This is the accessible text file for GAO report number GAO-12-221R entitled 'Medicaid: Health Opportunity Accounts Demonstration Program' which was released on December 16, 2011. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. GAO-12-221R: United States Government Accountability Office: Washington, DC 20548: December 16, 2011: Congressional Committees: Subject: Medicaid: Health Opportunity Accounts Demonstration Program: 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. [Footnote 1] 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.[Footnote 2] 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.[Footnote 3] 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.[Footnote 4] Generally, Medicaid-eligible healthy adults under age 65 and children could voluntarily enroll in the program, subject to annual renewal.[Footnote 5] Beneficiaries who subsequently lost Medicaid eligibility could pay for medical or certain other expenses with the unused balances in their accounts.[Footnote 6] 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.[Footnote 7] 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. To conduct our work, we interviewed officials from the Centers for Medicare & Medicaid Services (CMS)--the agency within the Department of Health and Human Services (HHS) that administers the Medicaid program--as well as Medicaid officials from South Carolina, the only state that established an HOA program. We also reviewed relevant laws, CMS guidance to states, and other materials related to South Carolina's program. We conducted our work from October 2011 through December 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 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.[Footnote 8],[Footnote 9] 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.[Footnote 10] The South Carolina HOA demonstration is scheduled to continue through May 2013. We provided a draft of this report to CMS and to the South Carolina DHHS. CMS had no comments and South Carolina provided an update on the status of children who had been enrolled in the program, which we incorporated into the draft. We are sending copies of this report to the appropriate congressional committees. We are also sending copies of this report to the Secretary of Health and Human Services. This report is also available at no charge on GAO's website at [hyperlink, http://www.gao.gov]. If you or your staffs have any questions regarding this report, please contact me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Individuals making key contributions to this report include Walter Ochinko, Assistant Director, and Iola D'Souza. Signed by: Carolyn L. Yocom: Director, Health Care: List of Committees: The Honorable Max Baucus: Chairman: The Honorable Orrin G. Hatch: Ranking Member: Committee on Finance: United States Senate: The Honorable Fred Upton: Chairman: The Honorable Henry A. Waxman: Ranking Member: Committee on Energy and Commerce: House of Representatives: The Honorable Dave Camp: Chairman: The Honorable Sander Levin: Ranking Member: Committee on Ways and Means: House of Representatives: [End of section] Footnotes: [1] Pub. L. No. 109-171, § 6082, 120 Stat. 4, 113 (2006) (codified at 42 U.S.C. § 1396u-8). Demonstrations were required to (1) create patient awareness of the high cost of medical care, (2) provide incentives to patients to seek preventive care services, (3) reduce inappropriate use of health care services, (4) enable patients to take responsibility for health outcomes, (5) provide enrollment counselors and ongoing education, and (6) provide access to negotiated provider payment rates. [2] States were allowed to fully cover preventive care, with no costs charged to the HOA. [3] These amounts were to be adjusted each year to take into account medical inflation. States could contribute amounts in excess of these limits, but no federal matching would be available for those amounts. [4] The deductible amount had to be at least equal to 100 percent, and not greater than 110 percent, of the annualized amount of state contributions into the HOA. [5] Certain individuals, such as disabled individuals and those aged 65 or over, were not eligible to enroll. [6] Individuals enrolled for 1 year or less who lost Medicaid eligibility could use 75 percent of any remaining account balance for up to 3 years to pay for the cost of medical expenses or to purchase private health insurance. In addition, individuals who maintained an HOA for more than 1 year before losing eligibility could use any surplus funds for other purposes including job training or educational expenses, if permitted by the state, and approved by the Department of Health and Human Services. [7] Pub. L. No. 111-3, § 613, 123 Stat. 8, 101. [8] One of the other two children recently turned 19 years of age and was thus no longer eligible, and the second child lost eligibility for failing to complete the annual review form. [9] Two adults were also enrolled at one point, but their enrollment had to be terminated for failure to maintain their Medicaid eligibility. [10] The child who recently turned 19 and lost eligibility for the program is eligible to receive about $558 from the program, but has not contacted the state to collect this amount. [End of section] GAO’s Mission: The Government Accountability Office, the audit, evaluation, and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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