The Bush administration has approved an innovative Indiana program that will extend state-subsidized health insurance coverage with consumer-driven features to low-income uninsured residents.

The plan, which is funded in part by an increase in the state’s cigarette tax, is set to begin on January 1, 2008. It will be available to residents whose income do not exceed 200 percent of the federal poverty level, which would be $20,420 for an individual and $41,300 for a family of four. Additionally, residents must be uninsured at least six months and not be eligible for employer-provided health insurance.

Under the Healthy Indiana Plan, which received Bush administration approval last week as a so-called Medicaid demonstration project, the state will pay for $500 a year in preventive services, which include annual physicals, smoking cessation programs, prostate exams, mammograms and diabetes testing.

Enrollees will have an annual deductible of $1,100. To cover that deductible, the state and enrollees will contribute a total of $1,100 to a Power Account, which is similar to health reimbursement arrangements used by many private-sector employers. Employers also can contribute to employees’ Power Accounts.

Like an HRA, accumulated contributions in a Power Account will roll over from year to year, offsetting an enrollee’s future contributions.

Beneficiaries’ contributions to Power Accounts will be linked to their income and range from 2 percent to 5 percent of gross annual income. For example, in the case of a single adult whose annual income is $10,210, the state would contribute $896 to the Power Account, while the individual would contribute $204.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.