Q&A on Medicaid Cost-Sharing Requirements

 

Manjusha P. Kulkarni, Staff Attorney, National Health Law Program

 

April 2004

 

           

            Question:          My state is considering increasing co-payments and implementing premiums on Medicaid beneficiaries to address our current budget crisis.  I am concerned because I do not believe my clients can afford greater cost-sharing, but I don’t have evidence of this.  What information or data can I use to fight these drastic measures?

 

            Answer:            It is true that most Medicaid beneficiaries cannot afford greater cost-sharing.  Numerous reports and studies, including findings about the impact of recently imposed premiums and copayments on beneficiaries, indicate that these cost-sharing measures only serve to lower enrollment and reduce utilization of necessary care. 

 

Discussion:

 

Advocates should be concerned about the impact of state budget crises on Medicaid cost-sharing.  In Fiscal Year 2004, twenty-one states plan to increase Medicaid beneficiary cost-sharing.  States which are considering increased copayments include Arizona, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Louisiana, Michigan, Nevada, New York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia, Washington, West Virginia and Wisconsin.1  More recently, California also has expressed interest in imposing premiums as well as increasing copayments on Medi-Cal beneficiaries.

 

The General Accounting Office in a 2001 report on cost-sharing policies in Medicare stated:

 

            Health insurers commonly design cost-sharing provisions– in the form of

            deductibles, coinsurance, and copayments– to ensure that beneficiaries are

            aware there is a cost associated with the provision of services and to

            encourage them to use services prudently.  Ideally, cost sharing should

            encourage beneficiaries to evaluate the need for discretionary care but not

            discourage necessary care.2 

 

As advocates of clients and constituents who have low income and limited resources, we know that imposing cost-sharing on Medicaid beneficiaries does discourage necessary care.  Several studies and reports provide ample evidence of this.  Specifically, they show that implementation of premiums on low-income individuals leads to a drop in enrollment and imposition of and increases in copayments result in reduced utilization of all services, not simply services providing “discretionary care.”

 

Cost-sharing in the form of premiums can cause beneficiaries to lose health care coverage.

 

In February 2003, Oregon significantly altered its Oregon Health Plan (OHP) by creating two distinct programs called “OHP Plus” and “OHP Standard.”3  OHP Plus covered 300,000 categorically eligible Medicaid beneficiaries and the OHP Standard offered health care coverage to 100,000 individuals not covered under Medicaid or private insurance.  In altering the OHP, the state also increased premiums and mandated copayments for most benefits for those enrolled in OHP Standard. The imposition of premiums alone resulted in a precipitous drop in enrollment in the program from 102,000 in December 2002 to 51,000 in October 2003.  Furthermore, the 51,000 who lost coverage remained uninsured for at least six months due to a penalty imposed individuals who fail to pay their premiums. 

 

In Connecticut, state leaders are considering the imposition of premiums for individuals enrolled in Medicaid and Husky A, the Medicaid program for families.  Current proposals require that all families with incomes above 50% Federal Poverty Level be assessed premiums.4  In a series of policy briefs by the Connecticut Health Foundation, researchers reported that more than 94,000 people are likely to lose coverage due to the implementation of premiums.5  A majority of the beneficiaries who would lose coverage are children.  Also, approximately 2000 would be low-income pregnant women, who would likely give birth without health care coverage.6

 

Evaluating data from four states, researchers at the Urban Institute found a direct correlation between the amount of premium and the drop in the participation rate among eligible individuals.  According to the 1999-2000 report, the higher the premium, the lower the participation in Medicaid or SCHIP.7  Premiums as low as one percent of a family’s income led to a drop in enrollment of 16%.  Premiums constituting three percent of a family’s income resulted in 49% lower enrollment and premiums as high as five percent led to a drop in participation of 74%.

 

Copayments can cause beneficiaries to avoid or delay essential medical care.               

 

The RAND Health Insurance Experiment, one of the most comprehensive studies of the impact of cost-sharing on health care utilization, found that low-income adults made 41% fewer medical visits when they were required to make copayments than when they received free care.8  Low-income children also received 44% fewer health care services when their families had to pay copayments.  These percentages applied to services which researchers determined were clinically effective in improving health outcomes, and not “discretionary” services, or those which were less likely to lead to better health outcomes.

 

A similar study of California’s Medi-Cal beneficiaries found that even small copayments resulted in fewer doctor visits and less preventive care.  In terms of preventive services, beneficiaries who were subject to $1 copays obtained 45% fewer immunizations, 21.5% fewer Pap smears and 58% fewer obstetrical care services.9  Similarly, researchers found that there were 33% fewer outpatient doctor visits among Medi-Cal beneficiaries when a copayment was required.10

 

Researchers have determined that copayments also lead to less access to prescription drugs for Medicaid beneficiaries.  A 1977 study of South Carolina Medicaid beneficiaries, 67% of whom were elderly and disabled, showed that a $.50 copayment resulted in an 11% drop in the average number of monthly prescriptions.11  In a University of Maryland study, Medicaid copayments were found to reduce drug utilization among those who reported their health status as good, fair or poor.12  The study determined that while individuals in fair condition living in states with no copayments filled an average of 30.2 prescriptions per year, those in fair condition who lived in states with copayments filled, on average, only 21.8 prescriptions.  Likewise, Medicaid beneficiaries in poor condition in states without copayments filled an average of 36 prescriptions per year and beneficiaries in poor condition in states with copayments filled 28.4 prescriptions annually, a difference of 8 prescriptions per year. 

