May 7, 2003
CHARGING THE POOR MORE
FOR HEALTH CARE:
COST-SHARING IN MEDICAID
by Leighton Ku
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Concerns about rising health care costs are leading state policy officials to consider increasing the amount that low-income Medicaid beneficiaries have to pay for health services by raising copayments or imposing premiums. The Kaiser Commission on Medicaid and the Uninsured found that 17 states planned to increase Medicaid cost-sharing during 2003. The cost-sharing increases being considered range from small to large, and some would require special waivers.
Higher cost-sharing is not without significant risks. In particular, it risks making Medicaid less effective, because health services could become less affordable for low-income families, seniors, and people with disabilities and higher cost-sharing can cause some beneficiaries to avoid or delay essential medical care or drop insurance coverage altogether. While cost-sharing is commonplace among middle-class people with private health insurance, the consequences are more serious for the low-income beneficiaries served by Medicaid, who have limited means and already are bearing out-of-pocket medical costs that consume a larger percentage of their incomes.
Effects on Health Care Utilization and Health Status. A substantial and rigorous body of research has demonstrated that low-income individuals are more vulnerable to the adverse effects of cost-sharing than other groups are. Cost-sharing policies that cause only modest reductions in health care use among middle-class individuals can result in more substantial reductions in health care use and lead to significant adverse health consequences among poorer individuals, especially those with chronic health problems.
How Much Do People Pay Now? Some contend that higher Medicaid copayments would foster individual responsibility by making beneficiaries more cost-conscious; they also note that many middle-income workers in private health plans face rising cost-sharing obligations. However, Medicaid beneficiaries already spend a substantial share of their incomes on medical expenses.
Another reason sometimes advanced for increasing cost-sharing is to help Medicaid “keep up with the times,” since cost-sharing is rising for a large number of people with private health insurance coverage. Many low-income families, however, have less income available to spend on health expenses now than in earlier years. In many areas, rapidly rising housing costs are claiming an increasing share of poor families’ incomes. The median cost of housing for a renter with income below the poverty line rose from 53 percent of income in 1989 to 65 percent of income in 2001, according to the Census Bureau’s American Housing Surveys. In many areas, child care expenses also are rising. Studies show that many families with incomes below the poverty line already experience hardships such as running out of food or having difficulty paying rent or utility bills. Elevated cost-sharing in Medicaid could force many low-income individuals to choose between health care and other basic needs, such as housing and child care. Simply put, a large number of poor Medicaid beneficiaries have little or no disposable income to spend on medical care unless they stint on some other basic need.
Prescription Drugs. Some states would like to use higher Medicaid copayments to encourage beneficiaries to shift to lower-cost prescription drugs, such as generic rather than brand-name drugs. Data show, however, that Medicaid patients already are more likely to use generic drugs than people with private insurance. More important, new research suggests that some copayment arrangements could even reduce patients’ use of generic drugs, not promote it, by causing beneficiaries to buy fewer medications overall.
Health care providers have expressed strong reservations about cost-sharing, fearing they will have to cover the cost of copayments when beneficiaries are unable to. On the other hand, the only published study in this area — a survey of pharmacists — suggests that the primary burden of cost-sharing falls upon beneficiaries rather than providers.
Who Is Most Vulnerable? The potential risks of higher
cost-sharing are most acute for seniors and people with disabilities. Since
these individuals use the most health services and medications, their
out-of-pocket costs for copayments would be highest and they are the people
most likely to avoid or delay needed health care because of cost problems.
Researchers at the
Most of those that states could ask to make higher copayments in Medicaid are individuals or families with incomes below the poverty line ($15,260 for a family of three). Federal law prohibits copayments from being required of children and pregnant women, the two groups of Medicaid beneficiaries who are most likely to have incomes above the poverty line, and most other state expansions of Medicaid to people with incomes greater than 100 percent of the poverty line have been authorized under federal waivers that already permit cost-sharing for those with higher incomes.
State Savings. States stand to lose a substantial portion of the savings generated when they institute copayments or premiums, because these approaches reduce total Medicaid costs and therefore reduce federal matching funds. For example, if a prescription drug costs $60 and the federal matching rate in a given state is 60 percent, the federal share of the cost for that drug is $36, while the state pays $24. If there is a $10 copayment, the total cost to Medicaid for the drug becomes $50, so the state share will be $20 (40 percent of $50) and the federal government will pay $30.
Even though a poor state resident has paid $10 more for that prescription, the state government saves only $4. This is equivalent to imposing a tax or a user fee on a poor state resident with the state government gaining only a fraction of that tax or user fee. If, instead, the state increased some other tax or user fee on higher-income people, the costs would be experienced by people who can better afford to bear them and the state would gain the full value of the tax or user fee. Cost-sharing in Medicaid is fiscally inefficient for states since it effectively shifts revenue away from state residents.
Conclusions. Expanded cost-sharing is likely to harm low-income beneficiaries. In many cases, it could be counterproductive because beneficiaries’ health could worsen, leading to increases in other medical costs. Those considering increases in Medicaid cost-sharing, despite its risks, should consider two principles to curb unnecessary and unintended negative consequences:
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