# Presentation: 055531

## Stretching Scarce Resources: State Strategies to Design Effective, Affordable Benefit Packages

**Anne Markus, J.D., Ph.D.**
**Senior Research Scientist**
**The George Washington University Medical Center**

**Notes:**
Anne Markus’ slides for the presentation “Stretching Scarce Resources: State Strategies to Design Effective, Affordable Benefit Packages.” 

Anne Markus is a Senior Research Scientist at the George Washington University Medical Center. 

## Definitions	

**Premium**: Set amount of dollars per defined payment period (usually monthly) paid to obtain health insurance coverage.
**Cost-sharing**: Patient exposure to out-of-pocket costs associated with health service delivery. Includes:
- Deductible
- Coinsurance
- Copayment

**Notes:**
While premiums and cost-sharing both result in out-of-pocket costs, they have a different aim from the consumer’s perspective. Premiums are directly associated with a decision to enroll in health insurance and are very relevant to the success of public insurance programs. 
Cost-sharing, on the other hand, is directly associated with the use of services. Premiums are defined as a set amount of dollars for a defined payment period, usually monthly, for health insurance coverage. States have also used enrollment fees, which are slightly different, but are basically the same concept. Enrollment fees are set amounts of dollars per defined payment period. Those are usually quarterly or annually, paid to participate in a public program and receive services. 
Cost-sharing is defined as patient exposure to out-of-pocket costs associated with the delivery of healthcare services and usually includes deductibles, co-insurance and co-payments. Deductibles are flat dollar amounts for medical services that have to be paid by the patient before the insurer picks up all or part of the remainder of the cost. Co-insurance, on the other hand, is a defined percentage of the total charges for service. Co-payments are fixed-dollar fees per visit paid at the point of service. 

## Purposes of Cost-sharing

**General reasons**:
- Enticing families to be more cost conscious in seeking care
- Fostering a sense of ownership/personal responsibility
- Directing consumers toward more cost-effective care
- Deterring unnecessary utilization
- Raising revenues to reduce sponsor costs of health care coverage

**Notes:**
Generally there are a number of reasons why insurers want to impose premiums and cost-sharing, including enticing families to be more cost conscious in seeking care and fostering in some sense ownership and personal responsibility. Another reason is to direct consumers toward more cost-effective care, deter unnecessary utilization, and raise revenues to reduce costs or cost of healthcare coverage. 

## Purposes of Cost-sharing (cont.)

**Additional reasons for states**:
- Making public health insurance programs aimed at the poor look more like private insurance
- Limiting substitution and crowd-out of private insurance

**Notes:**
There are also some additional reasons for States to consider cost-sharing. States have also used cost-sharing to make public insurance programs aimed at the poor to look more like private insurance and thus avoid the welfare stigma associated with this program and to limit substitution and crowd-out of private insurance.

## Recent Trends 

**Private sector**
- No significant changes to contribution strategies, but changes to benefit structure
**Medicaid/SCHIP**
- HIFA initiative
**Medicare**
- Pharmacy Plus initiative

**Notes:**
It is important to examine what is happening in the area of cost-sharing in the private sector as well as the public sector because the public sector might end up following the private sector. In the private sector during the late 1990’s we experienced strong economic growth and tight labor markets. Employers were more willing to pay large shares of premiums and less likely to cut back on benefits because they were concerned about recruitment and retention. Employers now are seeing a return of the double-digit premium increases of the late 1980’s and early 1990’s and recent research has shown that they are not changing their contribution strategies. Employers are therefore are not changing the contribution approaches so much as they are changing their benefit structure by increasing co-payments for office visits, for emergency room visits, for specialty care visits, in-patient stays and also by using three-tiered pharmacy benefits. 
There are similar kinds of trends in the public sector towards increased cost-sharing, which date back to the State Child Health Insurance Program in 1997 and two more recent initiatives by the Centers for Medicare and Medicaid Services (CMS). The first initiative is the Health Insurance Flexibility and Accountability Act (HIFA) and the second is the Pharmacy Plus Initiative for low-income seniors who have Medicare coverage. These two initiatives give States a lot of leeway in designing new rules for their cost-sharing. 

