver states. Four waiver states have received approval to implement such a program. For example, Michigan incentivizes primary care providers and beneficiaries to complete an annual health risk assessment intended to encourage healthy behavior changes such as tobacco use cessation in exchange for cost-sharing reductions. Although unproven in their efficacy, these programs are an attractive option for other states as well, providing more “skin in the game” for enrollees. Arizona initially expanded traditional Medicaid but has since received approval for a waiver featuring healthy behavior incentive programs, among other alterations.

Three important implications follow from the spread of consumer-directed principles in Medicaid. First, the increasing popularity of these features has an uncertain effect on public health in the United States. Increasing financial costs for medical appointments, treatments, and medications can dissuade Medicaid enrollees from seeking health services, especially for needed preventive care.⁶ Supporters of consumer-directed principles argue that, if done with caution, states can administer them in a way that improves health by reducing unnecessary care and promoting healthy behaviors. However, the impact of these principles on Medicaid populations is not well understood and requires rigorous evaluations to determine both potentially positive and potentially negative consequences.

Second, Republican-proposed changes to cap states’ Medicaid financing could further encourage implementing consumer-directed Medicaid components. Although these reforms would grant greater stability for federal budgetary projections,¹ state budgets would be placed at greater financial risk if costs increase too quickly.⁷ States, many of which are required to balance their budgets annually, would have to allocate additional spending, reduce services for beneficiaries, or curtail Medicaid eligibility to accommodate increased costs. As states seek to minimize their financial risks, they may rely on consumer-directed approaches to constrain health care use and costs, as evidenced by cases in which waiver states restrict enrollment for enrollees with lapsed premium payments.

Finally, regardless of whether Congress passes a “repeal and replacement” plan, states’ use of consumer-directed reforms may be intensified by the Trump administration’s receptivity to waiver applications. Although states have successfully implemented premiums, health savings accounts, and healthy behavior incentives through waivers, the Obama administration had rejected more controversial elements such as work requirements, time limits on coverage, and reductions in benefits. However, the Trump administration could reshape Medicaid through its willingness to implement these additional consumer-directed components through waivers.

Should the ACA survive its current legislative challenges, it could push more states to strongly consider expansion of Medicaid with increased federal flexibility. Although great uncertainty remains regarding the specifics of future reforms of Medicaid and US health care more generally, efforts led by Republicans will undoubtedly seek to further the notion of the patient as a consumer. However, caution should be exercised in implementing reforms in which benefits are unproven and the risks to public health may be considerable for the most vulnerable in our country.