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The Effect of Cash and Counseling on Medicaid and Medicare Costs: Findings for Adults in Three States

Publication Date



U.S. Department of Health and Human Services


The Effect of Cash and Counseling on Medicaid and Medicare Costs: Findings for Adults in Three States

Executive Summary

Stacy Dale and Randall Brown

Mathematica Policy Research, Inc.

May 2005

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:



Many people at Mathematica Policy Research, Inc. (MPR) made this report possible. Licia Gaber, Kate Scheppke, and Amy Zambrowski programmed the analysis, and Valerie Cheh provided thoughtful comments on an earlier draft. Patricia Ciaccio carefully edited the report, and Jane Nelson skillfully produced it.

This report has also benefited greatly from the thoughtful comments and suggestions of individuals outside MPR. In particular, we appreciate the input of Pamela Doty, Sue Flanagan, Kevin Mahoney, Tonya Moore, Marie Squillace, and Lori Simon-Rusinowitz of the Cash and Counseling Demonstration and Evaluation management team; Debby Ellis of the IndependentChoices program (Arkansas); Tom Reimers, Susan Kaempfer and Carol Schulz of the Consumer-Directed Care program (Florida); Marguerite Schervish of the Centers for Medicare & Medicaid Services (CMS); and external reviewers Peter Kemper, Josh Wiener, and Nancy Miller.

Special thanks are also due to members of the Cash and Counseling staff program staff who cheerfully answered our questions and assisted us in obtaining administrative cost data. Sandra Barrett and Debby Ellis of Arkansas, Lou Comer and Juanita Webb of Florida, and Renee Davidson and Carolyn Selick of New Jersey particularly deserve mention.

The opinions presented here are those of the authors and do not necessarily reflect those of the funders (the Robert Wood Johnson Foundation and the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation), the Cash and Counseling National Program Office, the demonstration states, or CMS.



This study of the Cash and Counseling Demonstration program for adults in the three participating states--Arkansas, New Jersey, and Florida--examines how a new service delivery model of consumer direction affected Medicaid and Medicare service use and costs. The traditional system of providing Medicaid personal care services (PCS) through home care agencies gives consumers few choices about how and when their care is provided. Therefore, some consumers may not receive the type of care they feel they need, when and how they want it. As a result, some are dissatisfied with their care, have unmet needs, and are unhappy with the quality of their lives. The premise of the Cash and Counseling Demonstration was that, if consumers were given control over a cash allowance, they would select the types and amounts of care and services to best meet their needs and enhance their lives. When designed, the program was expected to cost no more per recipient per month of service than the traditional program.1 Furthermore, if there were sizable improvements in quality of life and reduction in unmet needs, other Medicaid costs might be reduced. On the other hand, if the care provided were inadequate, such costs might increase.

Demonstration enrollment, which occurred between December 1998 and July 2002, was open to interested beneficiaries eligible for PCS under their state Medicaid plan (in Arkansas and New Jersey) or under a waiver (in Florida). After a baseline survey, enrollees were randomly assigned to direct their own personal assistance as Cash and Counseling consumers (the treatment group) or to receive services as usual from agencies (the control group). Cash and Counseling consumers had the opportunity to receive a monthly allowance, which they could use to hire their choice of caregivers or to buy other services or goods needed for daily living. To receive the allowance, consumers had to prepare a spending plan describing how they would use the allowance and have their counselor approve it. They also could call on counselors for support and advice on managing the allowance. Each state's program differed somewhat from the others in how it was implemented, the size of the allowance, and how the allowance could be used, but all three states kept the basic principle of providing an allowance with limited constraints and helping the consumer manage it.

We drew outcome measures from Medicaid and Medicare claims data for the first postenrollment year for the full sample (2,008 people in Arkansas, 1,730 in New Jersey, and 1,817 in Florida), and for the first two years postenrollment for a cohort of early enrollees. Of particular interest were the program's effects on expenditures for the services that the program "costed-out" (that is, those services for which an allowance was provided instead) and on total expenditures for all Medicaid services. We used regression models to estimate program effects, while controlling for a comprehensive set of baseline characteristics. We constructed separate estimates for the elderly and nonelderly because of their potentially different needs, living situations, support networks, and types of disabilities, as well as for the first and second years postenrollment.


By the third month after enrolling in the demonstration, more than 80 percent of treatment group members in Arkansas had received allowances. In Florida and New Jersey, the processes for setting up spending plans and allowances were time-consuming, so most treatment group members did not start receiving their allowances until at least six months after enrollment. About a third of treatment group members in New Jersey and almost half of those in Florida (62 percent of the elderly and 42 percent of the nonelderly) never received an allowance, mainly because they decided they were satisfied with the traditional program.

