South Carolina can go ahead with major changes to its Medicaid program, thanks to added flexibility Congress gave states when it approved a $39.7 billion budget-cutting bill this week, Gov. Mark Sanford said Thursday.

Most of Sanford's proposed changes, including plans to increase co-payments and direct most of the state's 850,000 Medicaid recipients into private insurance plans, can go forward without federal approval as soon as next year.

The state also may go ahead with a form of health savings account for Medicaid recipients. The bill approved Wednesday, which awaits President Bush's signature, would allow 10 states to begin pilot programs for such accounts next year.

Called "health opportunity accounts," they would allow recipients to pay for health care needs as they choose. If they didn't spend all the funds in the account, they could spend a portion of the leftover funds on job training or education.

"Our chances of passing what we have proposed were substantially bolstered by what was in the reconciliation bill," Sanford said Thursday at the Medical University of South Carolina Children's Hospital, where he held a press conference announcing the decision to go forward with the changes.

Sanford's administration has been working on big changes to the state's Medicaid program for well over a year, reflecting the governor's concern that the program is eating an increasing percentage of the state budget. The most recent version would have required most Medicaid recipients to join a private health plan or a network of physicians, known as a medical home network, that would manage all aspects of a patient's care.

The state would have capped what it pays per recipient every year, rather than provide a set amount of services, regardless of cost, as it does now.

The plan also would have increased co-payments for most services, and it would have established a health savings account pilot program that would allow certain adults to self-direct their care.

A health savings account combines a high-deductible health insurance plan with a tax-free savings account that people can use to spend on health care as they choose. Some conservatives, including Sanford, believe such "consumer-driven" health plans could save money by forcing patients to think more about their health spending.

The account concept was a key ingredient in the state's proposal. Initially, the state wanted most recipients directed into one of these accounts, but the idea has been whittled down to a pilot project.

Much of the plan, including the use of medical home networks and managed-care plans, did not need special federal approval, known as a waiver. But the accounts and the co-payments did.

In exchange for allowing the state to make those changes, the federal government wanted its own contribution capped at a certain level. Advocates for the poor feared the cap would lead to program cuts if the program's costs grew unexpectedly. The federal government pays for 70 percent of Medicaid's costs in the state.

The federal budget-cutting bill will allow Sanford to avoid that route, and thus avoid the spending limits, because it allows states to charge many adult recipients higher co-payments and it includes the health savings accounts proposal.

The accounts could include $2,500 for adults or $1,000 for children, though South Carolina's proposal would not have allowed the accounts to be used for children on Medicaid.

Sanford believes those accounts will prove successful in saving money because they will give people an incentive to save money. "If you save, there is a reward for you," Sanford said. "I think we all re-spond to rewards."

Others aren't so sure, saying the Medicaid population may not have the resources, such as transportation, or the education to handle the extra responsibility that comes with such accounts. Nearly a third of patients in a medical home network for children at MUSC miss their appointments, mostly because of transportation problems.

"They maybe have difficulty taking a more proactive role in their health care," said Dr. Charles Darby, the former MUSC pediatrics chairman who started the network.

Reach Jonathan Maze at 937-5719 or jmaze@postandcourier.com.