## Cost-sharing Rules in Public Programs

**Medicaid**
- Premiums prohibited
-     with some exceptions
- “Nominal” cost-sharing allowed
-     with some exceptions
- No overall cap specified
**SCHIP**
- Premiums allowed
- Cost-sharing allowed
- Overall cap of 5% of family income

**State employee benefit plans**
- Premiums allowed
- Cost-sharing allowed
- May or may not impose overall cap

**Notes:**
States have varying levels of flexibility depending on the program. Under Medicaid, premiums are generally prohibited, although there are some exceptions. Cost-sharing is usually allowed with some exceptions and there is no annual cap on the amount of cost-sharing. 

Under SCHIP, both premiums and cost-sharing are allowed and there is an overall annual cap of 5% of family income. 

State employee benefit plans often enjoy greatest flexibility in setting premiums and cost-sharing levels, but most of that happens between insurers and the State employment program through negotiations. Under both programs there are waivers, which means that States can ask to waive some of the Federal requirements concerning cost-sharing and can be more flexible in setting cost-sharing rules that are different from the Federal ones. 

## Medicaid and SCHIP Waivers

**Medicaid cost-sharing waivers:**
-    (1) inappropriate use of ER
-    (2) 2 year demonstration program
**Section 1115 waivers:**
-    (1) waiver of Medicaid and/or SCHIP cost-sharing requirements as part of a 5-year demonstration program
-    (2) streamlined waiver process and increased flexibility to design cost-sharing rules under HIFA

**Notes:**
In the Medicaid statute, there are two cost-sharing waivers.  One is for the inappropriate use of the emergency room, in which case States can ask to increase the amounts of cost-sharing. There is also the possibility to do a two-year demonstration program just on cost-sharing. Under Section 1115 waivers, States can waive some of the Medicaid or CHIP requirements as part of the five-year demonstration program and now there is the more streamlined waiver process and increased flexibility under HIFA. 

## Effect of Premiums

- Premiums influence participation in insurance programs
- As premiums increase, participation rates decrease

**Notes:**
The 3 or 4 studies that exist on the effect of premiums on patient rates consistently indicate that the pricing of benefits is an important influence on low-income peoples’ decision to enroll in their public insurance program. However, these studies do also point out that the actual design and implementation of these programs will likely determine actual participation rates. 

More specifically, some of the studies consistently show that as premiums increase, participation rates decrease. One study of a program showed that when a premium was increased by 1% of income, over half of the eligible persons enrolled, but as the percentage increased, enrollment dropped. They estimated that roughly a $10 increase in premiums would result in roughly a 10-15% decrease in enrollment. 

## Effects of Cost-sharing

- Use of services
- Cost-sharing influences the use of services
- As cost-sharing increases, use of services decreases
- outpatient care
- inpatient care
- prescriptions
- preventive services
- emergency room

- Health outcomes
- Cost-sharing may have an effect on health outcomes
- In general, cost-sharing has been found to have a minimal or no effect on health outcomes except for the poorest populations

**Notes:**
In contrast to the number of studies on the effect of premiums, there are a number of studies on cost-sharing, but there is also still a lot we don’t know.

What is known is consistent across the board and the strongest evidence comes from the Rand Health Insurance Experiment, which was conducted in the ‘70’s. This study looked at co-insurance deductibles and income-related maximums. Other studies are not so robust, many were basically aimed at detecting the effect of cost-sharing on the use of services in health outcomes and also to a certain extent, costs.

These studies do show that as cost-sharing increases, the use of services decreases. And although more definitive research is needed, in general cost-sharing has been found to have little or no effect on health outcomes except among the poorest populations. 

## Effect Across Population Groups

**Research shows that cost-sharing has a deterrent effect across the board:**
- children and adults
- people who are healthy and people who have chronic conditions
- rich and poor
**Existing body of knowledge also suggests that cost-sharing may have a more pronounced negative effect on low income people: **
- studies on premiums in state programs
- non-Medicaid studies on cost-sharing
- Medicaid studies on cost-sharing

**Notes:**
Research shows that cost-sharing has a deterrent effect across the board - whether it be children or adults, people who are healthy or people who have chronic conditions, rich or poor. But the existing body of knowledge also suggests that cost-sharing may have a more pronounced negative effect on low-income people. 

