A New Option For States: Medicaid Self-Directed Plans

By: Nicole Hamberger
Seton Hall University School of Law
Class of 2011

Photo by Joe Mud via Flickr

Medicaid beneficiaries often need assistance in personal daily activities such as dressing, grooming, bathing, and meal preparation.ⁱ For some of these consumers, home-care agencies can manage the care.ⁱⁱ But for others, the use of such agencies poses significant challenges and even perils.

When there are worker shortages at home-care agencies, when physical distance impedes access to rural consumers, and when workers are unwilling to enter high-crime urban areas where the beneficiary resides, many Medicaid beneficiaries lose access to care.ⁱⁱⁱ Further, many agency workers refuse to work weekend or evening hours, making the provision of care at such times difficult if not impossible to secure.^iv The inability to get needed services due to lack of access is only one potential problem arising from traditional home-care agency use.

Other problems arising from the use of home-care agencies relate to worker limitations. Restrictions on the kinds of care provided may stem from liability concerns, such as the inability for home-care agency workers to administer medications or supply transportation.^v Agency workers do not provide assistance in securing or installing home modifications or assistive devices, such as wheelchair ramps or microwaves, which would allow Medicaid beneficiaries to be more independent at their homes.^vi Other limitations exist when language barriers or cultural misunderstandings prevent proper and effective communication.^vii Such limitations can seriously blight the efforts of even the most well-meaning providers of care.

By the 1990s, many states became aware of these and other problems that certain Medicaid beneficiaries face using home-care agencies.^viii Self-directed care was proposed as an alternative method of care to Medicaid beneficiaries.^ix Self-directed care is defined as “a service delivery mechanism that empowers individuals with the opportunity to select, direct, and manage their needed services and support identified in an individualized service plan and budget plan.”^x The Robert Wood Johnson Foundation awarded 19 states grants to create self-determination care methods in the mid 1990s, including New Jersey, Pennsylvania, and Florida, pursuant to section 1905(a)(4) of the Social Security Act.^xi Those states’ projects eventually became Medicaid-funded programs under section 1915(c) of the Social Security Act, known as the “home and community-based services waiver program.”^xii Then, in the late 1990s, Robert Wood Johnson decided to offer these grants again in hopes of developing “Cash and Counseling” (C&C), a “national demonstration and evaluation project in three states” which was a form of self-directed care.^xiii C&C projects became demonstration programs under Section 1115 of the Social Security Act, permitting the self-direction option.xiv Then, when the Deficit Reduction Act (DRA) of 2005 took effect, States could offer the self-directed option through section 1915(i) as well as section 1916(j) of the Act.^xv Given this plethora of authority, the Centers for Medicare and Medicaid (CMS) submitted a Final Rule on October 3, 2008 to “provide[ ] guidance to States that want to administer self-directed services through their State Plans as authorized by the Deficit Reduction Act of 2005.”^xvi

The Rule first explains that the Act extends to those states that wish to create a state self-directed service plan; it is purely optional.^xvii If a state so chooses to create such a plan, then that state’s plan will apply only to those individuals who would otherwise receive traditional state-based care.^xviii Then, “within an approved self-directed services plan and budget, individuals can purchase personal assistance and related services and hire, fire, supervise, and manage the individuals providing such services.”^xix Individuals are also permitted by the Act to “hire any individual capable of providing the assigned tasks, including legally liable relatives, as paid providers of the services” and may “purchase items that increase independence or substitute for human assistance to the extent that expenditures would otherwise be made for the human assistance.”^xx The regulations do not explicitly address illegal immigrants; however, one provision of the act may implicitly allow such individuals to qualify for self-directed workers; that which allows for any “legally liable relative” to qualify as caregiver. A “legally liable relative” is described below:^xxi

“legally liable relatives means persons who have a duty under the
provisions of State law to care for another person. Legally liable
relatives may include any of the following:

(1) The parent (biological or adoptive) of a minor child or the guardian of a minor child who must provide care to the child.
(2) Legally-assigned caretaker relatives.
(3) A spouse.” ^xxii

Therefore, an illegal immigrant could potentially qualify as a caregiver by virtue of his or her relationship to a legal citizen who qualifies for Medicaid.

