How Does Cash and Counseling Affect Costs

The Cash and Counseling Demonstration and Evaluation was designed to assess whether a new, consumer-directed manner of obtaining personal care services (PCS) or home and community based services (HCBS) could improve the outcomes of beneficiaries and their caregivers without increasing the Medicaid cost per recipient for such services. Under Cash and Counseling, Medicaid beneficiaries could receive a monthly allowance to be used in lieu of PCS (in Arkansas and New Jersey) or HCBS waiver services (in Florida) they were authorized to receive. This allowance was supposed to be set so that per-person costs for care recipients under Cash and Counseling would be approximately equal to the amount that would have been expected had consumers received care under the traditional agency-based program. The program could still affect Medicaid costs, however, if the program increased the proportion of beneficiaries receiving care or the amount that they received. Furthermore, the program could affect Medicaid costs for services other than personal care in either direction. These costs could decrease if Cash and Counseling was more effective than the traditional PCS or waiver program in providing Medicaid beneficiaries with the assistance they need to remain at home instead of in nursing facilities. Costs could increase if beneficiaries were more likely to be injured or experience adverse events related to caregiving under consumer direction. While Cash and Counseling only intended to change the manner of service provision to eligible beneficiaries, it had the potential to expand the number of recipients and the amount of services they used for two reasons. First, Cash and Counseling could improve access to care by expanding the supply of home-care workers as Cash and Counseling participants could hire family and friends who would not have been interested in working for an agency during a time of agency worker shortages. Additionally, individuals who found traditional PCS or waiver services unacceptable might find a flexible allowance appealing, and therefore be more likely to seek services under Cash and Counseling. In fact, results from the Channeling demonstration suggested that offering such services did not reduce long-term care costs because many who used the more attractive home-care alternatives would not have entered a nursing home under any circumstances (Kemper, Applebaum, and Harrigan 1987; Weissert, Cready, and Pawelak 1988). The potential for cost increases due to enrollment in the program by people who would not have sought agency services was greatest in Arkansas, as it was the only state that allowed “new” PCS applicants to enroll in Cash and Counseling. Individuals had to have been previously assessed to receive personal care (in New Jersey) or already receiving HCBS waiver services (in Florida) in order to enroll in the program. The goals of this paper are to examine Cash and Counseling's (1) effects on the costs and use of PCS/waiver services, (2) spillover effects on other Medicaid costs,1 and (3) net effects on total Medicaid costs. We also seek to explain why Cash and Counseling might have affected costs for PCS/waiver services. In short, we find that Medicaid costs for PCS/waiver services were higher for the treatment group than for the control group during the 2 years after enrollment for every state and age group except among the elderly in Florida (where less than half of treatment group members actually received the intervention). Medicaid costs for PCS/waiver services were higher both because the program increased the number of people receiving paid care (particularly in Arkansas, but also in New Jersey) and because costs per recipient were greater for the treatment group than for the control group (in all three states). Costs per recipient were higher for the treatment group primarily because (1) the control group received less care than authorized at baseline (in Arkansas and New Jersey), and (2) the treatment group received more care than authorized at baseline (among children and the nonelderly in Florida). While the participants' higher personal care/waiver costs were partially offset by lower costs for other long-term care services, total annual Medicaid costs were higher for the treatment group than for the control group for every state and age 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 1.