## SCHIP Experiences

- All States with separate SCHIP programs have some form of cost-sharing
- Research in this area thus far focuses on the effect of premiums on initial participation but also on continued participation in program
- Anecdotal evidence also suggests that collecting and processing premiums and other cost-sharing contributions is administratively burdensome and/or not worth the cost

**Notes:**
All States with separate CHIP programs have some form of cost-sharing. There are 35 States with separate CHIP programs; 26 of those impose premiums and those are mainly targeted to families with incomes above 150% of the poverty. Twenty-five States also impose co-payments that are mainly targeted at families with incomes above 150% of poverty. Research thus far has focused on the effect of premiums on initial participation but also on continued participation in the program. For example, one study, which looked at North Carolina, found that the failure to pay the enrollment fee of $50 per child was the leading cause for denied participation in the program.  Another study showed that while families liked the concept of paying monthly premiums, they also faced difficulties in making those premiums on a regular basis. 

A couple of studies have focused on continuous enrollment and disenrollment and did find that a significant portion of children lost coverage as a result of the failure to pay premiums. There is also some anecdotal evidence that suggests that collecting and processing premiums and other cost-sharing contributions may be administratively burdensome and may not be worth the cost. As a result of this, some States have actually contracted out that function or dropped the cost-sharing requirement altogether. 

## Implications

- Income-related, sliding scale for premium and cost-sharing schedule
- Low premiums
- Limited cost-sharing
- Broaden the definition of preventive services exempt from cost-sharing
- Individuals with special needs

**Notes:**
In this area and many other areas that involve policy choices, it becomes really a balancing act for States. Using cost-sharing might be important for the States for political or economic reasons, but it is also important to avoid the creation of the situation where the people targeted by programs are subject to undue financial stress. 

Given what the literature shows and the fact that it shows a disproportionate effect of cost-sharing on low-income individuals, States that wish to impose premiums and cost-sharing may want to consider an income-related sliding scale for their premium cost-sharing schedule. They may want to use premiums that are fairly low and may wish to use cost-sharing that could include a deductible for inpatient care. 

## HIFA Cost-sharing Rules 

**Mandatory eligibility groups** *(e.g., all children up to 100% FPL):* same rules as Medicaid
**Optional eligibility groups** *(e.g., children beyond the mandatory eligibility levels):* no cost-sharing rules specified other than an annual cap of 5% of family income for deductibles, copayments and coinsurance
**“****Expansion” eligibles** *(e.g., nondisabled single working age adults, childless couples):* no cost-sharing rules specified

**Notes:**
Cost-sharing rules within HIFA vary by eligibility group under Medicaid. There are essentially three types of cost-sharing rules. For the mandatory eligibility groups (for example, children up to 100% of poverty) the rules are essentially the same as Medicaid - very nominal cost-sharing is allowed and premiums are prohibited.  

The second group is the optional eligibility group (for example, children beyond the mandatory eligibility levels), and for this group there are no rules specified, other than that annual cap of 5% of family income, which is similar to the CHIP annual cap. 

The final group is the expansion eligibles. These tend to be in general adults below 200% of poverty, and for those there are basically no rules specified so States have a lot of flexibility within this group. 

## Examples of State Flexibility Under HIFA

**Arizona (approved HIFA waiver):**
*Childless adults <100% FPL*: same cost-sharing as Medicaid, i.e., $1-$5 except prenatal care, EPSDT services, family planning
*Parents of SCHIP and Medicaid children 100-200% FPL*: same cost-sharing as SCHIP, i.e., family premiums up to $25 per month, $5 non-emergency use of emergency room, overall limit of 5% of annual family income
**California (approved HIFA waiver):**
*Parents of SCHIP and Medicaid children <200% FPL*: similar to cost-sharing under SCHIP, e.g., monthly premiums of $10 or $20, copays

**Notes:**
With recently approved waivers, Arizona and California are examples of States have used the increased flexibility under HIFA. 
Arizona has imposed some cost-sharing on the childless adult population under 100% of poverty. There is a $1 to $5 co-pay except for some services such as prenatal care, EPSDT, services and family planning. The other adults that Arizona targets are parents of CHIP and Medicaid children between 100% and 200% of poverty. Those are essentially the same rules as those that exist under the Arizona CHIP program: family premiums up to $25 per month, a $5 co-pay for the non-emergency use of the emergency room and an overall limit of 5% of annual family income. 

California has also received approval of their waiver and they will extend coverage to parents of CHIP and Medicaid children below 200% poverty and they have some cost-sharing rules under their CHIP program.