Healthy Indiana Plan

Seema Verma – State of Indiana


In 2006, Indiana ranked second in the nation for incidence of adult smoking and had poor general health indicators including high rates of obesity and a low rate of preventive care utilization. Indiana’s Medicaid program only covered non-disabled adults up to 23% of the federal poverty level (FPL), and approximately 350,000 adults in Indiana below 200% FPL were uninsured. The Indiana Medicaid program had one of the lowest eligibility thresholds in the nation for non-pregnant, non-disabled adults, resulting in many low-income, uninsured individuals. These individuals typically avoid care and then seek treatment in hospital emergency rooms after their condition has worsened and is expensive to treat. This situation often leaves providers with uncompensated care costs that are shifted to insured individuals, raising the cost of health care for all individuals.

While Governor Mitch Daniels and members of the Indiana General Assembly were anxious to address these issues, there was reluctance to expand the traditional Medicaid program because of its potential to drain the State’s budget, inability to significantly improve the health status of individuals, and lack of incentives for participants to utilize health care appropriately. While public coverage programs are often the largest item on state budgets, few of them have proven to positively influence health behaviors and improve health status. Indiana was not interested in creating another unsustainable entitlement program to serve this population, but desired a fiscally responsible design that encouraged participants to be active consumers and offered them incentives to maintain and improve their health. Governor Daniels identified key principles for reform including a commitment to avoiding an open-ended entitlement, a focus on budget sustainability and a program that applied consumer directed health principles through the use of Health Savings Accounts (HSA’s). These guiding principles and objectives laid the foundation for the innovative Healthy Indiana Plan (HIP). HIP sought to address the problems Indiana faced by expanding coverage through responsible stewarding of taxpayer dollars and the encouragement of cost-conscious behavior in program participants.


HIP, a program for uninsured adults, provides an alternative to traditional Medicaid and is the nation’s first consumer-driven coverage program for low-income adults. HIP features a comprehensive high deductible health plan and a modified Health Savings Account (HSA) called the Personal Wellness and Responsibility (POWER) account, which invites members to be thoughtful and engaged health care consumers. Participants are required to make monthly contributions to their account and the State funds the remainder to ensure the account is fully funded. The $1,100 serves as the deductible to cover initial health care expenses. Once the deductible is met, individuals are still responsible for emergency department co-payments for non-emergency use of the ER. Participants have control over how POWER account dollars are spent and become active health care consumers demanding price and quality transparency.

At the end of the year, if individuals receive requisite preventive services, the full account balance (including State contributions) rolls over, reducing their required monthly contribution for the following year. Otherwise, only the pro-rated balance of their individual contribution rolls over. This provides Medicaid recipients with “skin in the game,” and enrollees are encouraged to consume health care responsibly. Unlike a traditional Medicaid program, individuals are provided with Explanations of Benefits that explain costs of care. Early results indicate HIP’s success: over 40,000 individuals are currently enrolled, and over 77,000 people have participated in the program since its inception. Enrollees have high satisfaction rates and for the first time are engaged in the costs of their health care.

There are no known public coverage programs that take HIP’s approach. For low-income populations, HIP balances Medicaid and consumerism. It transforms the Medicaid paradigm by offering incentives for enrollees to responsibly make health care choices. This innovative convergence of private industry innovation, market principles and government programs is the foundation of HIP’s unique accomplishments.


Indiana invested over $27 million dollars in the implementation of HIP. Start-up costs included significant State staff time, information technology investments, enrollment system, marketing, media, outreach and external support to help develop and negotiate the associated HIP federal waivers. Within a mere eight months after the passage of the legislation in April 2007, staff drafted the 1115 Medicaid demonstration waiver, negotiated it with the Centers for Medicare and Medicaid Services (CMS), procured two managed care vendors and managed the development and implementation of policies and IT upgrades.

In addition to the staffing investment, costs were incurred to alter the State’s large public assistance IT systems, ICES and MMIS, which handle eligibility and Medicaid claims, respectively. These alterations aligned the systems with HIP’s new eligibility rules and reimbursement rates (HIP reimburses at Medicare, not Medicaid, rates).

Like all Medicaid administered programs, HIP receives a federal match rate (FMAP). The remaining funds come from the implementation of a 44-cent cigarette tax increase, a portion of which (27.05%) is diverted to fund HIP. HIP’s portion of the cigarette tax revenue is set aside in a trust fund that is separate from the State’s general funds, and the HIP program enrollment is limited by the funds available in this account. The increased cigarette tax revenues have funded state expenditures on the HIP program for the first three years of the program. Current projections indicate HIP will remain financially sustainable through the remainder of the 1115 waiver period.

The 1115 waiver only allowed Indiana to cover 34,000 childless adults and required the State to commit to a budget neutrality agreement. This agreement requires the State to redirect funding for Disproportionate Share Hospitals (DSH) to the HIP program and to commit to limits on spending for managed care programs.

The cigarette tax increase also positively influences Hoosier health. At the time of HIP implementation, Indiana had one of the nation’s highest smoking rates and one of the lowest cigarette taxes. Smoking rates adversely affect health outcomes and increase health costs. Funding a health coverage program for low income Hoosiers with an increase in the cigarette tax addressed two health concerns in a fiscally responsible manner. Additionally, some of the cigarette tax increase was diverted to fund tobacco cessation programs through the Indiana Department of Health, in keeping with the goal to improve health outcomes for Hoosiers. Though it still remains high, since the implementation of the tax increase Indiana’s adult smoking rate has declined gradually, and youth smoking has shown marked declines. The youth smoking rate decreased 50% between 2007 and 2008. Total sales of cigarettes are also declining. Since the increase of the cigarette tax in 2007, the number of cigarettes sold has declined by 25%. The decline in the number of cigarettes sold limits HIP funding but, nevertheless, is a positive sign for health in the state.

