OFFICE  OF 
NSPECTOR  GENERAL 
MEDICAID  COST  SHARING 
JuLY  1993  OFFICE  OF  INSPECTOR  GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department  of Health and Human Services (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by three OIG operating components:  the Office of Audit Sewices, the 
Office of Investigations, and the Office of Evaluation and Inspections.  The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them. 
OFFICE  OF  AUDIT  SERVICES 
The OIGS Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout  the Department. 
OFFICE  OF  INVESTIGATIONS 
The OIGS Office of Investigations (01) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrichment by providers.  The investigative efforts of 01 lead to criminal convictions, 
administrative sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE  OF  EVALUATION  AND  INSPECTIONS 
The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department, 
the Congress, and the public.  The findings and recommendations contained in these inspection 
reports generate  rapid, accurate, and up-to-date information on the efficiency, vulnerability, 
and effectiveness of departmental  programs.  This report was prepared in the Philadelphia 
Regional Office under the direction of Joy Quill, Regional Inspector General and Robert A 
Vito, Deputy Regional Inspector General.  Project staffi 
REGION  HEADQUARTERS 
Linda M. Ragone, ProjectLeader  Vicki A. Greene

Robert A. Katz  Barbara R. Tedesco

Daniel E. Brooks

Cynthia R. Hansford

For additional copies of this report, please contact the Philadelphia Regional Office at

1-800-531-9562.
 Department of Health and Human Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICAID  COST  SHARING 
JULY 1993  OEI-03-91-01800  EXECUTIVE  SUMMARY

PURPOSE 
To  (1) review  State  Medicaid  cost sharing  policies  and  (2) determine  their  impact  on 
the  program. 
BACKGROUND 
Medicaid  is one  of the  fastest  growing  programs  in Federal  and  State  budgets.  Total 
Medicaid  expenditures  grew from  $72.1 billion  in 1990 to $94.5 billion  in 1991, an 
increase  of 31 percent.  As Medicaid  costs continue  to rise, Federal  and  State  officials 
are  searching  for cost  containment  measures. 
One  of the  fastest  growing  trends  in corporate  health  care  cost containment  is greater 
beneficiary  cost sharing.  Cost  sharing  requires  beneficiaries  to pay a portion  of their 
health  care  costs.  State  Medicaid  programs  have  also increasingly  been  using cost 
sharing  as a cost  containment  method.  States  not  currently  using cost sharing  policies 
may begin  to reexamine  the  issue since Medicaid  now absorbs  14 cents  of every State 
dollar  spent. 
Section  1902(a)(14)  of the  Social  Security  Act  provides  that  Medicaid  may impose 
enrollment  fees,  premiums,  or similar  charges,  and  deductions,  cost sharing,  or similar 
charges.  Children,  HMO  enrollees,  pregnancy  setices,  emergency  setices,  hospice 
services,  and  services  provided  to residents  of nursing  facilities  or medical  institutions, 
are  exempt  from  cost sharing. 
To  examine  States  cost sharing  policies,  we collected  detailed  information  from  State 
Medicaid  directors.  We  also reviewed  data  collected  by the  Health  Care  Financing 
Administrations  (HCFA)  information  systems. 
FINDINGS 
7hntY-seven  States  use cost shatig  in their iUedicaiJ pmgrarns. 
Cost shmingpmgrarns  save money. 
States without cost sluvihg could save between $167 and $335&n  annudy  (of which 
the Fedeml share WOUUbe $99 to $198 million)  by applying cost siuuing to just four 
services - ihpatient hospita~ outpatient  hixpita~ physiciizn Vi&sj and prescription dugs. 
Statt3  with cast sharing&  not reprt  sk*ant  impacts on utikmtion  of selvikes or 
access to care. 
i  Cost sharing  States  have not expenkced exctwive  adrninhbutivq  rew  orpmvider 
budem 
Fed&ralrquuemaW  may hindir  States from  &ii@g  even more #ective  cmt  shdng 
~ 
RECOMMENDATION 
We believe  that  implementing  or expanding  cost sharing  programs  would  allow States 
to (1) reduce  program  expenditures;  (2) maintain  or increase  eligible  populations;  (3) 
maintain  or increase  covered  services;  and/or  (4) maintain  or increase  reimbursement 
rates. 
As a result  of these  conclusions,  we make  the  following  recommendation. 
l%e HCFA shouiii promote  the dkvelhpment  of effective cart sharing prqyums  by: 
	 allowing  States  to experiment  with cost sharing  programs  that  target  new 
populations  and  reflect  more  substantial  cost sharing  amounts,  and/or 
F	 recommending  changes  to Federal  requirements  allowing  for greater 
State  flexibility in determining  exempted  populations  and  semices,  and 
allowing  higher  recipient  cost sharing  amounts. 
The  HCFA  might  also consider  funding  evaluation  projects  which formally  assess cost 
sharing  programs  and  provide  information  on the  most  effective  structure  of such 
programs. 
l%e HCFA  should promote  the use of cost shatig  in States that do not CUITentlyhave 
programs  l%e HCFA  COUUchoose to &e  h  kwdedtip  in a number of ways.  l%e 
HCFA  COlliit 
F	 encourage  States  to implement  cost sharing  by providing  information 
about  State  experiences  with cost sharing  and  offering  technical 
assistance  and  clarification  of Federal  requirements,  or 
F	 seek  legislation  to provide  States  with incentives  to implement  cost 
sharing  programs,  such as decreasing  Federal  matching  to States  who do 
not  implement  cost sharing,  or 
  seek  legislation  to mandate  cost sharing  for all States. 
ii  AGENCY  COMMENTS 
The  HCFA  and  the  Assistant  Secretary  for Management  and  Budget  commented  on 
the  draft  report;  the  full text  of their  comments  is in Appendix  D.  Neither  agency 
concurred  with our  draft  recommendation.  We  have  made  several  changes  in 
response  to their  suggestions.  However,  we believe  that  the  available  evidence 
supports  cost-sharing  as a viable  cost saving mechanism  for financially  strapped  State 
programs,  and  would  have  a less deleterious  effect  on Medicaid  beneficiaries  than 
poor  payment  rates  to providers,  or elimination  of services  or eligible  groups. 
... 
m  TABLE  OF  CONTENTS

PAGE

EXKUTM3  SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

FINDINGS 
States  with  cost sharing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...5

Reported  savings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7

Projected  savings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Utilization  and  access  tocare.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8

State  experiences  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..O..  11

Federal  hindrances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

RECOMMENDATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

APPENDICES

A  Selected  Bibliography  . . . . . . . . . . . .,  . .,  . . . . . . . . . . . . . . . . . . . . . . . . . .  A-1

B:  Cost  Savings Estimate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-l

CCost  Sharing  Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..C-l

D:  Agency  Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..D-l
 INTRODUCTION

