The High Administrative Costs of Common Medicaid Expansion Waiver Elements
10.20.2015
Montana, the most recent state to extend its Medicaid program to more residents, is wrapping up negotiations with the federal government to determine the logistics of what this alternative expansion program will entail. Like several of the 31 states (including D.C.) that have opted to expand Medicaid, Montana chose to expand its program using an 1115 waiver. These waivers give states increased flexibility when designing their Medicaid programs. States should make sure, however, that changes to the program make good economic sense, in addition to expanding health coverage and improving consumers’ access to care.
Through these Section 1115 waivers, states work with the Centers for Medicare and Medicaid Services (CMS) to tweak certain aspects of the traditional Medicaid program. It’s important to remember that changing Medicaid’s design can make the program more complex and expensive for the state to administer. States designing Medicaid expansion programs should consider how three common elements of these waivers– monthly premiums, cost-sharing, and health savings accounts—contribute to a state’s administrative costs.
Three common elements of Medicaid expansion waivers are likely to use more resources, time, and money than is worthwhile for a state
Premiums: To run a program that charges monthly premiums, states must spend a significant amount of time and resources collecting fees, tracking payments, sending notices, and administering any non-payment penalties like lock-out periods.
Research shows that premium payments often don’t generate enough revenue to offset these administrative costs. In 2002, Virginia stopped charging premiums in its Children’s Health Insurance Program (CHIP) because the state was spending $1.39 in administrative costs for every dollar in premium revenue. Similarly, a study by the state of Arizona found that it would cost the state about four times more* to administer premiums in its Medicaid program than it could collect from these fees, even if the program charged the highest premiums possible.
Cost-Sharing: To impose or increase cost-sharing requirements (like meeting a deductible or having to pay a copay) on Medicaid enrollees, states must track the fees that providers collect and also ensure that enrollees are not required to pay more than a capped percentage of their income on cost-sharing. Arizona’s study found that a proper fee-tracking system can cost millions of dollars to implement. Administering a cost-sharing requirement would have cost Arizona double* what it could have made in revenue, even if the state allowed enrollees to be charged the maximum cost-sharing allowed under federal law.
To date, cost-sharing changes in Medicaid expansion waivers have been complex, making them even more difficult and expensive to run than standard cost-sharing schemes. In Michigan, for example, Medicaid enrollees must pay their cost-sharing upfront every quarter. The amount they pay is based on the health care services they used in the prior six months. This scheme is incredibly complicated to administer because it requires the state to collect and frequently update complex data as well enforce policies that can be hard for enrollees to understand.
Health Savings Accounts: In Medicaid, a health savings account (HSA) is an account that both enrollees and the state pay into, which enrollees use to pay for health services. To make these accounts work, the state must maintain rigorous tracking and payment systems. Experience with Michigan and Arkansas’ Medicaid expansions and the Healthy Indiana Plan 1.0 (HIP 1.0)—the precursor to Indiana’s Medicaid expansion—shows that states with Medicaid HSAs need to closely track contributions into the accounts, enrollees’ spending, and cost-sharing liability—all of which are subject to change as enrollees’ incomes change. States also need to provide frequent notices to enrollees about changes to their account balances or payment amounts. The complexity of these programs suggests that HSAs will cost states even more time and financial resources than standard premium or cost-sharing requirements.
Arkansas’ experience with HSAs
In Arkansas’ HSA program, as in most other states, an enrollee’s required contributions can change when his or her income changes. The state must keep track of an enrollee’s health spending, income, and contributions to the account (whether they come from the state, the enrollee, or third party). The system and the manpower needed to track all of these factors and to keep information up to date are high costs for the state.
As a result, Arkansas recently decided not to implement the HSA contributions it had planned to charge enrollees below 100 percent of the poverty level. According to advocates, the state made this decision because collecting these payments is too expensive to be worthwhile.
As more and more states decide to use 1115 waivers to create Medicaid expansion programs tailored to their state, they must consider the costs of complexity.
*Based on Families USA calculation that separates the study’s estimated costs for premiums and cost-sharing.