Rules on Health Savings (and Related) Accounts (HSAs) in Medicaid

In Medicaid adult coverage waivers, beneficiary accounts are individual accounts that include state and enrollee contributions, with enrollee contributions typically in the form of cost-sharing or premium payments. Upon an individual's enrollment, the state funds the account, and enrollee contributions are added as they accrue.  Enrollees may be rewarded for making regular contributions or for having money left over in their accounts at the end of a year. Costs higher than account balances are covered by Medicaid.

A modified version of an beneficiary account was first allowed in Medicaid in 2008. However, the program was not very popular and closed a year later. Now, states that want a health savings account feature in their Medicaid program must get approval from the Centers for Medicare and Medicaid Services (CMS).

Concerns regarding HSA-like accounts in Medicaid adult coverage waivers

Accounts are confusing for Medicaid enrollees.

  • Data from Indiana show that most Medicaid enrollees with HSAs don't know how to use it. Indiana included a Medicaid HSA feature in its adult coverage waiver, HIP 1.0, in 2008, and again in its Medicaid expansion waiver, HIP 2.0, in 2015. A 2016 evaluation of Indiana’s program showed only 60 percent of respondents to a survey heard of the POWER Accounts (the name of Indiana’s HSA), even though every enrollee had one. Of those who had heard of a POWER Account, only three quarters believed they had such an account. Many HIP 2.0 members were unable to answer simple questions about how the accounts worked or how rewards were accrued.
  • Lack of enrollee understanding undermines the stated purposes of HSAs. Proponents claim Medicaid HSAs make enrollees smarter health care consumers. For accounts to do that, enrollees have to understand the accounts. Indiana's Healthy Indiana Plan is one of the most established Medicaid HSA programs, yet understanding of it is low.

Accounts are typically complex and expensive to administer

  • HSAs require a lot of administrative effort. States must closely track enrollee health spending, premium payments, and sometimes cost-sharing liability. The state must provide detailed, accurate notices to enrollees. Notices must be current, even real time in some cases. This complexity adds costs for the state Medicaid agency, providers, and contracted managed care plans.

There is little evidence showing HSAs help Medicaid enrollees use services more cost-effectively.

  • Evidence to support HSAs in Medicaid is limited. There are a number of ways to structure HSAs, but there is little evidence to show they incentivize Medicaid enrollees to make better health care choices.
  • HSAs that require enrollee contributions (cost-sharing, premiums) may cause enrollees to cut back necessary health services. HSAs that require enrollees to make contributions could lead enrollees to cut back on appropriate care or drop coverage. Studies show that when faced with out-of-pocket costs (premiums, cost-sharing), Medicaid enrollees limit both essential and non-essential care.

If you can't avoid HSAs in Medicaid: Suggestions to make them work better for Medicaid enrollees

Incentives should not be punitive.

States with HSA Waiver Element






*Waiver Pending Approval

  • Have positive incentives. Positive incentives could include account rollovers for completing age- and health status-appropriate wellness activities. 
  • Exclude or minimize enrollees' financial contributions. There is abundant data showing that cost-sharing, premiums, and other financial requirements cause low-income individuals to cut back on effective care, not just on ineffective care. Eventually, that can increase Medicaid costs.  
  • Avoid other punitive penalties. Avoid including penalties such as disenrollment or benefit reductions. See the discussion of premiums and penalties—the same arguments apply.

Incorporate significant enrollee education.

  • HSAs will work only if enrollees understand the program. To truly encourage better health care choices, Medicaid enrollees need to understand how the program works. That means spending money on enrollee education, both at the time of enrollment and periodically throughout the year.

Require the state to report on the program's impact on enrollees and administrative costs.

  • Require the state to study the impact on enrollees' service use. Require the state to monitor and make annual reports on (1) enrollees' understanding of the program, (2) whether enrollees change their behavior as a result of the HSA's incentives, and (3) whether the program has adversely affected enrollees' access to care. Be sure an unbiased federal report using a third party researcher is performed in addition to any state report.
  • Require reports on administrative costs. Require the state publish an annual report on program costs, showing both the state's direct costs to administer the HSA and added costs to contract managed care plans.

Start making the case to change the program if it isn't working for consumers.

  • Collect evidence of the impact on consumers. Legislation and waivers can be changed. Work with research groups to document the impact of the HSA program on enrollees. Use stories from enrollees and providers to help build your case to remove or restructure the program. 1115 waive programs are demonstrations—if a demonstration reveals poor outcomes, it should be ended.
  • Plan a campaign with a broad coalition. Reach out to as many groups as possible to build a coalition to argue for program changes.