Medicaid rules allow states to charge cost-sharing (the amount enrollees pay when they receive a service) to Medicaid enrollees within broad federal guidelines. Combined premiums and cost-sharing and premiums combined for all members in a household cannot exceed 5 percent of family income, calculated on a monthly or quarterly basis.
The Secretary of Health and Human Services can waive cost-sharing rules if the requirements of sections 1916 and 1916A of the Social Security Act are met. In practice, this means state must seek a 1916 waiver (in addition to an 1115 waiver) in order to charge cost sharing above nominal Medicaid amounts set out in Medicaid law. A 1916 waiver has its own set of detailed required protocols and documentation. Few states have approved 1916 waivers for the adult Medicaid population to date.
Arguments for keeping cost-sharing out of Medicaid
Cost-sharing can be a financial strain, particularly for enrollees who need care the most.
- Medicaid enrollees are financially strained already: After paying for housing, transportation, food, and other basic necessities, most families that qualify for Medicaid have little income left over. Cost-sharing can make health care unaffordable.
- Cost-sharing burdens are not evenly spread throughout the year; they increase financial strain for sicker enrollees: Individuals do not typically use medical care at the same rate throughout the year. A period of illness can mean many cost-sharing bills over a short time. This can create a significant financial strain for very low-income families, and cause them to delay care when they need it most.
Cost-sharing makes it harder for Medicaid enrollees to afford necessary care.
- Cost-sharing reduces use of effective care: A comprehensive study of health insurance cost-sharing found that it reduces the use of effective and ineffective services equally.
- Cost-sharing makes it harder for people to adhere to prescribed medical treatment: A study of adherence to drug treatments for diabetes and congestive heart failure found that drug copayments reduced treatment adherence for low-income individuals.
Cost-sharing can mean higher health care costs down the road.
- Cost-sharing can increase use of more costly services: When Oregon increased Medicaid copayments, health care use was reduced, but costs were not. Enrollees tended to forego preventive services and subsequent hospital use increased.
- Initial savings can be replaced with higher cost later on: A study of the impact of copayments on substance abuse treatment found that copayments reduced service use, but increased the probability of relapse, leading to higher long-term costs.
Cost-sharing can worsen health outcomes, particularly for the poorest.
- Cost-sharing can cause the poorest to avoid cost-effective care: The most comprehensive study on cost-sharing to date concluded that to encourage individual use of health services that are shown to have a positive effect on health, cost-sharing should be "minimal or nonexistent for the poor..."
High cost-sharing for non-emergency use of emergency services could reduce appropriate use of emergency care.
- Medicaid enrollees' emergency room (ER) use is mostly appropriate: Medicaid enrollees and privately insured individuals make inappropriate ER visits at about the same rate, according to a study of ER use. High copayments for non-emergency use of emergency services could deter individuals from appropriate emergency room use, in addition to inappropriate use.
- States already can charge higher cost-sharing for non-emergency ER use: For the expansion population, Medicaid rules allow states to charge up to $8 for non-emergency use of ER services. For Medicaid enrollees, who are low-income by definition, this is a sufficient charge to deter inappropriate ER use.
- The Centers for Medicare and Medicaid Services (CMS) has not approved most requests to charge higher cost-sharing for non-emergency ER use: In Medicaid expansion waivers, CMS has denied most of these requests. It approved Indiana's request; however, the approval requires detailed protocols and a control group to fully test the impact. (See "Medicaid rules" above) Managing the experimental design will add to state administrative costs.
States have successfully reduced inappropriate ER use through other strategies.
- Several states have reduced ER use through strategies other than higher cost-sharing: In January 2014, CMS released an Information Bulletin profiling several state programs that have reduced ER use through strategies like medical homes and targeting high users. Programs profiled are from diverse states, including Maine, Minnesota, North Carolina and Illinois.
- Washington reduced ER use in one year: Washington reduced overall ER visits by nearly 10 percent in the first year it adopted a program requiring hospitals to implement such practices as patient education and connecting patients to appropriate providers.
Administrative costs of cost-sharing programs can outweigh any financial benefit to the state.
- Costs can exceed amounts collected: In 2006, Arizona projected the fiscal impact of implementing the maximum premiums and cost-sharing allowed in Medicaid. The study found that state costs to administer the program would be three times higher than expected revenues.
- Cost-sharing waivers may be complicated: Cost-sharing above Medicaid rules requires a waiver. For non-emergency use of ER services, CMS has required that the waiver be designed to "test [a hypothesis] in a methodologically sound manner, including the use of control groups..."Program design to meet that requirement may be complex. Staying within Medicaid cost-sharing limits avoids that complexity.