PURPOSE 
To  (1) review  State  Medicaid  cost sharing  policies  and  (2) determine  their  impact  on 
the  program. 
BACKGROUND 
costShathg 
Medicaid  is one  of the  fastest  growing  programs  in Federal  and  State  budgets.  Total 
Medicaid  expenditures  grew from  $72.1 billion  in 1990 to $94.5 billion  in 1991, an 
increase  of 31 percent. 
As Medicaid  costs continue  to rise, Federal  and  State  officials are  searching  for cost 
containment  measures.  One  of the  fastest  growing trends  in corporate  health  care 
cost  containment  is greater  beneficiary  cost sharing.  Cost  sharing  requires 
beneficiaries  to pay a portion  of their  health  care  costs.  State  Medicaid  programs 
have  also increasingly  been  using cost sharing  as a cost containment  method. 
States  not  currently  using cost sharing  policies  may begin  to reexamine  the  issue since 
Medicaid  now absorbs  14 cents  of every State  dollar  spent.  According  to Raymond 
Scheppach,  Executive  Director  of the  National  Governors  Association,  as State 
budgets  rise  and  governors  are  becoming  more  reluctant  to ask for tax increases, 
States  are  likely to cut more  deeply  into  spending  and  perhaps  impose  new  user fees 
for specific  programs.* 
Federal Cmt  Shuring Legi@ion  and Regddion 
Section  1902(a)(14)  of the  Social  Security  Act  allows Medicaid  to impose  enrollment 
fees,  premiums,  or similar  charges,  and  deductions,  cost sharing,  or similar  charges. 
Medicaid  cost sharing  legislation  has  changed  since  the  original  1965 law.  The  largest 
change  to date  occurred  under  the  Tax Equity  and  Fiscal  Responsibility  Act  of 1982 
(TEFRA). 
The  TEFRA  expanded  cost sharing  options  to allow both  the  medically  and 
categorically  needy  to pay nominal  fees  for almost  all services.  The  legislation 
precludes  providers  participating  under  the  State  plan  from  denying  sexvice due  to an 
eligible  recipients  inability  to pay the  cost sharing  amount.  However,  the  provision 
does  not  extinguish  the  recipients  liability for the  amount. 
lJirn  Luther,  States  may be  forced  to cut spending  more  despite  tax increases, 
The  Baltimore  Sun, October  30, 1991, 6A. 
1  Section  1916 of the  Social Security  Act was added  by TEFRA  and  exempts  the 
following  populations  andsemices  from  cost sharing:  children,  HMO  enrollees  who 
are  categorically  needy,  pregnancy  sexvices, emergency  sem-ices, hospice  sexvices, and 
services  provided  to residents  of nursing  facilities  or medical  institutions.  In addition, 
specific  types  of cost sharing  such as enrollment  fees, premiums,  or similar  charges 
cannot  be  imposed  upon  the  categorically  needy. 
The  Medicaid  cost sharing  payment  regulations  outlined  in 42 CFR  Ch. IV sections 
447.50-.59 establish  minimum  and  maximum  charges  for enrollment  fees  and 
premiums  based  on families gross monthly  income.  The  maximum  deductible, 
coinsurance,  or copayment  charge  for institutional  services  cannot  exceed  50 percent 
of the  Medicaid  agencys payment  for the  first day of semice.  For  non-institutional 
senfices: 
  deductibles  may not  exceed  $2 per  month  per  family per  period  of eligibility; 
  coinsurance  rates  may not  exceed  5 percent  of the  service  payment;  and 
  maximum  copayment  chargeable  to recipient  for services  is $.50 to $3.00, 
depending  on the  cost of the  service. 
%viouscat  Shdlg Sllidiks 
The  largest  study  to date  on the  effects  of cost sharing  was conducted  by the  Rand 
Corporation.  The  Health  Insurance  Experiment  reviewed  health  care  consumption  by 
insured  individuals  at randomly  assigned  levels of cost sharing.  Over  7,000 people 
were  assigned  coinsurance  rates  of O, 25, 50 and  95 percent.  The  purpose  was to 
determine  the  potential  effects  of cost sharing  on service  utilization  and  overall  health 
status.  The  federally-sponsored  study ran  over  several  years  in the  1970s and  early 
1980s. 
The  study  found  that  patients  with limited  cost sharing  used  approximately  one-third 
fewer  medical  services  than  patients  receiving  free  care.  Apart  from  better  blood 
pressure  control  and  corrected  far vision, participants  in free  care  did not  have 
significantly  better  health  outcomes  than  patients  with cost sharing  plans.2 
In a review  of Californias  1972 cost sharing  experiment,  most  Medi-Ca13 beneficiaries 
thought  that  cost sharing  had  not  affected  their  health  care.  However,  17 percent 
2Robert  H. Brook,  Robert  H., John  E. Ware,  Jr., William  H. Rogers,  Emmet  B. 
Keeler,  Allyson  R. Davies,  Cathy  A. Donald,  George  A. Goldberg,  Kathleen  N. Lohr, 
Patricia  C. Masthay,  and  Joseph  P. Newhouse,  Does Free  Care  Improve  Adults 
Health?  Results  from  a Randomized  Controlled  Trial,  The  New Erwland  Journal  of 
Medicine  Vol. 309 No. 23 (December  8, 1983):  1426-34. 
3Califomias  Medicaid  program  is called  Medi-Cal. 
2  thought  it had  reduced  the  care  available  to them.  These  17 percent  were  for the 
most  part  in households  with chronic  or significant  medical  needs.4 
A more  recent  study on Medicaid  prescription  drugs  found  that  New Hampshires 
monthly  limit  on prescriptions  caused  a 30 percent  drop  in the  number  of 
prescriptions  filled.  After  the  limit was rescinded  and  a $1.00 cops  ent  was 
F 
implemented,  prescriptions  increased  to just  below  pre-limit  levels. 
For  a more  inclusive  list of cost sharing  references  see  Appendix  A. 
METHODOLOGY 
Sue  Imerviews 
We  conducted  structured  telephone  interviews  with State  Medicaid  Directors  or their 
representatives.  To facilitate  data  collection,  information  sheets  were  sent  to all States 
that  had  cost sharing  programs  prior  to the  interview.  We  also asked  States  to 
provide  us with written  material  on 
  the  types  and  amounts  of cost sharing, 
  reported  cost projections  and  savings, and 
  cost sharing  program  evaluations. 
We  interviewed  officials  in 49 States  and  the  District  of Columbia.  State  officials in 
California  declined  to be interviewed  but  did provide  us with written  material. 
Whenever  possible,  we have  included  Californias  information  in our  State  statistics. 
Although  Arizona  does  not  have  fee  for service  reimbursement,  it was included  in our 
interviews.  Under  the  Title  XIX  demonstration  project,  the  Arizona  Health  Care  Cost 
4Carl E . Hopkins,  Milton  I. Roemer,  Donald  M. Procter,  Feline  Gartside,  James 
Lubit~  Gerald  A. Gardner,  and  Marc  Moser,  Cost-Sharing  and  Prior  Authorization 
Effects  on Medicaid  Services  in California:  Part  I.  The  Beneficiaries  Reactions, 
Medical  Care  Vol. XIII  No. 7 (July  1975):  582-94. 
5Stephen  B. Soumerai,  Jerry  Avom,  Dennis  Ross-Degnan,  and  Steven  Gortmaker, 
Payment  Restrictions  for Prescription  Drugs  Under  Medicaid:  Effects  on Therapy, 
Cost,  and  Equity,  The  New England  Journal  of Medicine  Vol. 317 No. 9 (August  27, 
1987):  550-56. 
Stephen  B. Soumerai,  Dennis  Ross-Degnan,  Jerry  Avom,  Thomas  J. McLaughlin, 
and  Igor  Choodnovskiy,  Effects  of Medicaid  Drug-Payment  Limits  on Admission  to 
Hospitals  and  Nursing  Homes,  The  New En~land  Journal  of Medicine  Vol. 325 No. 
15 (October  10, 1991):  1072-7. 
3
 Containment  System  provides  care  through  organized  health  plans  and  capitated 
reimbursement.  However,  Arizona  does  allow cost sharing  by the  health  plans  for a 
limited  number  of semices.  Therefore,  we requested  information  on their  experiences 
with cost  sharing. 
Data  Rep*  and Infonnution $Wzms 
The  information  collected  from  our  State  interviews  was compared  with the  HCFAS 
new State  Profile  Data  System  (spDATA)  for inaccuracies.  We found  a few 
discrepancies  and  informed  HCFAS Medicaid  Bureau  about  the  differences.  The 
errors  were  found  to lie with the  data  system  and  not  our  State-reported  data.  They 
were  caused  by time  lags on newly implemented  policies  or data  input  mistakes. 
To  project  cost savings, we used  service  numbers  supplied  by States  on  1991 Form 
HCFA-2082.  The  data  is based  on service  claims  paid  by State  Medicaid  agencies  in 
Fiscal  Year  1991.  See  Appendix  B for a detailed  description  of the  cost savings 
projection. 
4
 FINDINGS

TWENTY-SEVEN  STATES USE COST SHARING  IN THEIR  MEDICAID

PROGRAMS.

Twenty-six  States  cited  containing  costs or reducing  unnecessary  utilization  as the  main 
reasons  for implementing  recipient  cost sharing  in their  Medicaid  programs.  Several 
States  implemented  cost sharing  to promote  an active  role  for recipients  in their 
health  care.  One  State  also mentioned  that  they use cost sharing  to encourage 
participation  in health  maintenance  organizations  (HMO)  since HMO  enrolled 
Medicaid  recipients  are  exempt  from  cost sharing.  See Appendix  C for a list of States 
with  cost sharing. 
States  have  been  using cost sharing  for more  than  two decades.  Half  (14 of 27) the 
States  have  implemented  their  programs  incrementally  over  the  years.  Five States 
established  programs  in the  early  to mid  1970s.  Most  States  began  programs  during 
the  1980s.  Two  States  implemented  cost sharing  programs  in  1992. 
Of the  24 States  not  currently  using cost sharing,  almost  half  are  now considering 
programs.  In fact,  New York  plans  to implement  cost sharing  in the  early  part  of 
1993.  The  main  reason  States  are  considering  cost sharing  is budgetary  restraints. 
I%  most jhqlientlyused form  of cost sharing is copayments. 
AU States  with  cost sharing  use  copayments  as the  main  mechanism  for sharing  costs

with recipients.  Copayments  range  from  50 cents  to $3.00, with the  exception  of

inpatient  hospital  copayments  which  range  up to $50 per  admission.  Four  States  also

use  2 or 5 percent  coinsurance  for certain  services  and  one  State  recently

implemented  an inpatient  hospital  deductible  of $100.

No States  use  enrollment  fees  or premiums  for medically  needy  individuals  as allowed

by Federal  law.  Two States  used  premiums  in the  late  1970s but  found  them

cumbersome  to administer  and  discontinued  their  use.  Both  States  recounted  that

local  offices  had  difficulty  administering  the  programs  since  premiums  were  based  on

recipient  income.  Since  incomes  changed  monthly,  the  premiums  had  to be

recalculated  every  month  resulting  in increased  staff time  and  record  keeping.

