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Does Arkansas' Cash and Counseling Affect Service Use and Public Costs?

Publication Date

Stacy Dale, Randall Brown and Barbara Phillips

Mathematica Policy Research, Inc.

June 2004

This report was prepared under contract #HHS-100-95-0046 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and the University of Maryland. For additional information about the study, you may visit the DALTCP home page at or contact the ASPE Project Officer, Pamela Doty, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. Her e-mail address is:


Medicaid Personal Care Services (PCS) assist beneficiaries with routine activities, such as bathing and getting in and out of bed. These services are intended to improve beneficiaries’ quality of life and allow them to live in their homes, rather than in nursing facilities. However, beneficiaries often do not receive authorized services, which raises concerns about whether they receive adequate care. Moreover, because the PCS benefit is traditionally provided through agencies, beneficiaries’ choices are sometimes limited about how and when their care is provided, especially since most agencies do not provide care on weekends or outside normal business hours. This study of IndependentChoices, Arkansas’ Cash and Counseling Demonstration program, examines the ways in which consumer direction affects the cost of Medicaid PCS, as well as the cost and use of other Medicaid and Medicare services.

Demonstration enrollment, which occurred between December 1998 and April 2001, was open to interested Arkansans who were at least 18 years old and eligible for personal care services under the state’s Medicaid plan. After completing a baseline survey, enrollees were randomly assigned to direct their own personal assistance through IndependentChoices (the treatment group) or to seek services as usual from agencies (the control group). IndependentChoices consumers had the opportunity to receive a monthly allowance, which they could use to hire their choice of caregivers (except spouses) or to buy other services or goods needed for daily living. They also were assigned counselors to receive support and advice about managing the allowance.

Outcome measures were drawn from Medicaid and Medicare claims data for the first postenrollment year for the full sample (2,008 individuals), and for the first two years postenrollment for a cohort of early enrollees (the 1,312 sample members who enrolled in the demonstration prior to May 2000). We used regression models to estimate program effects, while controlling for a comprehensive set of baseline characteristics.

Findings for the full sample for the first-year postenrollment:

  • The IndependentChoices program brought many benefits to consumers, such as increasing their satisfaction with care and reducing their unmet needs, at a cost that was slightly less than agencies would have incurred in supplying the expected hours calculated from their baseline care plan.
  • Compared to the control group, however, PCS expenditures were about twice as high ($4605 versus $2349) for the treatment group, due mainly to the control group receiving far less care than it was authorized to receive. About 28 percent of the control group received no personal care services during the follow-up period; recipients received only two-thirds of the hours in their care plan.
  • Because the increase in PCS costs of $2,256 was partly offset by savings ($726) in their expenditures on nursing facility, home health, and other Medicaid services, total Medicaid costs were only 14 percent higher for the treatment group than for controls.
  • The use and costs of hospital services were similar for the treatment and control groups, as were total Medicare costs.
  • Results were similar for those under age 65 as for those 65 and over.

Findings for the cohort of early enrollees for the second year post-enrollment:

  • Compared to the control group, PCS expenditures were $2,014 higher for the treatment group.
  • The treatment group's spending on long-term care and other Medicaid expenditures was $1,514 lower than that of the control group.
  • Compared to the control group, total Medicaid costs were only 5 percent (or $500) higher for the treatment group, a statistically insignificant difference.
  • Other results were similar to those for the first postenrollment year.



Our findings suggest that adopting a Cash and Counseling model of consumer direction can be a cost-effective way to substantially improve the access to care and well-being of people eligible for Medicaid personal care. Even if costs are higher for participants than they would have been without the Cash and Counseling option, the Arkansas experience shows that the costs can be held to no more than what the state would have expected to pay had the existing system met the needs of those eligible for PCS. Policymakers in states that might experience similar under-service in their traditional program need to decide whether they are willing to pay the higher initial costs under Cash and Counseling in order to reap its beneficial effects on quality and access to care. On the other hand, if the savings in long-term care and other Medicaid costs persist or continue to grow, as they did over the first two years, the program could eventually yield net savings despite the higher personal care costs.

States considering a Cash and Counseling program, but concerned about costs, have some options for controlling those costs. First, they can consider adopting steeper discount rates and monitoring these rates routinely, to ensure that the program continues to pay no more than it would expect to pay under the traditional system. Second, states might consider opening the program only to those who have been in the traditional program for some period of time to limit the enrollment of individuals who would not have sought PCS had the cash allowance option not existed. While such a waiting period would not guarantee the prevention of such “induced demand,” it is likely to reduce it considerably.

Note: Many of the cost results presented here appeared as a Health Affairs Web-exclusive article by the same authors on November 19, 2003. This report, while dated later, provides more-detailed descriptions of the results presented in that paper, along with supplementary findings. Future analysis will include analysis of data for the third year after enrollment for the full sample, and a fourth year for the consumers who enrolled in the study through 1999.

Cash and Counseling Demonstration