GAO-12-221R Medicaid Health Opportunity Accounts

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.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.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.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.4 Generally, Medicaid-eligible healthy adults 

under age 65 and children could voluntarily enroll in the program, subject to annual 

renewal.5 Beneficiaries who subsequently lost Medicaid eligibility could pay for 

medical or certain other expenses with the unused balances in their accounts.6

 

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.

Although the demonstration program began in January 2007, Congress prohibited 

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. 
2 GAO-12-221R Medicaid Health Opportunity Accounts

the approval of any new state HOA demonstrations in the Children’s Health 

Insurance Program Reauthorization Act of 2009 (CHIPRA) in February of 2009.7

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.8,9

• a lack of beneficiary interest in a program that did not yield any immediate 

access to the cash in the HOA account;

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:

 

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. 
3 GAO-12-221R Medicaid Health Opportunity Accounts

• 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.10

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.

The South 

Carolina HOA demonstration is scheduled to continue through May 2013.

– – – – – 

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 

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.

Carolyn L. Yocom

Director, Health Care

 

10The 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. 
4 GAO-12-221R Medicaid Health Opportunity Accounts

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

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