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How Does Cash and Counseling Affect Costs?

Objective. To test the effect of a consumer-directed model (Cash and Counseling) of Medicaid personal care services (PCS) or home- and community-based waiver services (HCBS) on the cost of Medicaid services.

Data Sources/Study Setting. Medicaid claims data were collected for all enrollees in the Cash and Counseling demonstration. Demonstration enrollees included those eligible for PCS (in Arkansas), those assessed to receive such services (in New Jersey), and recipients of Medicaid HCBS (in Florida). Enrollment occurred from December 1998 through April 2001. The follow-up period covered up to 24 months after enrollment.

Study Design. Demonstration volunteers were randomly assigned to have the option to participate in Cash and Counseling (the treatment group), or to receive Medicaid services as usual from an agency (the control group). Ordinary least squares regressions were used to estimate the effect of the program on costs for Medicaid PCS/waiver services and other Medicaid services, while controlling for consumers' preenrollment characteristics and preenrollment Medicaid spending. Models were estimated separately for nonelderly and elderly adults in each state and for children in Florida.

Data Extraction Methods. Each state supplied claims data for demonstration enrollees.

Principal Findings. Largely because the program increased consumers' ability to get the authorized amount of paid care, expenditures for personal care/waiver services were higher for the treatment group than for the control group in each state and age group, except among the elderly in Florida. Higher costs for personal care/waiver services were partially offset by savings in other Medicaid services, particularly those related to long-term care. During year 1, total Medicaid costs were generally higher for the treatment group than for the control group, with treatment–control cost differences ranging from 1 percent (and statistically insignificant) for the elderly in Florida to 17 percent for the elderly in Arkansas. In year 2, these cost differences were generally greater than in year 1. Only in Arkansas did the treatment–control difference in total cost shrink over time—to less than 5 percent (and statistically insignificant) in year 2.

Conclusions. Medicaid costs were generally higher under Cash and Counseling because those in the traditional system did not get the services they were entitled to. Compared with the treatment group, (1) control group members were less likely to receive any services at all (despite being authorized for them), and (2) service recipients received a lower proportion of the amount of care that was authorized. In addition, a flaw in Florida's reassessment procedures led to treatment group members receiving more generous benefit amounts than control group members. To keep total Medicaid costs per recipient at the level incurred under the traditional system, consumer-directed programs need to be carefully designed and closely monitored.

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