The House Reconciliation Bill’s Provisions On Medicaid Co-Payments and Premiums: Are They Mild or Harsh?, Rev 11/22/05

The Medicaid provisions of the budget reconciliation bill the House of Representatives passed on November 18 would make major changes in the standards governing the co-payments and premiums that low-income Medicaid beneficiaries can be required to pay. Some defenders of the bill have sought to portray these changes as modest and mild.

For beneficiaries below the poverty line, the bill (as modified shortly before it was brought to the House floor) retains the current limit on co-payments of $3 per health care service or medication, although the $3 level would be raised each year by the amount of the medical care component of the Consumer Price Index, which rises twice as fast as the general inflation rate — and at least twice as fast as poor families’ incomes, on average.

For millions of low-income beneficiaries just above the poverty line, however, the increases allowed in co-payments and premiums would be very large and likely would have harsh effects. For the first time in the program’s history, six million near-poor children and many other near-poor beneficiaries could face co-payments that could be set as high as $20, $30, or more for each doctor visit. These beneficiaries could be required to pay hefty premiums as well. Total charges could be as high as $900 a year for a family of three trying to make ends meet on $18,000 a year.

An extensive body of medical research compiled over a number of years shows that among low-income people, even modest increases in co-payments can cause significant numbers of beneficiaries to go without various health care services and prescription medications, including services and medications essential to their health. The research also demonstrates that imposing premium charges on low-income households usually causes substantial numbers of low-income individuals not to enroll in health care coverage and to become uninsured.[1]

The House bill’s provisions regarding co-payments and premiums have a number of facets. The House provisions would make the following changes in Medicaid.[2]

Under current law, low-income beneficiaries in these categories can be charged $3 for each doctor or hospital visit or other health service and $3 for each prescription, unless they are children.[4] Children may not be charged co-payments today. In addition, under current law, Medicaid beneficiaries generally may not be charged premiums.[5] These rules reflect the extensive body of research showing that co-payments and premiums reduce access to health care among low-income households.

Making the effects of the new premium and cost-sharing charges still harsher, the House bill would repeal a longstanding safeguard of Medicaid law that prevents health care providers from denying services to Medicaid patients who cannot afford their co-payments. In another major reversal of policy, the House bill would authorize states to allow providers to deny health care services and prescription drugs to beneficiaries unable to meet their cost-sharing obligations. Because more patients will have difficulty affording the new, higher co-payments, this change in policy would heighten the risk that patients will be unable to obtain medications or health care they need.

The Congressional Budget Office expects these increases in co-payment and premiums charges would lead to Medicaid patients forgoing various health care services or not enrolling in Medicaid at all. In its estimate of the savings that these House provisions would generate, CBO noted that its savings estimate “reflect[s] CBO’s expectation of reduced utilization of services due to higher cost-sharing requirements and decreased participation in Medicaid by individuals who would be required to pay premiums.”[9]

Moreover, in a supplementary analysis of the Medicaid provisions of the House bill, CBO stated that about 80 percent of the savings from the increases in co-payments are expected to come from decreases in the use of services such as doctors’ visits and prescribed medications and that the number of people who would lose coverage altogether because they would have trouble paying the premiums ultimately would exceed 100,000.[10]

CBO also said that the reduced use of health care services would result in more emergency room visits and higher emergency care costs. Those costs would occur because some people’s health would worsen as a result of not securing care on a timely basis.

Shortly before the bill was brought to the House floor to a vote, a provision in the prior version of the bill that would have raised the co-payment charge for people below the poverty line from $3 today to $5 by 2008 was removed from the bill.[11] Changes were not made, however, in the much larger increases in co-payments and premiums the bill contains for beneficiaries just above the poverty line.

As a result, this change in the bill caused the Congressional Budget Office to lower its estimate of the Medicaid reductions that would result from the bill’s co-payment and premium increases by only a modest amount — from $12.1 billion over ten years to $11.6 billion, a reduction of just four percent. (Similarly, CBO lowered from $30.1 billion to $29.6 billion over ten years its estimate of the reductions that the bill would generate from the combination of its co-payment and premium provisions and its provisions scaling back the health care services that Medicaid covers.)

Some proponents of these changes argue that the increased charges will make beneficiaries more responsible. The implication is that low-income Medicaid beneficiaries currently are over-using care because the amounts they are charged for health care are too low. Such a belief, however, is not supported by the evidence. Recent studies show that adult Medicaid beneficiaries already pay a larger share of their limited incomes for out-of-pocket medical expenses that privately-insured middle-income people do. (In dollars terms, Medicaid beneficiaries’ out-of-pocket costs are lower, but as a percentage of income, their costs are higher. This includes out-of-pocket costs for health care services that Medicaid does not cover.) In addition, a recent Urban Institute study found that people on Medicaid use health care services at about the same rate as people with private insurance and are somewhat more likely than privately insured people to have unmet medication needs.[12]

Are Medicaid Beneficiaries Getting An Easy Ride Under Current Law?

There appears to be a misperception that because the $3-per-service Medicaid co-payment charge has not been raised in some time, Medicaid beneficiaries are paying little if anything in out-of-pocket health care costs, and are paying a smaller percentage of their income in such charges with each passing year.

This is not correct. In fact, it is the opposite of the truth. A recent study of out-of-pocket medical spending by Medicaid beneficiaries found between 1997 and 2002 (the last year for which the relevant data were available), the out-of-pocket medical expenses of low-income adult Medicaid beneficiaries grew an average of about 9 percent per year, much faster than their incomes. The study also found that out-of-pocket medical costs have risen at a faster rate among Medicaid beneficiaries than among privately-insured middle-income individuals.* (These figures on increases in the out-of-pocket costs of Medicaid beneficiaries likely reflect actions in recent years in many states to increase Medicaid co-payment charges and to reduce the health care services that Medicaid covers, within the limits that the law currently allows. Those changes have increased beneficiaries’ out of pocket costs significantly.)

That study also found that low-income adult Medicaid beneficiaries now pay significantly more in out-of-pocket medical costs, as a percentage of income, than privately-insured middle-income people do.

* Leighton Ku and Matt Broaddus, “Out-of-Pocket Medical Expenses for Medicaid Beneficiaries Are Substantial and Growing,” Center on Budget and Policy Priorities, May 2005.

New Co-Payment and Premium Charges Would be More Severe than Under Medicare or SCHIP

Finally, for beneficiaries below the poverty line, the new schedule of allowable charges for prescription drugs would be higher than those under the Medicare prescription drug law, while for Medicaid beneficiaries above the poverty line, the allowable charges would significantly exceed those permitted under the State Children’s Health Insurance Program (SCHIP).