Overview

Introduction

The Great Debate: Medicaid in the eye of the storm

The Challenge of Change: Balancing cost controls with the health of millions

The States
at Work
A report on reforms being road-tested in the states

Medicaid's Third Rail: Long-term care

The Rx Factor: Controlling prescription drug costs

The Great eHealth Hope: How technology can help

Something of Value: Experiments in cost sharing

Tools to Live By: Managing for better performance

Trading Places: Tapping into private insurance

The Radical Reformers:
A New Approach

The printed version of the full report in PDF format

Something of Value

Will cost sharing make Medicaid patients better health care consumers or sicker ones?

Medicaid has long been wary of asking beneficiaries to share the costs of their care. For most recipients, the program has not permitted premiums or anything beyond very minimal co-payments for a limited number of services. But that’s likely to change — and soon. Medicaid officials at both the state and federal levels argue that the free ride is as outmoded in medicine as the house call.

For a model on cost sharing, many are looking at the State Children’s Health Insurance Program (SCHIP), which covers young people with somewhat higher family incomes than those who receive traditional Medicaid benefits. There, states have more leeway to impose charges and participants with incomes above 150 percent of the federal poverty line can be asked to pay a cost-share of up to 5 percent of family income. The preliminary report on Medicaid reform from the National Governors Association (NGA) calls for Medicaid to follow SCHIP and to allow cost sharing but with a 5 percent cap for all beneficiaries, which the NGA considered “a critical balance to this proposal.”

That’s not the only cost-sharing suggestion out there. The federal Medicaid Commission would like to give states flexibility to increase co-payments on non-preferred drugs above the current nominal maximum of $3 per prescription — to enourage “cost-effective utilization.” The Centers for Medicare & Medicaid Services estimates that $2 billion could be saved over the next five years if states were allowed to increase their caps in a variety of ways.

Out in the states, these proposals find sympathetic ears. Many state officials — Medicaid directors among them — deem co-payments, deductibles and premiums entirely appropriate in a time when nearly all Americans are expected to pay something for each physician visit or prescription. They argue that a lack of financial accountability encourages beneficiaries to use medical care when it’s not necessary.

”You have to have some economic tension — people have to have some skin in the game,” says Tennessee Governor Phil Bredesen. He adds that it’s not enough to dismiss co-payments on the basis of poverty since most other services ask for some payment by the poor. “At faith-based clinics,” he points out, “they take it as an article of faith that everyone has to pay something for the service — that what you get for free, you don’t value.”

Bredesen’s argument appeals to the American ideal of self-sufficiency, and it is a cornerstone of the NGA report. “The purpose of increased cost-sharing is not to restrict access to necessary medical care,” it states, “but to allow individuals to contribute to the costs of their own health care as much as possible. These new policies would be monitored and evaluated heavily, and if the evidence shows that increased cost sharing harms appropriate access, the policies should be revised.”

Check Out the Evidence

Currently, most state officials have difficulty producing hard data to prove claims that this technique will instill personal responsibility in Medicaid beneficiaries and thus save money. In fact, some observers argue that co-payments, deductibles and similar requirements may result in clients’ failing to access services or dropping coverage altogether. Preventive care, which can easily be delayed or ignored, may well be the first casualty. This ultimately can endanger the health of medically needy citizens and eventually generate higher costs in the system.

Washington State’s governor, Christine Gregoire, is particularly concerned about preventive care and has emphasized the importance of getting coverage for all the eligible children in her state. So, when Washington received federal approval to impose a $10 monthly premium for families at 150 to 200 percent of poverty, she suspended that particular plan.

One factor that makes the debate over cost sharing so complicated is that the Medicaid population is not homogeneous. According to Chuck Duarte, administrator of the Nevada Division of Health Care Financing and Policy, co-payments and other charges work “for higher-income populations, who are more used to insurance products that use cost sharing. But for the aged and disabled population, with multiple prescriptions and frequent physician services, cost sharing is not going to be an effective tool. These people already have a hard time paying for whatever they have to pay for to stay alive.”

A few years ago, Vermont imposed premiums on higher-income groups in its Medicaid and SCHIP programs. Forty thousand people were hit with the premiums in December 2003. The following month, 11 percent of those clients were disenrolled for nonpayment of premiums. However, just a month later, about one-third of the disenrolled paid their way back into the program. Vermont officials say they generally have seen this pattern when they increase cost-sharing requirements.

Joshua Slen, director of Medicaid in Vermont, is not alarmed about the drop-off in Medicaid rolls. Slen — and a number of others — believe that those who stay out of Medicaid after premiums are increased are a generally healthier group than those who stay in the program. “If you look at the program,” he says, “it’s clear that the people with higher levels of need continue to pay the premium.”

The Oregon Case

Medicaid-eligibles in the entitlement portion of the Oregon Health Plan are not required to pay premiums or co-payments. But a federal waiver in early 2003 allowed the state to tighten up on other Medicaid beneficiaries. This group falls under the Oregon Health Plan Standard (OHP Standard) portion of the Medicaid program where state officials increased the premiums to a range of $6 to $20 a month based on income and also tightened rules on nonpayment. They lifted exemptions from the premiums for such “hardship” groups as the homeless and imposed stricter payment deadlines that, if unmet, resulted in an immediate loss of Medicaid eligibility for six months. In addition, many adults covered under OHP Standard were subject to co-payments of $3 to $250 for most covered services.

Data for this graphic

Shortly after these changes were imposed, enrollment in OHP Standard dropped significantly — from 95,000 in February 2003 to just over 50,000 by the end of the year. At the lowest income level, 59 percent of beneficiaries with no incomes lost their Medicaid coverage after being required to pay a $6 monthly premium.

”While it is difficult to do a cause-and-effect because so many other changes were going on at the time, this was the most salient factor in the decline in program enrollment,” says Lynn Read, acting administrator of the Oregon Office of Medical Assistance Programs. “It’s clear that there were significant hardships as a result of premiums.”

An analysis by the Kaiser Commission on Medicaid and the Uninsured found that 72 percent of those who had been disenrolled from Medicaid had remained uninsured. Only 11 percent returned to OHP, and even fewer found employer-sponsored coverage.

The analysis also noted that physicians in the Portland area reported that patients were “self-selecting not to schedule follow-up visits, and, as a result, their health outcomes are getting progressively worse.” One Medicaid participant said she raised money for her co-payments by buying small bags of potato chips with food stamps and then selling them for cash in office areas of her community at lunchtime.

Advocates in Oregon sued the state and the federal government over the mandatory premiums and co-payments, saying CMS did not have the authority to waive statutory restrictions on cost sharing. The state government prevailed on the premiums issue but not on co-payments. It has not enforced co-payments under OHP Standard since June 2004.

Some states have since held off on plans to seek waiver approval for stricter cost-sharing requirements, and several state health care officials have expressed their doubts about its effectiveness, particularly for the most financially vulnerable. “There may be some argument for selective co-payments, in areas such as inappropriate ER utilization,” says Mark Moody, administrator of the Wisconsin Division of Health Care Financing. “But seeking ’flexibility’ in this area is often code for ’flexibility to cut benefits.’ ”