Changing the Incentives in Medicaid

Medicaid spending is set to skyrocket under the federal health care overhaul in the next two years, but it already consumes 31 percent of Pennsylvania’s budget. It is no surprise that the Department of Public Welfare is looking for ways to make the program, known for providing expensive and low-quality care, more cost-effective.

Last week, Welfare Secretary Gary Alexander revealed the department is looking at a form of Reverse Health Savings Accounts for Medicaid beneficiaries.

We are looking at a model to save hundreds of millions of dollars by steering Medicaid beneficiaries to the most cost-effective settings. To reward beneficiaries we would give them some incentive. . . so if the state saves $1,000 on a medical procedure we may give the beneficiary $100 or $200 as a reward.

Reverse Health Savings Accounts encourage enrollees to use health care services more discriminately. For instance, beneficiaries would be rewarded for using a primary physician for non-life threatening illnesses instead of a hospital emergency room.

According to health experts, this specific approach has never been tried in a state before, but adjusting patient incentives so they use health care effectively is nothing new. We recommended this approach nearly three years ago. Unlike more comprehensive reforms, such as block grants or waivers, this reform is very achievable since it doesn’t appear to need federal approval.