What is the goal of the Medicaid program? Is it to improve access to health care coverage and health care for low-income population? If the answer is yes, why do many states impose cost sharing and premium requirements on Medicaid beneficiaries? On their face, cost sharing and premium requirements seem to run counter to a goal of improving access and care. However, proponents of cost sharing and premium obligations suggest that Medicaid has broader goals—such as the promotion of personal responsibility and preparation for private insurance. This Strategic Perspective analyzes cost sharing and premium requirements in state Medicaid programs as a means to consider both the policies themselves and the function of the Medicaid program more broadly.
Cost Sharing and Premium Requirements
States are permitted to State are permitted to charge premiums and employ a range of cost-sharing mechanisms (such as charging copayments, coinsurance, or deductibles) for most Medicaid-covered benefits—including inpatient and outpatient services—in both the Medicaid program and the Children’s Health Insurance Program (CHIP). The amounts may vary by income and are based upon the state’s payment for the service. States, however, are prohibited from imposing cost sharing or premiums for emergency services, family planning services, pregnancy-related services, and preventive services for children.
Current state of cost sharing in Medicaid. In practice, the use of cost sharing and premiums varies among states and across beneficiary groups. As of January 2017, 25 states require cost sharing for services provided to children in Medicaid and CHIP. Additionally, 39 states charge cost sharing for parents and 23 of the 32 Medicaid expansion states—those that expanded under Section 2001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148)—charge cost sharing for adults who became eligible for Medicaid through expansion. Thirty states impose premiums or enrollment fees for their Medicaid and CHIP programs and another 6 states have waivers to charge premium or monthly contribution amounts, which would otherwise be prohibited by law.
States typically point to two goals as justification for the imposition of out of pocket costs on beneficiaries: (1) increased personal responsibility and (2) preparation for the private insurance market. In its waiver application, the state of Maine noted that premiums and cost sharing "support a level of personal responsibility, increase member awareness of the cost of medical services, and introduce members to commercial market policies and tools." Do premiums and cost sharing achieve these stated goals?
Premiums. The purported societal benefits of charging premiums must be squared with the reality that premiums sometimes serve as a barrier to care. Premiums lead to higher incidence of Medicaid disenrollment, shorter enrollment periods, and deterrence from initial Medicaid enrollment. Additionally, premium increases can lead beneficiaries to lose insurance altogether, a hardship that has a disproportionate impact on individuals with the greatest health and financial needs.
Cost sharing. There are similar barriers to care associated with cost sharing.The RAND health insurance experiment—a seminal 1970’s experiment on the relationship between cost sharing and individual behavior—demonstrated that individuals who are required to pay for a share of their health care use fewer health services than those who are given free care. The relationship between cost sharing and reduced utilization remains present even when the cost sharing is nominal in amount. On top of this, reduced utilization can lead to costlier services like emergency room care. Thus, like premiums, there is evidence that cost sharing serves as a disruptor to care.
Benefits and risks. This is not to say that premiums and cost sharing are without merit—states do obtain some financial benefits from the cost sharing and premium obligations they impose on Medicaid beneficiaries. However, the savings are limited. For example, while cost sharing by nature obligates beneficiaries to "share" in the costs of care with the state, the cost sharing requirements can have unintended financial impacts, including disenrollment, increased use of more expensive services, and greater administrative costs. Additional risks include the likelihood of a greater number of uninsured individuals and associated increases in community health centers and safety net hospital resources.
As indicated above, there is great variation among the states that require cost sharing and premium payments for Medicaid beneficiaries. While some states are distinguished by offering one or the other, some states are set apart by the nature of their particular plan.
Indiana. Under Indiana’s alternative Medicaid expansion, individuals must pay monthly premiums to qualify for the plan’s top tier of care. According to a recent study, more than half of the low-income individuals who qualify for the program are unable to meet the monthly payment obligation. Although the state imposes a six-month lockout on individuals who do not meet the payment obligations, the state indicated that most beneficiaries were not locked out and, instead, were transitioned to a lower tier of coverage with fewer benefits and a cost sharing obligation. Although 590,315 Hoosiers were determined eligible for the top-tier of the Indiana Medicaid program, 55 percent missed or never made a monthly payment. The state’s former governor, now U.S. Vice President, Mike Pence, supported the expansion program, noting the importance of promoting personal responsibility for beneficiaries by forcing them to have "skin in the game." CMS Administrator Seema Verma, formally an Indiana health care consultant, noted that "the Healthy Indiana Plan is about empowering individuals to take ownership for their health."
Indiana’s program, which is seen as a forerunner for proponents of premium obligations in Medicaid, was approved in 2015 (for a three year period) by the Obama Administration. At the beginning of 2017, the state requested an extension of its program through 2021.
Maine and Wisconsin. Two states—Maine and Wisconsin—are looking to take Medicaid premiums a step further by charging monthly premiums to low-income beneficiaries and preventing those beneficiaries who don’t make payments from reenrolling in Medicaid until they satisfy past premium obligations. Relying on the same motivation that drove the Indiana policy, Maine and Wisconsin also seek to impose work and volunteer requirements on some working-age, able-bodied beneficiaries. If the work requirements are approved, they will be the first of their kind to obtain approval.
Under Maine’s proposal, individuals earning less than 100 percent of the poverty level ($11,800 per year for a single Mainer) would be required to pay premiums for Medicaid. The annual obligation would be $168—a monthly payment of $14. The proposal would impact an estimated 50,000 individuals.
Other states. Currently, other states—Indiana, Montana, Iowa and Michigan—charge premiums for low-income beneficiaries. In those states, however, the premiums are effectively unenforceable because patients who don’t meet their premiums can stay enrolled.
Cost sharing and premium requirements for Medicaid beneficiaries are not new. However, states are taking a growing interest with respect to increasing those obligations and extending beneficiary obligations beyond financial commitments to things like work requirements. As states put forward Medicaid proposals, which intend to do more than provide care for low income individuals, a series of questions are raised: What is Medicaid for? Is the goal of the Medicaid program to simply provide health care? Or, does Medicaid serve some broader goal like transitioning individuals out of poverty? Should beneficiaries expect to—in Vice President Pence’s words—put "skin in the game" or do the proposals of states like Maine and Wisconsin put too much on the plate of already burdened, low-income Medicaid beneficiaries? These are the questions CMS and state lawmakers must consider as waiver requests and federal legislation seek to form a new shape for the Medicaid program.
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