States automatically  &duct  cost sharing amounti jiom  provider reiinbumment. 
All Statesb  reduce  provider  reimbursement  for eligible  recipients  and  services 
regardless  of whether  the  copayment  is collected.  -The  majority  do not  require 
%xcept  Arizona,  which takes  copayment  amounts  into  account  when  developing 
its cavitation  rates. 
5
 providers  to indicate  on the  claim form  whether  they have  collected  or attempted  to 
collect  the  cost sharing  amount. 
States  use  computer  edits  in their  information  systems  and  provider-supplied 
information  to administer  cost sharing.  Computer  edits  match  information  from 
eligibility files to claim  forms  for exemptions  such as children  and  nursing  home 
residents.  Edits  also identify  exempted  services  by diagnostic  code,  e.g. emergencies. 
Other  States  use  exemption  codes  supplied  by the  provider  to indicate  emergency, 
family planning,  or pregnancy  services. 
States appZycost sharing to both mandatmy  and optional Medicaid  services with 
Fm+tin  dJUgSbebag the most jiequent  cost stig  senahz 
States  apply  cost sharing  to a wide  array  of services.  Some  States  have  chosen  to 
apply  cost sharing  only to mandatoxy  selvices  (States  must  provide  these  semices  as 
required  by law);  others  apply  it only to optional  services  (States  elect  whether  or not 
to cover  these  services). 
Most  States  apply  cost sharing  to both  mandatory  and  optional  services.  Almost  all 
States  (25 of 27) employ  cost sharing  on prescription  or pharmacy  services.  The 
services  to which  States  most  often  apply  cost sharing  are  shown below.  A complete 
list of cost sharing  services  by State  is presented  in Appendix  C. 
Services  Most  Frequently  Used 
for  Cost  Sharing 
Types  of Service 
Proscrlpt~onDrugs 
Outpatient  Hospital 
Optometrists 
Phy8ician  Services 
Podiatrists 
Inpatient  Hospital 
o 5  10  15  20  26  30 
Number of States 
N.27 
The  number  of services  with cost sharing  varies  among  States.  One  State  (PA) 
applies  cost sharing  to all but  a few exempted  services  while five States  apply 
6  cost sharing  to only one  service.  Two-thirds  of States  have  more  than  five services 
with  cost sharing. 
States  reported  a number  of rationales  for selecting  services  for cost sharing.  The 
most  common  was services  for which States  believed  there  was unnecessary  utilization. 
Twenty-five  percent  said they wanted  to put  cost sharing  on all the  services  allowed  by 
Federal  regulation.  Several  said they  specifically  chose  services  where  they  felt there 
would  not  be  a negative  impact  on access.  Other  States  mentioned  choosing  services 
where  cost  sharing  would  be  easier  to administer  and  collect.  Finally,  three  States 
were  given specific  service  choices  from  their  State  legislatures. 
COST  SHARING  PROGRAMS  SAVE MONEY. 
Twenty-two  of the  27 States  reported  that  their  programs  reduced  Medicaid 
expenditures.  7  Three  States  which had  recently  implemented  programs  had  no 
information  yet.  One  State  which had  no statistical  proof  of savings declined  to 
respond. 
Eleven States reprtd  annual cost savings mn~gjhm  $.325,MXJto $9.5 million 
Of the  22 States reporting  savings,  11 provided  financial  data.  As shown below,  eight 
States  provided  statistics  from  their  information  systems  or outside  evaluations  and  the 
remain-tig  three  were  estimated  dollars. 
The  three  remaining  States  provided  dollar  estimates  of $325,000, $500,000, and 
$2,250,000.  These  savings were  attributed  to cost sharing  applied  to prescription  drug 
services. 
IIColorado  I  9  I  200,000  I  FY  1991  $2,168,342 
Maine  10  147,886  FY  1992  $432,2461 
Montana  26  70,000  FY  1991  $917,412 
I  I  I 
IINorth  Carolina  9  751,000  FY  1992  $5,518,910 
Pennsylvania  all  1,177,161  FY  1990  $9,424,585 
South  Dakota  10  55.000  FY  1992  $708,384 
Vermont  3  68,622  FY  1992  $906,199 
Wisconsin  19  416,000  FY  1988  $6,700,000 
Savingsareforprescriptiondrugsonlyandfor the11 monthperiod 7191-5192 
Californias  written  material  did not  provide  us with cost savings information. 
7  Of the  eight  States  that  provided  actual  cost savings, only Wisconsin  included  $2.1 
million  in savings from  decreased  utilization.  The  remaining  seven  States  savings 
figures  represent  only reductions  in provider  reimbursement  by the  amount  of 
recipient  cost sharing. 
Stkzteswithout jhmcial  dirts believe cost shankg saves money. 
The  11 States  whose  information  systems  did not  collect  savings information 
nevertheless  believe  their  programs  have  achieved  savings.  Five States  believe  savings 
come  from  recipient  cost sharing  dollars  and  six believe  savings come  from  a 
combination  of cost sharing  dollars  and  reduced  utilization. 
STATES WITHOUT  COST SHARING  COULD SAVE BETWEEN $167AND $335 
MILLION  ANNUALLY  BY APPLYING  COST SHARING TO FOUR SERVICES. 
Potential  savings for  24 States  without  cost sharing  depends  on the  number  of eligible 
beneficiaries  and  services  to which  cost sharing  is applied.  However,  we estimate  that 
cost sharing  on four  semices  in these  States  could  save the  Medicaid  program  between 
$167 and  $335 million  a year.  The  Federal  share  could  range  from  $99 to $198 
million  and  the  States  could  save between  $68 to $137 million. 
These  savings  are  due  to reductions  in provider  reimbursement  alone  and  do not 
include  savings from  possible  utilization  changes.  The  savings would  be  even  greater  if 
States  implemented  cost sharing  on more  than  just  these  four  semices. 
This  estimate  includes  four  services  -- prescription  drugs,  physician  visits, inpatient 
hospital  stays, and  outpatient  hospital  visits.  These  services  were  selected  because 
information  on their  use by recipients  was available  from  State  HCFA-2082  reports  for 
1991. 
The  number  of services  provided  by each  State  without  cost sharing  was multiplied  by 
the  most  frequently  used  copayment  amount  by States  with cost sharing.  The  cost 
savings projection  includes  savings only from  reductions  in service  reimbursement  by 
the  amount  of recipient  cost sharing  and  not  reductions  in service  utilization. 
The  high estimate  of $335 million  is not  reduced  by the  number  of services  that  would 
be  exempt  according  to Federal  regulations.  The  $167 million  estimate  excludes  these 
exempted  semices.  See  Appendix  B for a more  detailed  description  of the  cost 
sharing  projection. 
STATES WITH  COST SHARING  DO NOT REPORT SIGNIFICANT  IMPACTS 
ON UTILIZATION  OF SERVICES OR ACCESS TO CARE. 
Although  15 States  cited  reducing  inappropriate  utilization  as one  of the  reasons  for 
implementing  cost sharing,  States  have  not  experienced  significant  reductions  in the 
use of semices  after  implementation  of cost sharing. 
8  only the  States have formally  evahated  their cm  sharingpmgnmw  l%eir resuklshave 
Wma$  but ih no case did they @i  a strung rehionship  between the irnplemenkrfion of 
cost shankg and significant reductions h  the use of senices. 
The  three  States  that  have  conducted  formal  evaluation  are  Wisconsin,  California,  and 
Montana. 
Wisconsins  Office  of Policy and  Budget  reviewed  the  States  cost sharing  program  in 
1989.8  Wisconsin  looked  at utilization  information  for cost sharing  services 
implemented  over  several  years.  For  a group  of copayments  implemented  in 1981, 
they  found  a 1.5 percent  decrease  in utilization  for services  that  were  not  greatly 
affected  by other  program  changes  (chiropractic,  medical  equipment  and  supplies,  and 
transportation).  For  copayments  instituted  or increased  in 1988, Wisconsin  found  a 
1.5 percent  drop  in utilization  for physician  services  and  no decrease  in outpatient 
hospital  services.  The  Wisconsin  report  cautions  that 
The  utilization  effect  statistic  must  be  interpreted  with caution  since 
factors  other  than  copayments  may account  for this change,  e.g., changes 
in provider  participation.  Probably  the  way to interpret  the  1.5 
utilization  percentage  is as the  maximum  that  might  be  due  to 
copayments. 
In  1985, under  contract  with HCFA,  California  evaluated  the  Medi-Cal  copayment

demonstration  project.9  The  evaluation  found  no significant  changes  in utilization  for

physician  office visits, emergency  room  visits, physical  therapy,  chiropractic  services,

and  optometry  after  copayments  were  implemented.

Montanas  evaluation  found  that  after  copayments  were  implemented  for  19 services,

recipient  usage  increased  for all services  except  3-- inpatient  hospital,  dental,  and

prescription  drugs. 10 The  reported  decreases  for inpatient  hospital  and  dental

services  could  not  be  attributed  solely to copayment  since there  had  also been  changes

in reimbursement  methodologies  and  coverage.  However,  the  15 percent  decrease  in

utilization  from  3.17 prescriptions  to 2.68 prescriptions  per  recipient  may have  been

attributable  to copayments.