In Arkansas, PCS expenditures were about twice as high for the treatment group as for the control group during the first year postenrollment, primarily because the control group received less care than it was authorized to receive. Nearly one-fourth of control group members did not receive any paid PCS. Those who did, as a group, received only 68 percent of the hours of care to which they were entitled, rather than the 86 percent they had historically received. The average total PCS expenditures among allowance recipients per month were slightly less than the costs that agencies would have incurred, on average, if they had been responsible for providing services to these consumers and supplied the historic proportion of baseline care plan hours.

Savings in Medicaid expenditures on nursing facility, home health, and other Medicaid services partly offset the larger PCS costs of the treatment group. Thus, during the first postenrollment year, the treatment group's total Medicaid costs were only about 15 percent (or $1,531) higher than those of the control group (Table ES.1). Because the savings in other Medicaid services (particularly nursing facility, home health, and other home care waiver services) grew between the first and second year, and the gap in PCS costs shrank somewhat, the difference in total Medicaid costs during the second year fell to $500 (5 percent of the control group mean), but this was a statistically insignificant amount. The fact that treatment group members had 40 percent fewer nursing facility stays than control group members was especially noteworthy. Results were similar for the elderly and nonelderly, although both the treatment-control difference in PCS expenditures and the savings in nonPCS expenditures were larger for the nonelderly.

TABLE ES.1. Effect of Arkansas's Cash and Counseling on Personal Care and Medicaid Expenditures
  Personal Care Expenditures
All Medicaid Expenditures
Treatment Control Difference Treatment Control Difference
-  Nonelderly 5,435 2,430 3,005*** 14,125 12,862 1,263
-  Elderly 4,313 2,292 2,021*** 11,523 9,822 1,701***
-  All Ages 4,605 2,349 2,256*** 12,219 10,688 1,531***
-  All Ages 3,852 1,839 2,014*** 11,082 10,582 500
NOTE: Year 2 includes only those who enrolled in the demonstration before May 1, 2000.

*** Treatment group mean diferent from control group mean at .01 level.

In New Jersey, PCS costs for the treatment group were 16 percent higher than for the control group during the first year, and this difference grew over time. The treatment-control difference in PCS costs was due largely to the fact that the treatment group was more likely to receive at least some PCS. For the nonelderly, however, costs per month for recipients also were higher for the treatment group. This appeared to be because nonelderly control group recipients received only about 90 percent of their baseline care plan amount, and no discount factor was applied to the baseline care plan in setting the allowance amount for treatment group members. Thus, the gap in personal care costs is larger for the nonelderly.

Savings in other Medicaid services (transportation, home health, and nursing facility) offset about half the treatment group's higher PCS costs in the first year, yielding a small (statistically insignificant) treatment-control difference in total Medicaid costs (about $861, or four percent of total Medicaid costs for the full sample) (Table ES.2). These expenditure results were similar for the elderly and nonelderly. The difference in total Medicaid costs grew to $2,379 in year 2, because the treatment-control difference in PCS expenditures grew by more than 60 percent, and the estimated savings in other Medicaid services essentially disappeared.

TABLE ES.2. Effect of New Jersey's Cash and Counseling on Personal Care and Medicaid Expenditures
  Personal Care Expenditures
All Medicaid Expenditures
Treatment Control Difference Treatment Control Difference
-  Nonelderly 11,166 9,220 1,946*** 26,863 26,049 814
-  Elderly 11,891 10,650 1,241*** 20,236 19,407 828
-  All Ages 11,557 9,970 1,587*** 23,370 22,509 861
-  All Ages 11,337 8,792 2,545*** 22,033 19,653 2,379***
NOTE: Year 2 includes only those who enrolled in the demonstration before January 1, 2002.

*** Treatment group mean diferent from control group mean at .01 level.

In Florida, waiver costs were $2,108 (or 15 percent) higher for the treatment group than for the control group (Table ES.3). This difference was driven by the nonelderly, where the treatment-control difference in costs for waiver services was $3,696. In contrast, the treatment-control difference for these costs was only $433 (and statistically insignificant) for the elderly. Nonelderly allowance recipients incurred costs that were substantially higher-than-expected according to their baseline care plans. These high allowance costs appear to stem from the fact that many recipients, when they developed their spending plans, were assessed to need more care. Because there were no offsetting savings in other Medicaid costs, there was a sizable treatment-control difference in total Medicaid costs for the nonelderly and for the full sample. In year 2, the program's effects on Medicaid expenditures were similar to those in year 1. Finally, while the program had no effect on service receipt of waiver services in year 1, it did significantly affect it in year 2 for the elderly, as somewhat more treatment group members (81 percent) than control group members (76 percent) received waiver services.

