Designing the Cash and Counseling demonstration and evaluation

Health Services Research, Feb, 2007 by Pamela Doty, Kevin J. Mahoney, Lori Simon-Rusinowitz

Choosing the Best Way to Meet Budget Neutrality Requirements

To implement the CCDE, the management team and participating states had to apply for a Section 1115 waiver of certain federal Medicaid requirements. The Centers for Medicare and Medicaid Services (CMS) has statutory authority to grant such waivers, but the federal Office of Management and Budget (OMB) holds veto power. Since the early 1980s, OMB has insisted that Section 1115 waiver demonstrations be budget-neutral to the federal government. In fact, proponents of consumer-directed personal assistance have long emphasized its potential cost efficiency. For state officials, cost efficiency means spending proportionately less on overhead expenses and more on direct services. OMB requirements are stringent, however, and many demonstration programs have failed to meet them.

The measurement of budget neutrality in Section 1115 waiver demonstrations generally follows established protocol based on analysis of historic costs. First, a trend factor is calculated using 5 years of state claims data. The trend factor equals the average annual Medicaid expenditure growth rate for the services that will be affected by the demonstration. If federal budget analysts consider the state-specific trend factor to be excessive, a lower trend factor based on the CMS actuarial projections of future national Medicaid expenditure growth is used instead. Second, state-specific base-year costs are trended forward to establish per member, per month (PMPM) average annual cost caps for each year of a 5-year waiver period.

The CCDE management team, the states, CMS, and OMB agreed early on, however, not to measure budget neutrality according to the usual method. Instead, they hoped to take advantage of the CCDE's experimental design by comparing treatment group costs with control group costs. The assumption was that control group costs were the best measure of what Medicaid costs would be if no demonstration took place. However, the official "1115" waiver terms and conditions for measuring budget neutrality differed from how treatment/control group costs were compared in the evaluation. Medicaid costs for services other than PCS, home health care, and HCBS were not taken into consideration. In contrast, the evaluation cost comparisons included all Medicaid and Medicare costs (though all costs were compared for only 1 year following each participant's enrollment into the demonstration). Almost all elderly demonstration participants and many younger adults with physical disabilities were dually eligible and most of their hospital and other acute medical expenses were Medicare-covered.

Also, unlike the evaluation, the official budget neutrality measure only counted PMPM costs for home care in the months when any such costs were incurred. In other words, comparisons of home care costs of treatment and control members only included months in which treatment group members spent at least some (but not necessarily all) of their available funds and control group members received at least some (but not necessarily all) of the traditional home care services authorized in their care plans.