~imothy  Tyson,  The  Impact  of Coua vments  on Medical  Assistance  Recipients:  A 
ReDort  to the  Lazis]ature  (Wisconsin:  Wisconsin  Department  of Health  and  Social 
Semites,  Office  of Policy and  Budget,  Evaluation  Section,  June  1989). 
~.  Jerome  Hansen,  James  C. Cicconetti,  Terri  Stackpole,  and  John  Keith, 
California  Statewide  Cor)avment  Proiect  (California:  California  Department  of Health 
Services,  July  1985), HCFA  Contract  No.  1l-P-98206/9-03. 
%PMG  Peat  MarWick, State  of Montana,  Department  of Social  and 
Rehabilitation  Services:  Review  of the  Cops vment  Prowam,  (November  1990). 
9  than  2 percent  of the  calls to the  Medicaid  recipient  hotline  were  about  copayments  in 
the  2 months  preceding  and  the  4 months  following  copayment  implementation.  Most 
of these  calls (95 percent)  were  questions  and  clarifications  about  cost sharing  while  5 
percent  were  complaints. 
COST SHARING  STATES HAVE  NOT EXPERIENCED EXCESSIVE 
ADMINISTRA~  RECIPIENT, OR PROVIDER  BURDENS. 
Overall,  States  with  cost sharing  indicated  they had  few problems  with implementation. 
Over  45 percent  of States  said they had  no implementation  problems.  Other  States 
mentioned  working  out  concerns  with  advocacy  groups  and  provider  associations. 
Four  States  have  had  court  cases brought  against  them  by patient  advocaq  groups. 
All of these  States  have  since implemented  cost sharing. 
Interestingly,  more  than  half the  States  (15 of 24) without  cost sharing  believed  it 
would  be  a financial  burden  for them  to administer.  They  also felt  cost sharing  would 
impose  too  great  a financial  burden  on recipients  and  providers. 
l%e dninistmtive  expense h bmcally a one-time minimal  cost for information system 
changes and information diweminatzon 
Five States  furnished  dollar  estimates  ranging  from  $2,000 to $100,000 for the 
information  system  changes.  Two States  estimated  their  staff time  for rule-making  and 
information  dissemination  at $15,000 and  $30,000 respectively.  The  remaining  States 
either  could  not  break  out  the  cost of their  cost sharing  program  or estimated  the  cost 
to be  minimal or negligible. 
New York,  which is attempting  to implement  cost sharing,  reported  implementation 
cost of $1.5 million.  Approximately  $1 million was for client  notification  and  $500,000 
for information  system  changes  including  department  and  contractor  costs. 
The  higher  implementation  costs are  due  to the  large  size of New Yorks program  and 
the  number  of notices  sent  out  due  to court  challenges  and  delays.  However,  if New 
Yorks  initial  cost savings projections  are  correct,  New York  should  recover  its 
expenditure  in 1 months  time. 
Some States reduce burden on recipient  by expanding eumptions  and capping cost 
sharihg ammuuk 
Fifteen  States  have  expanded  the  age  of exempted  children  beyond  the  Federal 
requirement  of 18 and  under.  Twelve  States  have  expanded  the  age to 21, two 
increased  to age  19, and  one  to age  20. 
Fifteen  States  have  expanded  the  pregnancy-related  service  exemption  to include  all 
pregnant  women.  Some  States  did this to alleviate  administrative  confbsion,  so that 
providers  can  exempt  any woman  who is pregnant.  Otherwise,  States  require 
11  providers  to indicate  that  the  service  is pregnancy  related,  e.g., providers  must  write 
related  to pregnancy  on the  prescription. 
At least  12 States  also exclude  services  to severely  or chronically  ill individuals.  These 
include  dialysis services,  chemotherapy,  radiation  therapy,  oxygen equipment,  and 
home  and  community  based  services: 
Five  States  have  also tried  to ensure  that  recipients  are  not  overburdened  by large 
cost sharing  amounts  by establishing  caps  on specific  services  or total  cost sharing 
amounts. 
  Colorado  has  a cost sharing  cap  of $150 per  year. 
  Maine  established  monthly  caps  for each  cost sharing  service  that  range  from 
$4 to $30 per  month. 
  Montana  allows cost sharing  up to $127 per  year  for families.  It also limits the 
cost sharing  for inpatient  hospital  stays to $66 per  admission. 
  Pennsylvania  caps  copayments  at $90 for a 6-month  period.  Inpatient  hospital 
copayments  may not  exceed  $21 per  admission. 
  Wisconsin  caps  inpatient  hospital  semices,  physician  visits, and  sole-provider 
pharmacy  se&ices- at various dollars  limits per  year.  Cost  sharing  f~r 
physical/occupational/speech  therapy  and  psychotherapy  ends  after  so many 
hours  or dollars  of sexvice provided. 
All States,  except  Pennsylvania,  stop  reducing  provider  payments  when  the  dollar 
amount  is reached.  Pennsylvania  rebates  the  amount  paid  over  the  limit  to the 
recipient  every  6 months. 
Overall,  among  the  17 States  that  could  estimate  the  number  of recipients  exempt 
from  cost sharing,  9 States  exempted  between  40 and  50 percent  and  8 exempted  over 
50 percent. 
lhwider  responses to cost shatig  are mired  Howeveq  provider pdcipation  in M&aid 
has not drop+  due to Ctkrtsharing. 
Over  half  the  States  reported  little  or no negative  response  from  physicians  when  they 
implemented  cost sharing.  Several  of these  States  said providers  were  used  to cost 
sharing  since  it is a component  of most  third  party  health  insurance. 
Other  States  reported  mixed  responses,  especially  among  different  provider  groups. 
Several  States  said specific  provider  groups  in their  State  actually  supported  cost 
sharing  by Medicaid  recipients.  Four  States  said provider  groups  were  extremely 
opposed  to cost sharing  in the  Medicaid  program. 
12  Provider  complaints  focused  mainly  on the  administrative  hassle  attached  to collecting 
cost sharing  payments  from  recipients.  Providers  explain  that  if the  amount  is not 
collected  at the  time  of service,  the  cost of billing for the  amount  exceeds  the  amount 
billed.  Complaints  were  also received  that  providers  looked  at this as reducing 
reimbursement  levels that  they  already  consider  too  low. 
Almost  90 percent  of States  (21 of 24) did not  monitor  collection  of copayments  by 
providers.  Therefore,  States  dont know if recipients  are  making  the  payments. 
However,  about  one-third  of the  States  believed  that  there  are  instances  when  cost 
sharing  amounts  are  not  being  paid  by recipient  or collection  is not  being  attempted 
by providers. 
Although  there  is little  State  collected  data  on the  impact  of cost sharing  on providers, 
provider  surveys supply  additional  insight  into  the  impact  of cost sharing  on physicians 
and  their  actions.  The  three  State  evaluations  highlighted  the  following: 
  Approximately  50 percent  of all copayments  went  uncollected. 
	 Providers  with high percentages  of Medicaid  patients  were  more  likely to 
charge  copayments. 
	 Providers  felt  the  nominal  nature  of cost sharing  amounts  were  not  worth  the 
billing  or collection  effort. 
.	 Certain  providers  such as pharmacists  more  frequently  collect  cost  sharing 
payments. 
All except  two States  report  no decreases  in Medicaid  provider  participation  after 
implementing  cost  sharing.  One  State  has lost several  podiatrists  and  they believe  this 
might  be  due  to a combination  of copayments  and  declining  reimbursement.  Another 
State  reported  discontinuing  a physician  visit copayment  after  physicians  threatened  to 
drop  out  of the  program.  However,  this same  State  characterized  the  pharmacy 
providers  as being  positive  about  the  cost sharing  program. 
FEDERAL  REQUREMHWS  MAY  HINDER  STATES FROM DESIGNING 
EVEN MORE EFFECIIVE  COST SHARING  PROGRAMS. 
More  than  40 percent  of States  with cost sharing  voiced  concerns  about  Federal  cost 
sharing  requirements.  Seventy  percent  of these  States  felt that  flexible  Federal 
requirements  would  allow States  to increase  the  effectiveness  of their  cost sharing 
programs.  Several  States  also reported  difficulty in preparing  guidelines  that  allowed 
for effective  cost sharing  while maintaining  compliance  with Federal  requirements. 
13
 States repnt  that the Fe&ml  exemptions are too bread  and the cost sharing amoti  too 
nominal for certain sewiees  or elile  recipients. 
Ten  States  with cost sharing  responded  that  they would  like to design  more  effective 
cost  sharing  programs.  These  States  would  increase  cost sharing  amounts  or create 
exemptions  targeted  at specific vulnerable  populations  or services  instead  of broad 
exemption  categories. 
For  example,  States  said they would  increase  coinsurance  and  copayment  rates, 
include  HMO  enrollees  in cost sharing,  and  waive certain  exclusions  for populations 
above  a certain  percentage  of the  poverty  level.  States  speculated  that  this increased 
cost sharing  would  assist them  in expanding  eligibility to people  not  currently  being 
served  by their  States  program. 
States  without  cost sharing  also indicated  that  Federal  cost sharing  regulations  are  a 
deterrent.  Six States  reported  not  implementing  cost sharing  because  of restrictive 
Federal  requirements. 
States say -g  a recijientti  hwbil~  to pay  cost sharing arno~  k di@ukk 
Several  States  had  difficulty  in supplying  guidelines  to providers  defining  what 
constitutes  a recipients  inability  to pay for services.  This is important  since  Federal 
law requires  service  to be  provided  even  when  a recipient  is unable  to pay the  cost 
sharing  amount  at the  time  it is provided. 
Most  States  do not  have  policies  for handling  recipients  who are  eligible  for cost 
sharing  but  habitually  do not  pay.  These  States  tell providers  that  verbal  confirmation 
of inability  to pay from  recipients  is proof  of inability  to pay.  Only three  States  have 
outlined  policies  for their  prowders. 
Michigans  provider  manual  states  that  if the  recipient  fails to pay  a copayment, 
the  provider  can, in the  future,  refuse  to serve  that  recipient  as a Medicaid 
patient. 
Pennsylvania  advocates  that  providers  cannot  deny  sefices  because  of 
recipients  inability  to pay, unless  there  is creditable  evidence  that  the 
recipient  is able  to pay, but  refuses  to do so.  The  policy states  that  a recipient 
found  making  purchases  of non-essential  items  is an example  of creditable 
evidence  and  requires  the  provider  to document  this in the  record. 
Wyomings guidance  to providers  states  that  since  Medicaid  copayment 
amounts  are  nominal,  if a recipient  regularly  fails to pay the  required 
copayment  a provider  may exclude  the  recipient  from  their  practice. 
14
 The  majority  of States  have  not  defined  the  difference  between  unwillingness  to pay 
and  inability  to pay.  States  just  refer  providers  to the  Federal  law stating  that  they 
cannot  deny  service  but  that  the  uncollected  amount  is considered  a debt  to providers. 
15
 RECOMMENDATIONS 
The  information  in this report  demonstrates  that  many  States  have  developed  cost 
sharing  programs  that  reduce  Medicaid  expenditures.  States  have  suggested  that  cost 
sharing  allows Medicaid  recipients  to be  a partner  in their  health  care  determinations. 
It also  allows Medicaid  recipients  to become  accustomed  to an element  common  in 
private  health  insurance.  States  with cost sharing  reported  no evidence  that  cost 
sharing  has  a negative  impact  on recipients. 
We believe  that  implementing  or expanding  cost sharing  programs  would  allow States 
to: 
k  reduce  program  expenditures; 
P  maintain  or increase  eligible  populations; 
  maintain  or increase  covered  services;  and/or 
k  maintain  or increase  reimbursement  rates. 
As a result  of these  conclusions,  we make  the  following  recommendations. 
The HCFA should promote  the development  of #ective  cost sharbagpmgrums  by: 
	 allowing  States  to experiment  with cost sharing  programs  that  target  new 
populations  and  reflect  more  substantial  cost sharing  amounts,  and/or 
*	 recommending  changes  to Federal  requirements  allowing  for greater 
State  flexibility in determining  exempted  populations  and  services,  and 
allowing  higher  recipient  cost sharing  amounts. 
The  HCFA  might  also consider  funding  evaluation  projects  which  formally  assess cost 
sharing  programs  and  provide  information  on the  most  effective  structure  of such 
programs. 
The HCFA  shouhi promote  the use of cost sharing in S&ztesthat do not CUJTendyhave 
P~  m  HCFA  could choose to aetie  its kdemhip  h  a number of ways.  % 
HCFA  COUki 
b	 encourage  States  to implement  cost sharing  by providing  information 
about  State  experiences  with cost sharing  and  offering  technical 
assistance  and  clarification  of Federal  requirements,  or 
16
 seek  legislation  to provide  States  with incentives  to implement  cost 
E	
sharing  programs,  such as decreasing  Federal  matching  to States  who do 
not  implement  cost sharing,  or 
seek  legislation  to mandate  cost sharing  for all States. 
k 
AGENCY  COMMENTS 
The  HCFA  and  the  Assistant  Secretary  for Management  and  Budget  commented  on 
the  draft  report.  The  full text  of their  comments  is in Appendix  D. 
l%e Hedh  Clue Fihancing Adminkation  Comments 
The  HCFA  did not  concur  with  our  draft  recommendation  that  the  agency  promote 
effective  cost sharing  in the  States.  The  HCFA  cited  their  desire  to have  cost sharing 
remain  a voluntary  State  option.  This  desire  is not  inconsistent  with our  draft 
recommendation  or our  revised  recommendations  which appear  in this final  report. 
While  mandating  cost  sharing  is one  approach  that  HCFA  may choose  to consider  as 
a way to promote  cost sharing,  both  in our  draft  report  and  in this final  report  we list 
other  approaches  which HCFA  could  use as well to accomplish  this goal. 
The  HCFA  agreed  that  there  is sufficient  evidence  to show that  cost sharing  saves 
money  for the  Medicaid  program.  However,  HCFA  expressed  concerns  regarding  the 
impact  that  cost sharing  has  on Medicaid  recipients  and  providers  of care. 
We  agree  that  the  literature  shows that  certain  vulnerable  populations  such  as 
children,  people  with  disabilities,  and  the  chronically  ill may be more  adversely 
affected  by cost sharing.  And  in this report,  we outline  some  of the  policies  that 
States  with  cost sharing  have  implemented  to protect  these  populations.  These 
policies  include  capping  cost sharing  amounts,  excluding  certain  services  from  cost 
sharing,  and  exempting  children  up to 21 years  of age. 
We  also  agree  that  cost sharing  must  be  reviewed  for its impact  on providers. 
Although  we found  that  cost sharing  had  not  caused  providers  to leave  the  Medicaid 
program,  we recognize  that  States  with low provider  participation  must  be  concerned 
about  recipients  access  to providers. 
In response  to these  concerns,  we have  decided  to create  two recommendations.  The 
first  addresses  effectiveness  of cost sharing  programs  and  the  second  addresses  the 
promotion  of cost sharing  in the  Medicaid  program.  We believe  that  some  of HCFAS 
concerns  could  be  alleviated  by allowing  States  to experiment  with  cost sharing 
programs.  More  flexibility would  enable  States  to determine  the  needs  of their 
individual  program  and  populations  and  then  develop  a cost sharing  program  that  fits 
those  needs.  States,  for example,  could  choose  to exempt  specific  vulnerable 
populations  from  cost sharing  while targeting  other  populations  like HMO  enrollees 
for cost  sharing. 
17  m?Asmtant  Secretay  for Management  and Budget Comments 
The  Assistant  Secretaly  for Management  and  Budget  believed  that  the  sample  size 
and  data  were insufficient  to support  the  findings  and  that  additional  sample  data 
needed  to be  collected  before  conclusions  could  be  drawn  on the  effectiveness  of cost 
sharing  programs. 
While  we agree  that  only three  States  have  formally  evaluated  their  programs, 
testimonial  evidence  from  24 additional  States  confirms  the  evaluations  findings.  We 
believe  that  taken  together,  this information  provides  strong  enough  evidence  to 
support  our  findings.  Certainly,  we agree  that  additional  research  on cost sharing 
would  be  helpful;  as a result,  we have  revised  our  recommendation  to include  the 
suggestion  that  HCFA  direct  some  of its evaluation  resources  towards  this end.  In the 
meantime,  however,  we believe  that  the  available  evidence  supports  cost-sharing  as a 
viable  cost  saving mechanism  for financially  strapped  State  programs,  and  would  have 
a less deleterious  effect  on Medicaid  beneficiaries  than  poor  payment  rates  to 
providers,  or elimination  of services  or eligible  groups. 
18
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Consequencesof Cost-Sharing for ChildrensHealth.  Pediatrics Vol 75No. 5 (May1985): 
952-61. 
Wells,Kenneth B., Willard G, Manning, Jr., Naihua Duan, John E. Ware, Jr., and Joseph P. Newhouse. 
Cost Sharing and the Demand for Ambulatow Mental Health Services. Santa Monica, CA 
The Rand Corporation, September 1982, R-2960-HHS. 
A-2
 APPENDIX  B

