Rules on premiums in Medicaid
Without a waiver, states can charge premiums to certain Medicaid enrollees who have incomes above 150 percent of the federal poverty level. The amount of premiums plus cost-sharing (the amount enrollees pay when they receive a service) 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 has the authority to waive the Medicaid rules related to premiums. Several states have approved 1115 waivers that allow them to charge premiums to lower income Medicaid enrollees.
Arguments for keeping premiums out of Medicaid
Premiums disrupt coverage, and they make it hard for low-income individuals to afford or keep Medicaid.
- Fewer enroll: A multi-state study of health insurance programs that focused on low-income patients found that premiums as low as one percent of income could reduce enrollment by approximately 15 percent.
- Fewer keep coverage: After Oregon added premiums and other enrollee costs to its Medicaid program, Oregon Health Plan Standard, there was a 77 percent disenrollment rate. When Medicaid enrollees lose coverage because they cannot pay their premiums, they tend to remain uninsured.
- Even higher-income Medicaid enrollees may drop coverage: After Wisconsin implemented premiums for adults with incomes between 133 and 150 percent of poverty in its Medicaid program, there was a 24 percent reduction in enrollment due to nonpayment of premiums.
Disruptions in coverage can lead to higher health care costs.
- Interruptions in care can increase costs: Multiple studies have found that even brief interruptions in coverage lead to significant increases in expensive hospitalizations for people with chronic diseases such as diabetes, asthma, and mental health issues.
Delays and disruptions in coverage can increase the state's uncompensated care costs.
- Reducing the number of residents without insurance can save states money: State and local governments traditionally have paid nearly 20 percent of "uncompensated care" costs. Uncompensated care is care that is provided to individuals (typically uninsured) who cannot afford to pay their medical bills. By reducing the number of state residents without insurance, extending Medicaid to more people and ensuring they have continuous coverage allows states to save money by lowering their uncompensated care costs.
- Policies that make it hard for people to get and keep coverage can reduce those savings: States save less money when Medicaid programs include provisions—such as premiums and disenrollment for not paying premiums—that cause Medicaid-eligible individuals to have periods without insurance. During those periods, individuals may need care for which they cannot pay.
The costs of administering premiums can outweigh any financial benefit to the state.
- Premiums expand bureaucracy: There is an administrative cost to collecting premiums, tracking payments, sending notices, and administering any disenrollment penalties.
- Collection costs can be high: Virginia included premium payments in its Children's Health Insurance Program (CHIP), but the state found that the cost of collecting premiums exceeded the revenue collected. In 2006, Arizona studied what it would cost to institute the maximum premiums and cost-sharing allowed in Medicaid. The study found that state costs would be three times higher than what the state would make.
If you can't avoid premiums: Suggestions for minimizing the impact on consumers
Premiums should be kept out of Medicaid expansion and adult coverage waiver programs for all the reasons outlined above. However, in some states that may not be feasible. If that's the case, work to have premiums structured so that the impact on consumers is minimized.
Limit premiums to higher-income enrollees.
- Limit premiums to enrollees with incomes above the poverty level: Limit premiums to expansion enrollees with incomes above 100 percent of poverty.
- Limit premiums to income levels that have been approved in other states: If it is not possible to limit premiums to enrollees with incomes above the poverty level, try to limit premiums to income levels where the Centers for Medicare and Medicaid Services (CMS) has allowed premiums as part of expansion proposals, for most that’s above 50 percent of poverty.
Keep premium levels as low as possible.
- Do not exceed marketplace premiums: Keep premiums at or below the lowest premium level for subsidized marketplace coverage (2 percent of income). CMS has not approved requests to charge premiums higher than that.
- Tier premiums: If the program includes premiums for individuals with incomes below poverty, premium levels should be tiered by income level. This is consistent with the premium structure in the marketplace, where premiums are a lower percent of income as income declines.
Avoid penalties for nonpayment.
- Penalties cost the state money: Penalties for nonpayment can be expensive to administer.
- Penalties can deter enrollment: Penalties for nonpayment can deter enrollment, particularly if the penalties add to consumers' debt or cause them financial hardship.
- Avoid penalties that could cause enrollees' additional financial difficulty: Some states have approval to classify unpaid premiums as a "debt to the state." This could affect individuals' ability to get state permits or licenses, or their eligibility for other state programs. If you can't avoid this classification, make sure that it doesn't affect access to licenses and other state programs or otherwise limit enrollees' ability to get ahead financially.