- Indiana's approval for higher ER cost-sharing may be costly to the state: Indiana's approval to charge higher cost-sharing for recurrent non-emergency use of the ER requires detailed protocols and a control group. Administrative costs may be high.
If you can't avoid cost-sharing in the Medicaid: Suggestions for minimizing the negative impact on consumers
Keep cost-sharing levels consistent with what CMS has already approved in waivers.
- Stay within Medicaid rules and approved amounts to increase the odds of approval: In any legislation and waiver request, keep specified cost-sharing as low as possible. Try to stay within Medicaid rules and keep in mind what the Secretary has already approved. That will increase the odds that CMS will approve the waiver request.
- CMS has denied some requests for higher cost-sharing: CMS denied requests from Iowa and Pennsylvania to impose across the board $10 cost-sharing for non-emergency use of ER services, as opposed to the allowed $8.
Limit cost-sharing to higher-income enrollees.
- Limit cost-sharing to enrollees above poverty: Try to limit cost-sharing to enrollees with incomes above poverty.
- Tier cost-sharing: If that is not possible, try to tier cost-sharing, so that enrollees with incomes below poverty pay less than higher income enrollees.
Avoid non-payment penalties.
- Non-payment penalties can mean delayed care: Try to avoid penalties for unpaid cost-sharing. Penalties can lead enrollees to avoid necessary care. That can increase long-term system costs.
- Avoid penalties that could cause enrollees' broader financial difficulty: Some states classify unpaid cost-sharing as a "debt to the state." Concern about accumulating debt may deter enrollees from seeking care. Such debt may have broader effects, too: check state laws to see what a "debt to the state" means for driver's licenses and receipt of benefits from other state programs.
- Point out if penalties will limit enrollees' ability to improve their financial situation: Point out when proposed penalties could affect enrollees' ability to get or keep a job or otherwise improve their financial situation—for example, if having a "debt to the state" could hamper one's ability to get a driver's license, that could limit employment opportunities
Do not apply cost-sharing at the program's start.
- Give enrollees a chance to use coverage: Many people gaining coverage through a Medicaid expansion or an adult Medicaid coverage program have limited experience with health insurance. Give enrollees an opportunity to use services, understand the value of coverage, and develop a relationship with a physician before applying cost-sharing. This may help reduce the negative effect of cost-sharing on service use.
- Delaying the start will support a more robust evaluation: Delaying cost-sharing implementation will give the state a baseline of service use data against which to measure the effect of cost-sharing. That will support a more comprehensive evaluation of the cost-sharing program.
Use participation in a well-designed wellness program to reduce cost-sharing.
- Include optional wellness participation: Give enrollees an opportunity to reduce or eliminate cost-sharing if they complete a healthy behavior program. This can help reduce the hardship cost-sharing can pose for Medicaid enrollees and could promote use of preventive services.
- Design the program well: Make sure that the "healthy behavior" is easy for enrollees to complete. Avoid using health targets, such as meeting a target body mass index or cholesterol level. Those can be difficult to meet and are often not met for reasons individuals cannot control.
- Keep wellness plans simple: Avoid complicated wellness programs that increase administrative costs for the state or that are confusing for enrollees.
Keep the cost-sharing programs simple.
- Simple programs are easier for enrollees and the state: If it isn't possible to avoid cost-sharing in your Medicaid, try to keep the program simple. That will make it easier for enrollees to understand and less costly for the state to administer.
Monitor impact of cost-sharing on access to care.
- Make sure frequent and objective evaluation is part of the program: It's important to understand how cost-sharing is affecting service use and administrative costs. CMS requires program evaluation as part of waivers. Additional evaluations from trusted sources (universities or state research organizations) can be helpful.
- Require the state to report administrative costs: Require the state and contracted managed care plans to produce public reports on the amounts collected and the administrative costs of running the cost-sharing program.
Start making the case to change the program.
- Collect evidence of the impact on consumers: Legislation and waivers can be changed. Document the impact of cost-sharing on enrollees' access to care and costs to administer the program. Make sure any state evaluations are supplemented by independent federal evaluations. Unbiased, state-based universities and research institutions can also be helpful. Use stories from enrollees and providers to help build your case to reduce or eliminate cost-sharing.
- Plan a campaign with a broad coalition: Different types of groups are affected by enrollee cost-sharing, not just the Medicaid enrollee—health care providers, health plans, or businesses whose employees might not be able to afford care. Build a coalition to argue for program changes.