COST  SAVINGS  ESTIMATE 
Data  Some 
The  data  was taken  from  information  reported  to the  Health  Care  Financing 
Administration  (HCFA)by  all States  andthe  District  of Columbia.  The  States  report 
their  data  on the  Statistical Repoti  on Medical  Care:  Eligibles, Recipients, Payments  and 
Services, Form  HCFA-2082.  The  data  is based  on claims  paid  for services  provided  in 
Fiscal  Year  1991 (October  1, 1990- September  30, 1991). 
In the  Annotations  for the  HCFA-2082  Data  Tables,  HCFA  states  that  it does  not 
guarantee  the  accuracy  of the  data  provided  by State  Medicaid  Agencies.  However, 
HCFA  does  correct  obvious  errors  and  will estimate  certain  values  when  appropriate. 
SavingsMethoddbgy 
Of the  service  types  available  from  the  HCFA-2082  Data  Tables,  we selected  services 
using two main  criteria:  (1) States  frequently  apply  cost sharing  to the  service  and  (2) 
most  of the  services  would  not  be  exempted  by Federal  regulations.  Utilizing  this 
criteria,  we selected  three  mandatory  services  and  one  optional  sewice. 
The  three  mandatory  services  include  inpatient  hospital,  outpatient  hospital,  and 
physician  visits.  The  optional  service  is prescription  drugs.  Although  optional  services 
vary by State,  all States  include  prescription  drugs  as a covered  senice. 
Whenever  possible,  we applied  the  most  commonly  used  cost  sharing  amount  when 
estimating  our  cost  savings.  For  outpatient  hospital,  we selected  $3 as the  copayment 
amount  since  8 of 16 States  used  it.  For  the  remaining  States,  three  other  States  used 
variable  payments  of $.50 to $3, 3 used  $1, 1 used  $2, and  one  had  a coinsurance  of 5 
percent. 
We  selected  $1.00 for physician  visits.  Out  of 15 States  using cost sharing  on this 
service,  8 used  $1, 3 varied  between  $.50 and  $3, 2 used  $2, 1 used  $3, and  1 used  $1 
or $3 depending  on the  type  of service.  We chose  $1 for prescription  drugs  also.  For 
the  25 States  applying  cost sharing,  14 used  $1, 8 used  varying  amounts  from  $.50 to 
$3, 2 used  $.50, and  1 used  $1.50. 
For  inpatient  hospital  services,  we selected  the  most  conservative  cost sharing  amount 
since  States  methodology  for applying  cost sharing  varies.  Six of the  States  with cost 
sharing  impose  a one  time  copayment  (or  deductible  for one  State)  per  admission. 
Those  payments  range  between  $10 and  $100 per  hospital  admission.  Five State  apply 
copayment  charges  on a per  day basis.  Three  of the  five States  use  a $3 cost share 
per  day, one  uses  $5, and  one varies  between  $2 and  $3 depending  on the  cost of 
B-1  service.  After  reviewing  this information,  we felt  the  most  conservative  choice  would 
be  a $3 copayment  per  total  inpatient  hospital  days. 
In order  to estimate  the  cost savings to the  Medicaid  program  if States  without  cost 
sharing  implemented  cost sharing  on these  four  services,  we extracted  the  number  of 
paid  semice  claims  for the  States  without  cost sharing.  However,  Rhode  Island  data 
was unavailable.  Therefore,  the  cost savings estimates  are  based  on 23 States  without 
cost sharing. 
We  calculated  the  cost savings estimate  in three  steps.  (1) The  number  of services  for 
each  State  was multiplied  by the  cost sharing  amount  we selected.  (2) Each  States 
service  cost  sharing  amount  was added  to arrive  at a total  cost sharing  amount. 
(3) The  total  semice  amounts  for the  four  services  were  then  added  to project  the 
total  cost savings if States  were  to implement  cost sharing  on these  four  services.  The 
numeric  equations  for this calculation  follows: 
STEP  1  STEP  2 
Si X $3.00  =  STi  ST!  +  ST?  +  ST?  +  ... STiZ  =  TAsi 
SOx $3.00  =  STO  STO1+  ST02 +  ST03 +  ... ST023=  TASO 
ST I+  ST2+ST3+...  ST==TAS 
~X:z:3d  Se  +  S~;  +  S{:  +  ... S~dD =  TA& 
STEP  3 
TASi  +  TASO +  TASP +  TASd =  Total  Cost  Savings Estimate 
S =  number  of services