The Act states that a state’s “self-directed PAS ‘budget’ is not to exceed the amount that the State would pay for the services and supports if those services and supports were provided under the traditional service delivery model.”^xxiii Yet while the individual state sets the budget (and informs the individual of his or her budget’s limit), it is the individual covered by the plan or his or her defined representative who may “exercise choice and control over the budget, planning, and purchase of self-directed PAS, including the amount, duration, scope, provider, and location of service provision.”^xxiv Room and board is not covered by the Act, nor is the option to live in a traditional live-in care environment, unless the owner of such an entity is a spouse or blood relative.^xxv In dealing with monetary allocation, the Act “indicates that states may employ a financial management entity to make payments to providers, track costs, and make reports.”^xxvi. Such entities are to be compensated not on a commission basis, but “in accordance with section 1903(a) of the [Social Security] Act.”^xxvii. Section 1903 of such act provides that entities are to be compensated on a percentage basis of the sums spent in accordance with the lengthy provisions of section 1903(a). ^xxvii.

The individualization and flexibility permissible by the Act are among its greatest potential benefits. The Act delegates to the individual the opportunity to control every aspect of his or her care, including the allocation and management of care resources. According to the studies conducted in the aforementioned Robert Wood Johnson grant programs, self-directed plans result in “fewer unnecessary institutional placements . . . higher levels of satisfaction . . . fewer unmet needs . . . higher continuity of care because of less worker turnover . . . and efficient use of community services and supports.”^xxviii Further, highly personal activities such as toileting and bathing should rightly be conducted by an individual whom the beneficiary trusts and feels comfortable around. Two authors have suggested that minority patients will particularly benefit from such services, as they are able to hire and train culturally similar or understanding individuals, since “[w]ithout sensitivity to the cultural norms of the beneficiary, valuable information about the true level of need can easily be overlooked or lost.”^xxvix There is also evidence that enrollees may receive more of the care that they are authorized to receive when using a self-directed plan.^xxx

However, there are many concerns that arise under the Act as well. First, the ability of individuals to know what kind of care is truly best for them is questionable. “Part D” of Medicare, gives all senior citizens federal funds to buy the prescription drug plan of their choice, regardless of their sophistication or knowledge on the matter. Similarly with state-directed plans, there is concern that the caregivers chosen by Medicaid beneficiaries will be “inadequately trained” since no qualifications are necessary to be considered a caregiver, unlike traditional plans.^xxxi There is also concern that “that there [will be] insufficient oversight of the care being provided beneficiaries, and that the potential for fraud, abuse, neglect, and exploitation” may increase as there is no longer direct state control over the care provided.^xxii Further, there are concerns that state-directed service plans cost more than traditional agency-delivered services; something that CMS concedes may be true.”^xxxiii Since the Act does not require states to limit the number of Medicaid beneficiaries who choose a state-directed plan, there could be enormous costs for taxpayers.^xxxiv Further, the items participants may buy under the act which “increase independence or substitute for human assistance” and include “additional goods, supports, or services” are not further defined, allowing for potentially questionable purchases under state funds; purchases not permissible if they were using the money in the traditional home-care system.^xxxv

While the Act is commendable for providing an alternative to the traditional home-care model, perhaps the flexibility in care options should be balanced by a more comprehensive set of regulations and requirements; only then will worthy individuals receive the most individualized, albeit cost-effective, care possible.
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i Robert Wood Johnson Foundation, Developing and Implementing Self-Direction Programs and Policies: A Handbook (2009), www.cashandcousneling.org/resources/pdf/cc-full.pdf

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Low Income Benchmark Methodology for Drug Plans Under Medicare

By Jason Halpin

Photo by Genbug via Flickr

Each year, Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug (MA-PD) plans submit bids to the Centers for Medicare and Medicaid Services to determine what their beneficiary premia will be. And each year, Medicare calculates the Part D premium low-income subsidy (LIS or the “benchmark premium”) for low-income beneficiaries based on the new premiums.

The upshot of the annual change in both the beneficiary premium and the LIS is that one year, the subsidy could pay for a low-income beneficiary’s premium in its entirety, but the next year, the premium could increase or the subsidy could decrease, leaving the beneficiary with the possibility they could have to pay a monthly premium equal to the difference between the premium and the subsidy.

Fortunately for low-income beneficiaries, Medicare seeks to avoid this scenario. If full-benefit dual eligible beneficiaries do not actively choose a plan when they first enroll in Medicare, they are enrolled into a PDP plan where they would not pay a premium. If, in the following year, they would have to pay a premium, LIS-eligible beneficiaries may “elect,” by doing nothing, to be reassigned to a PDP with no premium. LIS-eligible beneficiaries can also choose to stay in their plan and pay a premium or pick another plan with or without a premium.

Unfortunately for low-income beneficiaries, those who are subject to reassignment may also be subject to the complexity and hassle of having to change their pharmacy and their medications, and perhaps having to get new prescriptions from their doctors. Congress and CMS, therefore, have adopted a policy of seeking mechanisms to avoid reassignment.