Positive Outcomes

Results from HIP show that elimination of cost barriers and the potential incentive for future financial benefits have been effective at increasing the number of individuals that seek preventive services. While only 24% of members were eligible for a POWER Account rollover, data from the first year participants show that 76% of HIP members completed their annual physical. Even though many HIP participants did not have a balance, the possibility of future financial benefits factored into individuals seeking preventive care. After this initial physical, well care visits are still high in HIP (45% of caretakers) compared to the State’s existing Medicaid population, where only 20% received preventive services. HIP preventive care utilization was also found to be higher than commercial populations where only 35% of the population (age and gender adjusted to HIP caretakers) sought preventive services.

Although ER services are the least cost efficient method of care, uninsured populations are accustomed to using the ER for routine health needs. For this reason, the only co-payment required by the HIP program is for non-emergent ER use, and ER visits apply to the $1,100 deductible and deplete the POWER account. Comparison to the State’s other Medicaid population shows that, in the first year of HIP, non-emergency ER visits were 8.5% less in the HIP population. In the future, the decline in ER use and the increase in use of preventative services could help Indiana to glean savings from increased positive health outcomes and the change in behavior of this population moving from expensive ER care to primary care facilities.


Yes, HIP required empowering legislation, once the Governor’s team devised the concept. Governor Daniels presented the design of the HIP program in November of 2006 to the public. Once proposed, Republican State Senator Pat Miller and Democrat State Representative Charlie Brown championed the effort and sponsored House Bill 1678 during the 2007 session of the General Assembly. Through their leadership, the Indiana Check-Up Plan, which contained the enabling legislation for HIP, passed with bipartisan support with votes of 70-29 in the House of Representatives and 37-12 in the Senate. The enabling law can be found at Indiana Code 12-15-44.2.


Throughout the first three years, changes have been made to address problems and make improvements. One significant change to HIP relates to the required POWER account contributions, which are crucial to the program’s structure. Due to the way CMS counts income, some HIP participants are not required to make contributions to their POWER accounts. This was an unintended consequence of the original legislation. Currently 23% or 8,900 HIP enrollees are not required to make contributions. Due to the strong success of the program and the belief that all individuals need to have “skin in the game,” a bipartisan bill was passed by the Indiana General Assembly in April 2011 that will require all enrollees to contribute at least $160 annually to their account. The bill also includes a provision that allows not-for-profit groups to make up to 75% of an individual’s contribution; it permits health plans to do the same for healthy behaviors. HIP already allows employers to contribute to individuals’ accounts, so these changes expand this concept.

Applicability to Massachusetts

Every state, including Massachusetts, faces the problem of rising Medicaid costs and the operation of a Medicaid program with few incentives for participants to be cost-conscious consumers of their health care. The HIP program has the potential to be replicated in every state’s Medicaid program. This potential is increasingly relevant in the current health care climate. The Patient Protection and Affordable Care Act of 2010 (PPACA) instituted an across-the-board Medicaid expansion to 133% of FPL. States around the nation are working to determine how best to serve these newly covered populations while containing costs and driving personal accountability for health care utilization.

Every state, including Massachusetts, faces the problem of rising Medicaid costs and the operation of a Medicaid program with few incentives for participants to be cost-conscious consumers of their health care. The HIP program has the potential to be replicated in every state’s Medicaid program. This potential is increasingly relevant in the current health care climate. The Patient Protection and Affordable Care Act of 2010 (PPACA) instituted an across-the-board Medicaid expansion to 133% of FPL. States around the nation are working to determine how best to serve these newly covered populations while containing costs and driving personal accountability for health care utilization.

Replicating the HIP model in its entirety or in parts is feasible for other state Medicaid programs and has the potential to provide significant strides in improving health, increasing quality and containing costs. The trends in decreasing ER use and the increased use of generic drugs have immediate cost containment impacts, while the increase in preventive care will reduce the state’s long term health care cost commitments. HIP also works to impact the quality curve by encouraging enrollee choice and providing information on cost and quality ratings. Today, impacting the cost and quality in health care is more desirable than ever, and, when considered alongside the easily replicable nature of HIP, these features provide a testament to the program’s strong and innovative design.

Future Goals/Conclusion

Currently, the 1115 waiver from CMS, under which the program operates, will expire on December 31, 2012. However, the Affordable Care Act will require all states to expand their Medicaid programs to 133% FPL. Indiana desires to use HIP as the vehicle for the newly eligible in 2014, instead of the traditional Medicaid program. In 2014, Milliman, Inc., the Indiana Medicaid program’s actuary, anticipates that over 500,000 additional individuals could enroll in the Medicaid program, once the eligibility is expanded.

If HIP is approved, the State expects to see similar results of increased use of primary and preventive care and a decrease in the use of ER in the Medicaid expansion population. This program will incentivize this low income, underserved group to become conscious consumers of health services. Harnessing the power of consumerism in the Medicaid population and increasing the use of preventive services will help to reduce the future program outlays.

Contact the Author:
Seema Verma
485 Bolderwood Lane
Carmel, IN 46032
Phone: (317) 809-8536



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