ST  =  each  States  total  cost sharing  amount  by service  type

TAS  =  Total  of all States  cost sharing  amounts  by service  type

l-x  =  Each  number  1 through  23 equals  one  States  total

. =  inpatient  hospital  days 
1
outpatient  hospital 
= 
0
=  physician  visits 
P
~ =  prescription  drugs 
We  presented  two dollar  amounts  for cost savings -- total  cost sharing  estimates  with 
and  without  exempted  populations.  To  estimate  the  number  of sexvices that  would be 
excluded  under  Federal  regulation,  we used  State  reported  data  on exclusions. 
States  were  asked  how many  of their  recipients  would  be  exempted  from  cost sharing. 
Out  of the  17 States  able  to answer  the  question,  9 estimated  40 to 50 percent  and  8 
estimated  over  50 percent. 
B-2
 Using  this information,  we selected  SOpercent  as the  number  of services  to exclude 
for the  exempted  populations  calculation.  However  we realize  that  the  number  of 
beneficiaries  exempted  may not  equal  the  number  of services  exempted,  since 
exempted  populations  may use a greater  or lesser  percentage  of certain  sefices. 
Cost Savikgs Tables 
The  following  four  tables  illustrate  the  cost savings calculations  for each  semice  type. 
The  fifth table  provides  the  total  cost savings estimate  with and  without  exemptions 
and  the  last tab~e divides  total  savings into Federal  and  States  shares. 
Savings  Calculation for Inpatient  Hospital  Days 
1
statea 
Total Services  Sewicaa  x $3  Non-Exempt  Mm-exempt 
senfic$8  X$3 
Alaska  53,417  $160,251  26,706  $60,124 
Connecticut  379,691  $1,139,673  169,945  $569,635 
Delawere  61,255  $163,765  30,627  $91,661 
Georgia  1,069,769  $3,20S,367  534,694  $1,604,662 
Hawaii  70,456  $211,366  35,226  $105,664 
Idaho  71 ,s93  $215,979  35,996  $107,966 
Indiana  60S,076  $1,627,228  304,536  $913,614 
Kentucky  593,s65  $1,761,965  296,997  $690,9s1 
Louisiana  694,894  $2,064,662  347,447  $1,042,341 
Minnesota  361,285  $1,063,655  160,642  $541,926 
Nebraska  117,623  $352,669  56,811  $176,433 
Nevada  115,665  $347,595  57,932  $173,7s6 
New Jersey  933,760  $2,601,260  466,660  $1,400,640 
New Mexico  131,393  $394,179  65,696  $197,066 
New York  4,473,440  $13,420,320  2,236,720  $6,710,160 
North Dakota  55,066  $165,204  27,534  $62,602 
Ohio  1,202,636  $3,607,914  601,319  $1,603,957 
Oklahoma  195,918  $567,754  97,959  $293,877 
Oregon  155,606  $466,818  77,603  $233,409 
Rhode Island  NA  NA  NA  NA 
I 
Tennessee  754,690  $2,264,070  377,345  $1,132,035 
Texas  1,599,667  $4,799,061  79s,643  $2,399,529 
Utah  96,990  $290,970  46,495  $145,465 
Washington  406,366  $1,219,096  203,163  $609,549 
L  total  j: : ..14,205,%  $42,615,2f5  ,,, 7,702,*  :  $21,36?;626 
B-3
 Savings  Calculation  for Outpatient  Hospital Services 
Alaska  73,084  ]  $219,192  )  38,532  I  $109,s96 
1 1 1 1 
Connecticut  1,111,299  $3,333,697  555,649  $1,666,947 
Delaware  692,855  $2,677,985  448,327  $1,336,961 
Georgia  5,148.675  $15.448.025  2,574,337  $7.723,011 
Hawaii  2,647,094  $7,941,282  1,323,s7  $3,970,641 
Idaho  37.470  S112.41O  18.735  $56205 
Indiana  2,204,139  $6,612,417  1,102,069  $3,34)6,207 
Kentuckv  1.384.708  $4.154.124  692354  $2.077,062 
Louisiana  133,228  $399,884  88,814  $199,642 
Minnesota  1.048.055  $3.144.185  524.027  $1.572.081 
Nebraska  85,311  $255,933  I  42,655  $127,965  ]/ 
Nevada  203,386  $610,158  101,693  $305,079 
New Jersey  995,812  $2,867,436  497,906  $1,493,718 
New Mexico  72,110  $216,330  36,055  $108,185 
New York  6.078.582  $24.235.888  4.039.281  $12.117.643 
North Dakota  I  87,354  \  $202S)62  I  33,677  I  $101 !031  II 
Ohio  2,440,571  $7,321,713  1,220,285  $3,660,655 
Oklahoma  115,458  $348,377  57,729  $173,187 
Oregon  92,043  $276,129  46,021  $138S)63 
Rhode Island  NA  NA  NA  NA 
Tennessee  1,717,441  $5,152,323  I  858,720  $2,576,180  I 
1  1  1  i 
Texas  826,138  $2,478,414  413,069  $1,239,207 
Utah  1,021,566  $3,084,764  510,794  $1,532,362 
Washington  4,191,245  $12,573,735  2,095,622  $6,288,868 
Total  34,!567,407  $103,782,221  17,293+698  $W,881 ,094 
Savings  Physician Visits 
Tatal Saivices  Services x$1  No@xempt  Norr-6xempt 
Services  X$1 
Alaska  196,529  $196,529  96,264  $96,264 
Connecticut  1,831,991  $1,831,991  91 5,9%5  S915,9W 
Delaware  377,440  $377,440  188,720  $188,720> 
Georgia  5,976,371  $5,976,371  2,866,185  $2,986,185 
B-4
 Hawaii  4,967,763  $4,967,763  I  2,463,661  $2,463,661 
I  I 
Idaho  232,423  I  $232.423  116,211  I  $116,211 
Indiana  1,542,267  $1,542,267  771,143  $771,143 
Kentucky  2,363,344  $2,363,344  1,191,672  $1,191,672 
Louisiana  9,151,352  $9,151,352  4,575,676  $4,575,676 
Minnesota  2,292,306  $2,292,306  1,146,153  $1,146,153 
Nebraska  917,483  $617,463  456.741  $456,741 
Nevada  364,945  $364,945  162,472  $162,472 
New Jersey  3,352,290  $3,352,290  1,676,145  $1,676,145 
Naw Mexico  394,014  $394,014  197,007  $197,007 
Naw York  6,470,636  $6,470,636  3,235,419  $3,235,419 
North Dakota  472,104  $472,104  236,052  $236,052 
Ohio  5,143,620  $5,143,620  2,571,810  $.2,571,810 
Oklahoma  740,794  $740,794  370,397  $370,397 
Oregon  393,261  $393,261  196,630  $196,630 
Rhode Island  NA  NA  NA  NA 
Tennessee  I  4,065,459  I  $4,065,459  I  2,032,729  I  $2,032,729II 
Texas  9,627,597  $9,627,597  4,813,796  $4,813,796 
Utah  1,666,551  $1,666,551  633,275  $633,275 
Washington  3,651,570  $3,651,570  1,625,765  $1,625,765 
Total  66,212,332  $66,212,332  33,1 06+160  $33,106,16U 
Savings  Calculation  for Prescription  Drugs 
II
Alaska  299,039  $299,039  I  149,519  $149,519 
Connecticut  3,449,149  $3,449,149  1,724,574  $1,724,574 
Delaware  479,796  $479,796  239,696  $239,696 
II
Georgia  6,641,461  $6,641,461  4,420,740  $4,420,740 
II 
Hawai~  600,000  $600,000  300,000  $300,000 
z  ,  ,  I 
Idaho  750,107  $750,107  375,053  $375,053 
Indiana  3,261,632  $3,261,632  1,630,616  $1,630,616 
II
Kentucky  7,254,476  $7,254,476  3,627,236  S3,627,236 
1 
1  I  1 
Louisiana  6,167,936  $6,167,936  4,093,966  $4,093,966 
Minnesota  4,573,505  $4,573,505  2,266,752  $2,266,752 
B-5
 ..
! 
~fl~.  ~ Total Swvioee  SeNices  x $1  Non+xernpt  ,.  Nomexempt 
SeIvicee  )($1, 
Nebraska  1,979,626  $1,979,626  96s,813  $969,813 
Nevada  493,239  $493,239  246,619  $246,619 
New Jersey  8,427,969  $6,427,969  4,213,964  S4,213,964 
New Mexico  1,454,446  $1,454,446  727,224  $727,224 
New York  26,166,221  $26,166,221  13,064,110  $13,064,110 
North Dakota  607,665  $607,665  303,942  $303,942 
Ohio  15,319,466  $15,319,466  7,659,733  $7,659,733 
Oklahoma  2,373,166  $2,373,166  1,166,564  $1,166,564 
Oregon  2,100,122  $2,100,122  1,050,061  $1,050,061 
Rhode Island  NA  NA  NA  NA 
Tennessee  6,239,596  $6,239,596  4,119,799  $4,119,799 
Texas  11,474,997  $11,474,997  5,737,496  $5,737,496 
Utah  1,253,431  $1,253,431  626,715  $626,715 
Washington  5,270,693  $5,270,6W  2,635,346  $2,635,346 
1  Total  W@59,984  $122,659,964  6t ,429,986  $61,4291966 
1 Since Hawaii proviakd number ofpihk instead ofprescnption.$ he 1991 prescription 
number ww obtained jiom the National Pharmaceutical Councils Pharmaceutical 
Benclit.r Under State A4eaicaAlssistance Proworrq September 1994p.  77. 
Calculation 
,Types & Se@e:  ~~  Savitigs without  with
Exemptions  Satigs  Exemptions 
Inpatient  Hospital  Days  $42,615,285  $21,307,626 
. 
II
Outpatient  Hospital  Setvices  $103,762,221  I  $51,881,094 
I 
I 
II Physician  vsits  $66,212,332  $33,106,160 
B-6
 Calculation  for Federal  and  State  Share  of Savings 
I 
AK  50.00  $675,011  $437,506  $437,505  $437,503  $218,752  $218,751 
I I 
CT  50.00  $8,754,710  $4,877,355  $4,877,355  $4,877,351  $2,436,676  $2,436,675 
I  !  I  I  I  I  I  I 
DE  50.00  $3,718,966  I  $1,658,483  ]  $1,659,483  I  $1,659,480  I  $929,740  I  $929,740  I 
[  [  I  r  I  I  I 
GA  61.34  $33,473,244  \  $20,532,486  I  $12,940,756  j  $16,736,618  I  $10,266,241  $6,470,377 
I  t  I 
HI  54.14  $13,720,413  $7,428,232  $6,292,181  $6,660,206  $3,714,116  $3,146,090 
1  ,  ,  1  1  II  
ID  73.65  $1,310,919  $965,492  $345,427  $655,457  $462,744  ]  $172,713 
I 
IN  63.24  $13,243,564  $6,375,230  $4,666,334  $6,621,760  $4,187,614  $2,434,166 
t  1  I  I  I  1  1 
KY  72S6  $15,573,929  $11,362,739  $4,211,190  $7,786,963  $5,661,366  I  $2,105,595  I 
IA  74.46  $19,823,654  $14,764,656  .%5,056,996  $9,911,827  $7,362,329  $2,529,498 
MN  53.43  $11,093,631  $5,927,434  $5,166,397  $5,546,912  $2,963,715  $2,563,197 
NE  62.71  $3,505,911  $2,186,557  $1,307,354  $1,752,952  \  $1,099,276  I  $653,676 
Nv  50.00  $1,815,937  $907,969  $907,966  $907,966  $453,963  $453,963 
I  I  1  1  I  I  I 
NJ  50.00  $17,566,975  $3,734,466  $6,764,467  $6,764,487  $4,392,244  $4,392,243 
NM  73.36  $2,456,971  $1,604,393  $654,578  $1,229,484  $802,185  $327,289 
NY  50.00  S70.295.065  635,147.533  $35.147.532  635.147.532  $17.573,766  $17,573,766 
ND  70.00  $1,447,255  $1,013,079  $434,178  $723,627  $506,S39  $217,066 
OH  59.93  $31,392,713  $18,813,653  $12,579,C60  $15,6%355  $9,406,826  $6,289,529 
OK  69.65  $4,046,093  $2,619,497  $1,228,596  $2,024,045  $1,409,747  $614,298 
OR  63.50  $3,236,330  $2,055,070  $1,181,260  $1,618,163  $1,027,534  $580,629 
RI  53.74  NA  NA  NA  NA  NA  NA 
TN  66.57  S19,721 ,4%  $13,522,996  $6,186,452  $9,660,723  $6,76f ,498  $3,099,225 
7X  63.53  $28,360,069  $18,029,658  $10,350,211  $14,190,032  $9,014,927  $5,175,105 
UT  74.68  $6,275,716  $4,699,664  $1,575,832  $3,137,657  $2,349,941  $787,916 
WA  54.21  $22,715,096  $12,313,654  $10,4OI ,242  I  $11 #357,545  $6,156,926  I  $5,200,620 
$@M4$,m  $198,641,450  $136,806,372 
1  Federal  Medical Assistance Percentage  (FMAP) - Rate of Federal Financial Participation in a States Medicaid  Program for 
FY1S91. 
2  Each States total savings for inpatient, outpatient, physician, and prescription drug sewices,  assuming no recipients are 
exempted. 
3  The Federal share ie arrived at by multiplying each States total savings by the FMAP. 
4  The sate  shae  is arr~ed  ~  by ~uKP~in9  each State,s total savin9s by (1 . FMAP), e.g,  the  calculation  for Ohio would 
be eavinge multiplied by (1 - .5993) or .4007. 
5  Each ~te,e  tot~  sav]nge for inP@ie~  o~atie~,  ~hY~ician, and pre~criPtion dru9 se~iceq  e$$uming  50  percent  Of the 
recipients are exempted. 
B-7
 APPENDIX  C