Especially avoid disenrollment penalties and lock-out periods.
- Disenrollment disrupts care: If penalties for nonpayment cannot be entirely avoided, try to avoid disenrollment penalties. Disrupted care can negatively affect enrollee health and ultimately increase costs.
- Limit penalties to higher-income enrollees: If it's not possible to avoid all disenrollment penalties, try to limit them to higher-income enrollees. Also, keep nonpayment grace periods consistent with the subsidized marketplace coverage (90 days), and avoid lockout periods (a period of time in which individuals cannot re-enroll). Lockout periods are particularly disruptive to care.
- Cost-sharing can be an alternative: A less disruptive nonpayment penalty can be to charge Medicaid cost-sharing to individuals in the months they do not pay their premium. In the months for which individuals have paid premiums, cost-sharing would be waived. Be aware, cost-sharing does pose access issues.
Avoid “constructive” waiting periods.
- Don’t allow a delay until the first premium is paid: Indiana has been allowed to delay coverage in its expansion program until the first premium payment (although for individuals with incomes below poverty, coverage cannot be delayed more than 60 days). Making individuals wait for coverage extends the time they are uninsured, which leads to delays in care and may result in more costly care. Other states have also requested these waiting periods.
Include easy-to-access hardship exemptions.
- Have a hardship exemption that enrollees can apply for at any time: Give all enrollees who have to pay premiums the option to apply for a hardship exemption. Allow them to apply at enrollment and at any time thereafter.
- Use self-attestation: Make the application process simple. Allow enrollees to self-attest to the hardship.
- Limit re-attestation: Do not require frequent re-attestation, which is difficult for enrollees and costly for the state to administer. Once every six months should be a minimum.
- Put the burden on the state: Be sure the state collects data on the burden of applying for hardship exemptions. Hardship exemptions aren’t fully sufficient to mitigate the harm of premiums.
Do not apply premiums at the outset of the program.
- Wait six months to a year: Many of the people who gain coverage through a Medicaid adult coverage waivers may be getting health insurance for the first time and may not be familiar with how insurance works. Give enrollees six months to a year to learn about their insurance, the benefits of being insured, and how premium payments work.
- Get a baseline to measure the impact: Delaying the start of premium collection will allow the state to better understand the real impact that premiums have on enrollment and coverage retention. That information can help the state evaluate whether the program needs to be changed.
Allow third parties to contribute to premium payments.
- Let hospitals, charities, employers, or other third parties pay all or part of enrollee premiums: Let third parties, such as employers or nonprofits, pay all or part of enrollee premiums. Enrollee obligations would be reduced by the amount that these third parties pay. Be sure to track third party payments so records of premiums collection by the state don't show an artificially high rate of enrollee payment and therefore affordability.
Use participation in a well-designed "wellness program" to reduce premiums.
- Consider including optional "wellness program" participation: Give enrollees an opportunity to reduce or eliminate premiums if they complete a healthy behavior program. That can help reduce the hardship that premiums can pose for Medicaid enrollees.
- Design the program well: Make sure that the wellness program requirement is easy for Medicaid enrollees to complete. Avoid using health targets, such as a target body mass index (BMI) or target cholesterol levels. Use activities to complete the program requirement, like a health risk assessment or visit to a primary care doctor; CMS has approved these wellness program activities in other waivers.
- Keep it simple: Avoid complicated wellness programs that increase administrative costs for the state or that are confusing for enrollees.
Have a strong program evaluation component.
- Make sure frequent and objective evaluation is part of the program: It's important to understand how premiums affect enrollment, retention, and administrative costs. In addition to any state evaluations, insist on an outside federal evaluation. Likewise, evaluations from sources that are widely trusted in the state (such as universities or state research organizations) can be helpful.
Start making the case to change the program.
- Collect evidence of the impact on consumers: Legislation and waivers can be modified. Document the impact of the premium program on enrollees' access to care and program costs. Use stories from enrollees and providers to help build your case to remove premiums or reduce their impact on consumers.
- Plan a campaign with a broad coalition: Reach out to other groups that might be affected by premiums, such as providers, health plans, and businesses whose employees might lose coverage. Build a coalition to advocate for program changes.