TABLE ES.3. Effect of Florida's Cash and Counseling on Waiver and Medicaid Expenditures
  Waiver Expenditures
All Medicaid Expenditures
Treatment Control Difference Treatment Control Difference
-  Nonelderly 22,017 18,321 3,696*** 27,433 24,106 3,327***
-  Elderly 10,496 10,063 433 15,971 15,833 137
-  All Ages 16,301 14,193 2,108*** 23,745 19,973 1,772***
-  All Ages 18,354 15,978 2,375*** 24,394 21,676 2,718***
NOTE: Year 2 includes only those who enrolled in the demonstration before October 1, 2001.

*** Treatment group mean diferent from control group mean at .01 level.

In all three states, the treatment group's use and cost of Medicare services was similar to that of the control group. Therefore, the program's effects on combined Medicare and Medicaid service use and costs are similar to the effects on Medicaid use and costs.


A key benefit of the program--increasing access to paid care--may lead to increased costs. Arkansas wanted its program to increase access to paid care. Florida and New Jersey, however, restricted their programs to consumers who already were receiving services (Florida) or who had been assessed and authorized to receive personal care by an agency (New Jersey). As a result, the program's impact on whether beneficiaries received paid care was limited to the second year in Florida, but it was sizable in New Jersey and particularly striking in Arkansas. Apparently, Cash and Counseling increased beneficiaries' access to paid care because, even though there was a labor shortage, they could hire family and friends. This, in turn, resulted in higher personal care costs for the treatment group.

If agencies cannot provide the hours authorized in the care plan, costs per month of services/benefits received may be higher than they would be otherwise. In Arkansas and New Jersey, costs per month of benefits were higher for treatment group recipients than for control group recipients, mainly because the control group received less care than they were expected to, at least partly due to severe labor shortages during the study period. The treatment group in these states received allowances approximately equal to the expected cost of obtaining authorized services in the care plan. In Florida, the primary reason for the treatment group's higher costs per recipient month among the nonelderly was that allowance recipients were more likely than those in the traditional program to be reassessed as needing more care than was in their original care plan.

Cash and Counseling can reduce the need for other Medicaid services, but it did not do so consistently across states and time periods. In Arkansas, savings in nursing facility and other long-term care services were enough to offset about 20 percent of the treatment group's higher personal care costs during the first postenrollment year and 75 percent of these costs during the second postenrollment year. Likewise, in New Jersey, savings in nursing facility and home health services were enough to offset about half the treatment-control difference in personal care costs in the first postenrollment year; however, these savings did not persist in the second postenrollment year.

Policy Implications

In all three states, the program had large, overwhelmingly positive effects on the well-being of consumers and caregivers. In addition, in two of the states, costs for the treatment group did not exceed the costs the state would have incurred for delivering the approved baseline care plan services. In all three states, Cash and Counseling increased the likelihood that beneficiaries would receive paid services, greatly increased consumers' satisfaction with their care and their quality of life, and reduced their unmet needs (Carlson et al. 2005). It also reduced caregiver stress in all three states (Foster et al. 2005c). However, the higher initial costs of consumer direction under Cash and Counseling might discourage some states from adopting a similar program. Most states are having difficulty controlling their Medicaid budgets, so the effects of any new program on states' costs is likely to be an important factor in whether states adopt such programs. An important fact for states to consider is that this evaluation was conducted over a two-year follow-up period that started immediately after enrollment began. Since the evaluation, states have identified the sources of the higher costs for this innovative program and have implemented procedures to reduce these costs.

One approach to limiting cost increases might be to try to minimize enrollment in the program, but this could be counterproductive. The major source of higher costs in two of the states was attributable to the increased proportion of consumers receiving any services. If this increase is due in part to some consumers enrolling in the demonstration who otherwise would never have sought care under the traditional program, states might try to control these costs by limiting enrollment in consumer-directed care to consumers who were already receiving services under the traditional program. However, this would defeat the purpose of expanding access to paid care in rural areas or other areas where agencies cannot find enough workers. Even in cities, a tight labor market may make it difficult for agencies to hire enough workers at wage rates compatible with the Medicaid payment for such services. Furthermore, some consumers may not be willing to accept agency services because of problems encountered in the past with agency workers (such as unreliability, theft, or abuse). Thus, limiting enrollment to those who had already been receiving agency services would unfairly penalize some eligible consumers and undermine a primary objective some states have for introducing consumer direction: improving access to care. The finding that the largest reductions in Medicaid nursing home and other long-term care costs were in states and age groups that had the largest increases in access to care validates the wisdom of this objective.