COST SHARING  ON MANDATORY  SERVICES 
Rdcralfy 
Rural  QuaWi 
state	 Inpatient  Outpatient  Physician  Health  Heakb 
HospiUd  Wspitall  &rvicea2  Clitic  C4mer 
AL  50.00 a  3.00  1.00  1.00  100  1.00 
Az  5.00 n-e  1.00 
AR  .50-3.00  .50-3.00  .50-3.00  .50-3.00  .50-3 .00 
CA
 1.00/5.00n-e  1.00 
co  15.00a
 3.00  2.00  2.00 
DC

FL
 1.00 n-e  1.00 
IL  2.00/3.00d

fA

Ks  2S.00a
 1.00  1.00 
ME
 .50-3.00 
MD

MA
 3.00 n-e 
Ml

MS  5.00 d
 2.00  1.00  2.00  Loo 
MO  10.00a
 3.003 
MT  3.00 d
 1.00  1.00  1.00  1.00 
NH

NC
 3.00  3.00 
PA  3.00 d
 .50-3.00  .50-3.00  .50-3.00  .50-3.00  .50-3.00 
Sc

SD
 5 percent  2.00 
VT  50.00 a
 3.00 
VA  100.00a4
 3.00  1.0W3.00 
w 
WI  3.00 d  3.00  .50-3.00  2.00-3.00  .50-3.00 
WY  3.00/3.00n-e  1.00 
Total states  il  16/5n-e  1  15  ?  .5.  ,  4 
1Foreaseofcharting,wecompreaaednon+mergencyuseofemergencyroom(n+?)wth OUtpatlefltWM-.

2 Some Sfatea include speciafii  seMces, e.g., ophthalmology or medical psychotherapy, under physician services.

3 Includes 200  for outpatient seM@ and 1.00 for physicianseMce

4 Inpatient hoapitrddeductible

a = coat sharing per inpatient hospital admission

d = cost sharing per inpatient hospital day

c-1  COST  SHARING  ON  OPTIONAL  SERVICES

AL  .50-3.00  1.00	 I I  I  3.00

I  I I

Az 
I  I I

AR  .50-3.00  .50-3.00  .50-3.00

CA  1.00  Loo  1.00  1.00  1.00 
co  .50 gL?.00b  2.00  2.00  I  I  I

DC  .50

1 1
 I

FL  1.00  1.00  1.00  1.00 s  1.00 
IL 
IA  1.00  2.00/2.00o 
Ks  1.00  2.00 
ME  1.00gf2.00b  .50-2.00  .50-3.00

MD  1.00

I  I  I

MA  .50

I  I I

MI  1.00  2.00  2.00  I  3.00s  I  1.00  I

,

I 1I


MS  1.00  [  2.00  I 
I  I 1

MO  .50-2.00  .50-3.00  .50-3.00  .50-3.00

MT  1.00  1.00  1.00  1.00  .50

NH  .50 g/LOOb 
I  I I

NC  Loo  2.00/2.00o  1.00  3.00  1.00

1  1 1

PA  1.00  .50-3.00  .50-3.00  .50-3.00  .50-3.00  .50-3.00

Sc  1.50

SD  1.00  1.00  .50  5 percent

VT  1.00-2.00

I  1 I

VA  1.00  1.00

I  1 I

w  .50-1.00

I  I I

WI  Loo  1.00  1.00-3.00  .50-3.00  .50il.oo  .50-3.00

I  I I

WY  1.00  1.00

1 For ease of charting, we c-ompreaaedoptometnctilon  and optician services 
2 For ease of charting, we compressed dental servia+treatment  with oral surgeV. 
b = brand name 
g = generic 
o = optician aavices 
s = oral surgety 
c-2  COST SHARING  ON OPTIONAL SERVICES 
Paychoklgy  Ambulan&# 
state  F*  Audioloe  Tranaport  MedbI  Proatbetic 
therap+  Setices  Services  Eyeglasas  Supplies  Device 
AL  1.00 
Az 
AR  .50-3.00  .50-3.00 
CA  1.00  1.00 
co  .50j15 min. 
DC  2.00 
FL 
IL 
IA  2.00  2.00  2.00  2.00  2.00 
KS  2.00  3.00  1.00  3.00 
ME  .50-2.00  .50-2.00  .50-3.00 
MD 
MA 
MI 
MS  2.00  2.00 
MO  .50-3.00  .50-3.00  .50-3.00 ae 
MT  .50fl hour  .50  1.00  .50  .50 
NH 
NC  2.00 
PA  .50  .50-3.00  .50-3.00  .50-3.00  .50-3.00 
Sc 
SD  1.00  5 percent 
VT 
VA 
w 
WI  .50-2.00  1.00  .50-300  .50-3.00  .50 
WY  1.00 
Total States  .,.  8:  7  I  7  7  7  I  7 
1 For eaae of charting, we compreaaed psychiatric, psychological,and PsychotherapyaeMcea. 
ae = artificial eye 
c-3  COST SHARING  ON OPTIONAL SERVICES 
H~*ll  tidsf,.  t%me  Denntred 
~  ,  HearingAid  ~H_e alth  Physical  Clinic.  [17  Denture  Ompixbal
Staic .!:.  swvbYi  -m.tT@y  suwf?a  SCwiCa  lltaapy 
AL 
Az 
AR  2 percent 
CA  1.00  1.00  1.00 
co 
DC 
FL  5 percent  5 percent 
IL 
IA  3.00  Loo 
Ks  2.00 
ME  .50-2.00  .50-2.00  .50-2.00 
MD 
MA 
MI  3.00 
MS  2.00  1.00 s 
MO  .50-3.00  5 percent 
MT  .50  1.00  .50  1.00 d  .50 
NH 
NC 
PA  .50-3.00  .50-3.00 
Sc 
SD  3.00 
v-r 
VA  3.00  3.00  1.00  3.00 
w 
WI  .50/l.oo/3.oo  1.00/30min.  3.00  1.00/30min. 
WY 
Total Staka  6 I 6  6  5 i 5 [ 5 
s = State clinic 
d = diagnostic clinic 
c-4  COST  SHARING  ON  OPTIONAL  SERVI~ 
,. 
COmrdunityl.  %ivMe?Xty: 
AmbulatoW  Mental  Numef 
: $&e  speech  Surgisal  Health  l%l%onat  . 
T&.t-apy  Centers  Centers  GUY?.  other 
AL  3.00 
Az  a 
AR  2 percent 
CA  1.00  1.00  b 
co  200 
DC 
FL 
IL 
IA  c,d/-2.oo 
Ks  3.00  2.00  dr3.oo,e/3.oo 
ME  .50-2.00  .50-3.00 
MD 
MA 
MI 
MS 
MO 
MT  .50  1.00  .50  e/1.00,f 
NH 
NC 
PA  .50-3.00  g 
Sc 
SD  5 percent  h 
V-r 
VA  3.00 
w 
w  1.00/30min.  i 
WY 
TWASym?s:  5 I 4  4  3  11 
= non-emergencysurgery/5.00,dlagnostdrehabthtatwe x-rayand lab semcedl .00

b = acupuncture/1.00

c = rehabilitation agency seMcea/2.00

d = orthopedic shoes or orthotica

e = outpatient surgery

f = home diatysW.50jfree standing diaiysii center/1.00, social worker/.5Oper hour, licensed counselor/.5Oper hour

g=	 diagnosticradiology/nuclearmedicine/radiationtherapy/medicaldiagnosticseMces (whenbilledintotaloronfy 
technieal component is billed)/1.00,all other covered seMces/.5O-3.00 
h = EPSDT screening/dental  proeedurea/optometric,  or optical  proeedurea  for those over age 18fl.00 
i = Medical day treatment and aaseasment/.5Oper day 
c-5  APPENDIX  D 
AGENCY  COMMENTS 
D-1  8,,, Health  Care 
G 
DEPARTMENT OF HEALTH& HUMAN SERVICM  Financing  Administration 
&
-2~$   
# Memorandum
*3E 
Oate  Ullm 
..
Bruce  C. Vladeck 
From 
Administrator 
Subject	 Office of Inspector  General  (OIG)  Draft  Report:  lMedicaid  Cost  Sharing 
(OEI-03-91-01800) 
To  , 
Bryan  B. Mitchell