When establishing the guidelines for determining the LIS, Congress mandated, in 42 U.S.C. § 1395w-114(b), that weighted averages should be used, presumably to ensure that the benchmark premium accurately reflects the actual average premium for an individual PDP or MA-PD beneficiary in the region and is not skewed by outliers, such as a comparatively lightly subscribed PDP with abnormally low premiums. Maintaining stability in the benchmark premium helps to promote continuity for beneficiaries and cost predictability for the government.

Figuring out the precise formula for the benchmark premium is in the hands of CMS, pursuant to its authority to administer the Medicare program under 42 U.S.C. § 1395hh. Accordingly, on April 3, 2008, CMS issued a final rule, Modification to the Weighting Methodology Used to Calculate the Low-Income Benchmark Amount.

While 42 U.S.C. § 1395w-114(b) states that Part D premium amounts must be “weighted,” to calculate the benchmark premiums, it says nothing about what that weight should be. Prior to the promulgation of the rule the weight given a particular PDP or MA-PD plan equaled a percentage, with the numerator being the number of Part D eligible beneficiaries enrolled in the plan and the denominator being the number of Part D eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

The new regulations change the formula such that the weight given a particular PDP or MA-PD plan now equals a percentage, with the numerator being the number of Part D LIS-eligible beneficiaries enrolled in the plan and the denominator being the number of Part D LIS-eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

By changing the formula to reference only LIS-eligible beneficiaries, the rule gives more weight to the premiums of plans that serve more low-income beneficiaries. Proponents of this formulation argue that it stabilizes and, in general, increases the benchmark premium, thereby reducing the risk of reassignment.

As CMS suggested in its response to comments on the rule, PDPs typically support a greater share of LIS enrollment, thanks to auto and facilitated enrollment. PDPs also typically have higher premiums than MA-PDs because MA-PDs can apply Part A and B rebates to lower their Part D premiums. The rule’s proponents argued that giving more weight to the higher PDP premiums–due to their higher LIS enrollment–would push the benchmark higher, bring more plans under the line, and protect more beneficiaries from reassignment. CMS estimated that if  LIS-enrollment weighting were used in 2008, reassignments would have been reduced by 850,000 from 2.1 million.

Critics still cried foul. Because the rule, and its predecessor regulations, dictated that MA-PD post-rebate premiums (which are about $20 less than PDP premiums on average) be factored into the benchmark formula, MA-PD premiums exerted downward pressure on the benchmark regardless of the weight given PDPs, leaving more PDP plans than necessary above the line and forcing more reassignments than the critics would tolerate.

In 2009, the critics’ views were largely borne out. The predicted benchmark increases were less dramatic than anticipated; though 28 out of 34 regions experienced increases (CMS predicted 27 out of 34), the increases in six of these regions were negligible (50 cents or less). Six regions saw decreased benchmarks. In addition, 1.6 million LIS-eligible beneficiaries were reassigned to new PDPs, and 620,000 were notified they would need to either pick a new plan or start paying a premium; the anticipated reduction was not as large as CMS expected.

To its credit, however, CMS responded appropriately in 2009, establishing a Medicare Demonstration to use pre-rebate MA-PD premiums in the benchmark formula. This greatly reduces the skewing effect of low post-rebate MA-PD premiums. According to the Kaiser Family Foundation, the pre-rebate MA-PD premiums  are actually slightly higher than PDP premiums. The weight of LIS-heavy PDP premiums thus pushed benchmark premiums up in all but one region for 2010, and 1.1 million beneficiaries were reassigned.

While some critics maintain that CMS could do more to reduce reassignments, the methods they suggest have rightly been rejected by CMS. Critics suggest the similar options of either allowing plans to waive the difference between their premiums and the benchmark, or reinstituting CMS’ de minimis policy, whereby an LIS-eligible beneficiary left with a premium that is less than a de minimis amount after recalcuation and application of the subsidy would not have to pay that de minimis amount.

CMS rejected both ideas because both provide a disincentive to plans keeping their bids low. If plans knew they could reduce their premiums for LIS-eligible premiums regardless of the premium their bids produced, they would not even try to keep their bids low. Also, if a plan had to write off a large amount of its premium, the revenue estimates in its bid would be undermined.

While recrafting the benchmark formula has not eliminated all reassignments, it has been very successful in reducing them. The new formula has reduced reassignments by half since 2008 and assured that less than 10 percent of LIS-eligible beneficiaries are reassigned. While CMS must work on reducing this number further, the reformulation of the benchmark premium is a good start.

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