                                   

Medicaid beneficiaries are already sharing the cost of their health care.

 

Over half of Medicaid beneficiaries have incomes below the federal poverty level ($14,630 for a

family of three).13  Yet, despite their very low-incomes, Medicaid beneficiaries are already required to pay substantial out-of-pocket costs for health care services.  Results from the Medical Expenditure Panel Survey for 1999 show that adult Medicaid beneficiaries who were not disabled or elderly spent on average 2.3% of their income on out-of-pocket health care costs.14  By way of comparison, privately-insured individuals with middle incomes spent only .58% of their income on out-of-pocket health care expenditures.  On prescription drugs, in particular, Medicaid beneficiaries paid 1.5% of their incomes while higher-income individuals who had private health care coverage paid only .2%.  Thus, as a percentage of their income, Medicaid beneficiaries spent approximately seven times more than their privately-insured, more affluent counterparts.

 

Conclusion:

 

Numerous studies and reports indicate that increased cost-sharing in the form of premiums and copayments for Medicaid beneficiaries results in lower enrollment and reduced utilization of services.  While cost-sharing in the private insurance model is intended to encourage consumers “to use services prudently,” in the Medicaid arena, it simply forces low-income individuals to go without medically necessary care.  Medicaid beneficiaries lack the expertise to make informed decisions about what medical care to obtain and what to go without.  Instead, they may opt for the less expensive, but also less clinically effective choice and thus engage in irrational rationing.  Moreover, in many states, these beneficiaries are already required to pay copayments for physician visits and prescription drugs which are a much greater percentage of their income than privately-insured individuals.  For non-Medicaid-covered services, they have to pay the entire cost.  Asking Medicaid beneficiaries to pay more will simply create a barrier which they cannot overcome and will destroy the already tattered safety net Medicaid currently provides.


            1  Vernon Smith, et al.,  States Respond to Fiscal Pressure: A 50-State Update of State Medicaid Spending Growth and Cost Containment Actions, Kaiser Commission on Medicaid and the Uninsured, January 2004.  

            2  General Accounting Office, Medicare: Cost-Sharing Policies Problematic for Beneficiaries and Program, GAO-01-713T, May 2001.

            3  Impact of Premium Changes in the Oregon Health Plan, Office of Oregon Health Policy and Research, February 2004.

            4  Families at Risk: The Impact of Premiums on Children and Parents in Husky A, Connecticut Health Foundation, November 2003.

            5  Families at Risk: Cost of Proposed Medicaid and Husky A Changes to the Connecticut Economy, Connecticut Health Foundation, March 2004.

            6  Families at Risk: The Impact of Premiums on Pregnant Women in Medicaid, Connecticut Health Foundation, March 2004 (supplement to policy brief #4).

            7  Leighton Ku, Charging the Poor More for Health Care: Cost-Sharing in Medicaid, Center on Budget and Policy Priorities, May 7, 2003 (discussing Leighton Ku and Teresa Coughlin, “Sliding-Scale Premium Health Insurance Programs: Four States’ Experiences,” Inquiry 36: 471-480 (Winter 1999-2000)).

            8  Leighton Ku, supra note 7 at 8 (discussing Joseph Newhouse, Free for All?  Lessons from the Rand Health Insurance Experiment, Cambridge: Harvard University Press, 1996).

            9  Julie Hudman and Molly O’Malley, Health Insurance Premiums and Cost-Sharing:  Findings from Research on Low-Income Populations, Kaiser Commission on Medicaid and the Uninsured, May 2003 (referring to Earl Brian and S. Gibbens, “California’s Medi-Cal Co-payment Experiment,” Medical Care Vol.12 (12 suppl.): 4-56, 1974).

            10  Id. (referring to Milton Roemer, Carl Hopkins, Lockwood Carr and Foline Gartside, “Copayments for Ambulatory Care: Penny-Wise and Pound-Foolish,”Medical Care Vol.13 (6): 457-66, 1975).

            12  Leighton Ku, supra note 7 at 11 (citing Bruce Stuart and Christopher Zacher, “Who Bears the Burden of Medicaid Drug Copayment Policies?” Health Affairs, 18(2):201-12, 1999). 

            13  Health Insurance Premiums and Cost-Sharing: The Impact on Low-Income Populations, Kaiser Commission on Medicaid and the Uninsured, March 2003.

            14    Leighton Ku, supra note 7 at 12.  See also Health Care Expenses in the Community Population 1999, Medical Expenditure Panel Survey, 1999.