Principal  Deputy  Inspector  General

We  have  reviewed  the  above-mentioned  draft  report  which  presents  findings  on 
the  impact  of State  cost  sharing  policies  on  the  Medicaid  program. 
The  Health  Care  Financing  Administration  nonconcurs  with  the 
recommendation  contained  in the  report.  Our  specific  comments  are  attached  for 
your  consideration. 
Thank  you for the  opportunity  to  review  and  comment  on  this  draft  report. 
Please  advise  us if you agree  with  our  position  oh the  reports  recommendation  at 
your  earliest  convenience. 
Attachment 
qL 
 
... 
--
. . 
D-2
 ~ 
the  Office  of Insuector  General  fOIGl  Draft  Renort: 
Medicaid  Ost  Sharine.  OEI-03-91-01800 
.. 
Recommendation 
The  HCFA  should  promote  the  development  of effective  cost  sharing  programs  within 
States. 
(1) The HCFAcould  encourage  States  to implement  cost  sharing.  The  HCFA  could 
accomplish  this by: 
o	 providing  the  States  with  technical  assistance  and  information  about 
State  experiences  with mt  sharing 
o	 alJowhg States  to experiment  with  cost  sharing  programs  that  target  new 
populations  and  mike?  more  substantial  cost  sharing  amoun~,  and/or 
o	 recommending  changes  to  Federal  requirements  allowing  for greater 
State  flexibility  in determining  exempted  populations  and  sexvices, and 
allowing  higher  recipient  cost  sharing  amounts. 
- (2) The  HCFA  could  seek  legislation  to provide  States  with  incentives  to implement 
cost  sharing  programs,  such  as decreasing  Federal  matching  to States  who do  not 
implement  cost  sharing. 
(3) The  I-?CFA could  seek  legislation  to mandate  cost  sharing  for aIl States. 
Resr)onse 
HCFA  noncortcurs  with this  recommendation.  We  believe  cost  sharing  should  remain

a voluntary  State  option.

The  legislative  history  of section  1916 of the  Social  Security  Act  indicates  that  it was

designed  to allow States  greater  flexibility  in the  use of cost  sharing  without  imposing

unnecessary  hardships  on  Medicaid  recipients.  Current  regulations  prow-de the  States 


with a wide  variety  of options,  an~  thus,  a considerable  degree  of program  and

administrative  flexibility.  Some  of these  options  are  as follows:  (1) use  of enrollment
 --
fees  or  premiums  for  the  medically  needy  rather  than  copayments;  (2)  use of

deductibles  rather  than  copayments;  (3)  ability  of States  to relate  recipient  cost  -

sharing  to income  (within  maximum  amount  specified  in regulations)  and  to charge

different  amounts  to  medically  needy  and  categorically  needy  recipients;  and

(4) optional  use of cumulative  maximums  for  all deductibles,  coinsurance,  or

D-3
 Page 2 
copayments  charged to a family.  While we agree that  there  is sufficient evidence to

suggest that  cost sharing saves money for the Mate Medicaid  program  and the Federal  ~

government,  we believe that  any changes in cost sharing policies should also be viewed  -

in terms  of its effect on Medicaid  recipients.

There  are significant variations  of the Medicaid program  among States.  Consequently,

advocating  cost sharing may have differing effects on Medicaid  recipients.  Since

States  are looking at ways to decrease  welfare payments,  increased  cost sharing may

mean  increased  copayments  for recipients  who, in turn, will have even less money for

other  basic maintenance  needs which have also risen in cost.

There  are also potential  difficulties with the implementation  of cost sharing for

outpatient  prescription  medications.  One potential  difficulty is that access to drugs

may be limited, and the dollar savings on drugs may be outweighed by the use of high

cost semices, emergency  rooms and potentially  avoidable  hospitalizations  because  of

adverse  comphations  experienced  by persons who do not obtain their prescriptions.

Any recommendation  that  includes prescription  drugs should be reviewed to ensure

that  it does not conflict with other  State  options for limiting access to outpatient  drugs

for Medicaid  such as limits on the number  of prescription  transactions  per  month or

on the supply (e.g., 30-day supply, &month  supply), or a States option to totally

excIude certain  drugs from reimbursement.  These  other  limitations am  also cause

high-cost adverse health  care needs.  Furthermore,  the added  demand for a

copayment,  particularly  if it is based on a percentage  of total  charge for the drug

which is already high, can pIace an added  burden  on the Medicaid recipient.

Another  consideration  is the impact of cost sharing on providers  of care for the

Medicaid  population.  The burden  for collection of shared cost is shifted to the

provider.  In some parts  of the Medicaid  program,  provider  reimbursement  for care to

Medicaid  eligiiles  functions more as a disincentive than  an incentive.  The need for

the provider  to collect a copay from the Medicaid population  may well function simply

as another  cap on provider  fees rather  than a true  recipient  share in the cost of

medical care.  Although OIG mentions  that the burden  is on the provider  to collect

the copay, this report  would be enhanced  by showing how copay is related  to physician

fees, especially the new HCFA physician fee schedule.  For crossover patients  covered

by Medicare  and Medicaid, the physician is subject to the Medicare  physician fee  

schedule  and the limits of State  Medicaid program  reimbursement  rates.  Cost sharing  --

should not serve as a bamer to receiwngnecessaxy medical sexvices. The question of

whether  providers deny medical c&e because  of a failure  to collect the patients

shared  portion  of cost is possibly important,  but reportedly  unknown to those in the

State  Medicaid offices.

D-4
 Page 3 
bstly,  we believe that  no further  action  should be taken  pending  the development 
and announcement  of the Administrations  health care proposal.  However, if OIG  ~ 
decides to issue this report  in final, we suggest that the report  be shared  with the  -
States. 
Technical  Comments 
The section of the report  entitle~  Previous Cost Sharing Studies could be improved 
by referencing  the studies and adding  caveats about the serious methodological  flaws 
or shortcomings in them.  We would not want them presented  as useful testimony for 
current  day practices or future  program  and policy recommendations. 
In the Executive Summary Findings, the potential  savings are shown as being between 
$167 to $335 mdlion annually.  We suggest adding a statement  to explain that 
varianm..,C*  . . . . savings of $167 million under current  law, and $335 million if 
existing exemptions  for covered  populations  and services were to be legislatively 
repealed. 
 
D-5
 ::~ Zii!i+- -
 +* 
4  -
DEPARTMENT OF HEALTH& HUMAN  SERVICES  Dr~
.. 
.. 
-%,m,,atc 
/  ington,  DC.  20201 
30  199g$/% 
~  1-
MEMORANDUMTO:	 ~ryan  B.  14itchell 
Principal  Deputy  Inspect 2+r = General
FROM  ..   Elizabeth  M.  James  &  . 
Acting  Assistant  Secretar  for 
Managemen~  and  Budget
Wk 
v 
. 
SUBJECT  .  OIG  Draft  Report  on  Medicaid  Cost  Sharxng 
&A-cj~!-Gg&(2 
Thank  you for  the  opportunity  to  review  this  draft  report. 
Focusing on the area of cost containment  is  important  and  the 
report  obtained  some  good  information  through  the  executive 
interviews.  We are,  however,  concerned  with  the  conclusion  that 
Ilthe  report  demonstrates  that  states  have  developed  sharing 
COSt 
programs  that  reduce  Medicaid expenditures.~ 
We wish to raise two issues concerning your findings and the  ~  ~ 
ensuing recommendations.  First,  the  sample  size  and  data  are=  m 
F>~ 
insufficient  to  support  the  findings.  This  conclusion is bas~  ~)11~1

on the following:  w  Q.c. -fcl)
 

o	 --m

-d-6 

  Of the 27 states, only three provided program evaluation  :.U)<
~  :-~~
data  (two  of  which  were inconclusive). 
ma 
  22  states  said  that  the  cost  sharing  programs  had  reduce~  ~ 
Medicaid expenditures.  However, only 11 provided financ-1 
data depicting estimated savings. 
  Only one of the states estimates of savings included 
reductions in utilization.  The remainder represented 
reductions in provider payments. 
	 The calculated savings estimates may be overly simplified. 
The maxinum value was calculated simply by multiplying the 
number of 1991 claims by a frequently used~ copayment.  A 
50  percent exemption of services was assumed to arrive at 

the minimum value.  A SO percent reuipient  xemption is not 
necessarily equal to a 50 percent service exemption. 
Second, the analyses of the sample data do not cover the

interactions between cost sharing and other cost containment

polices which could have influenced the observed Medicaid

savings.  For example,

	 No analysis of changes in provider participation has been 
done.  The only state with conclusive program evaluation 
data indicated that provider participation had remained 
stable not because recipients were  paying the copayment but 
mainly because pursuit of the nominal amount was more 
expensive than the value of the copayment. 
D-6  	 17  states implemented other cost containment programs at the 
same time as their cost sharing and thus were unable to 
truly measure the effect of cost sharing. 
	 There is no attention to the burden incurred  by  recipients 
and  providers  from  cost  sharing  programs.  States  are 
uncertain  whether  recipients  are  actually  paying  the 
copayments. 
We believe additional sample data  needs to be collected and 
analyzed before conclusions can be drawn as to the effectiveness 
of cost sharing programss  Perhaps a primary recommendation of

this report should be that HCFA pursue further analysis in this

area.

D-7