Based on the experience of the three demonstration states, other states interested in reaping the benefits of Cash and Counseling but concerned about program costs should consider the following issues:

Recoupment. States considering consumer-directed care may wish to adopt procedures to recover funds the consumer does not need. (This might happen, for example, if a consumer were hospitalized, had disenrolled, or had saved money not designated for a particular purchase). Each of the demonstration states eventually adopted such procedures, which can be implemented fairly if counselors give consumers adequate warning to help them avoid losing funds they may be saving for a legitimate purpose.

Reassessments. Cash and Counseling programs need to ensure that care plan amounts are no more likely to be increased if consumers receive an allowance than if they participate in the traditional program. Independent parties, rather than counselors or other people who might be inclined to advocate for consumers, might be used to conduct reassessments. Ideally, states would adopt standardized assessment procedures that are blind to whether consumers direct their own care and would develop comprehensive training for those conducting assessments and reassessments. Florida is implementing such changes.

Savings on Counseling and Fiscal Services. Arkansas learned a valuable lesson in how to provide counseling and fiscal services in a more cost-effective manner to more accurately reflect the level of effort that providing these services required. When the demonstration began, Arkansas paid the counseling/fiscal agencies a high monthly payment ($115 per month) starting when a consumer enrolled in the program, even though the consumer was not yet receiving an allowance or using bookkeeping or counseling services regularly. The state changed its procedure, making a one-time payment after the spending plan was developed, then paying a monthly fee of $75 after the consumer started the allowance. Arkansas found that this gave the counseling/fiscal agent an incentive to help the consumer complete the spending plan and reduced the state's costs for fiscal agent and counseling services.

Allowance Discount Factor. States should consider adjusting the allowance (reducing it by multiplying the care plan value by a "discount" factor) to ensure that it is on par with the costs of services that consumers would be likely to receive, on average, from an agency (since agency care recipients do not always receive the full value of services in their care plans). States also should monitor the discount factor closely and possibly change it. In retrospect, treatment group costs for the nonelderly in New Jersey would have been much closer to control group costs if the state had discounted the allowance as Arkansas and Florida did, because control group members in New Jersey received only about 90 percent of the care they were authorized to receive. Even Arkansas's discount factor of 86 percent was not as low as the 68 percent ratio that control group members actually experienced during the study period.

Before setting or changing the discount factor, however, states should investigate why beneficiaries in the traditional program do not receive the services they need. Few policymakers would want to hold costs down by depriving beneficiaries of services that assessment staff authorize as necessary. On the other hand, if care plans are routinely set at overly generous amounts, or if there are other reasons that consumers do not get all the services authorized, discounting the allowance based on historical data is appropriate.

Even here, however, discounting allowances downward for all consumers to reflect the average penalizes those who truly need all services authorized in their care plan. Nonetheless, Arkansas and Florida consumers were much more satisfied under Cash and Counseling, despite the discounting of their allowance. Whatever cost-cutting measures are introduced, policymakers need to monitor whether such measures reduce the quality of care received. Furthermore, states should weigh the potential for reducing nursing facility costs against the higher costs they may incur for personal care. If the effects on nursing home and long-term care costs, such as those observed in Arkansas and New Jersey, can be replicated elsewhere (and perhaps increased), while keeping cost per month of service close to the levels of the traditional program, consumers, their families, and the state will all benefit.

Assessing the Trade-Offs

Only states can decide whether they are willing to risk incurring slightly higher total Medicaid costs to reap Cash and Counseling's sizable gains in consumer and caregiver well-being. If states draw on the experiences of the three demonstration states, they should be able to find ways to keep total Medicaid costs at the level incurred under the traditional system. Modest percentages (about 8-20 percent) of eligible consumers participated in Cash and Counseling (even though the states undertook considerable outreach efforts to increase enrollment). Therefore, the total impact on Medicaid costs is likely to be modest, even if no changes were implemented to control personal care costs under Cash and Counseling.


  1. Cash and Counseling had to meet the CMS's budget neutrality test for Medicaid Section 1115 demonstrations. This meant that costs per recipient per month for personal care and other core services should not exceed the per person, per month cost for those receiving agency services. The federal budget neutrality test examines program costs over an entire demonstration rather than for the early postenrollment years only. Therefore, the outcomes in this report do not indicate whether the consumer-directed programs in Arkansas, Florida, or New Jersey met this budget neutrality test.

The Full Report is also available from the DALTCP website ( or directly at


Medicare Beneficiaries
Cash and Counseling Demonstration