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 OIG’S 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 OIG’S 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 

Administration’s (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 Governor’s 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 recipient’s inability to pay the cost sharing amount. However, the provision 

does not extinguish the recipient’s 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 agency’s 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 1970’s and early 

1980’s. 

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 California’s 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. 

3Califomia’s 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 Hampshire’s 

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 

implemented, prescriptions increased to just below pre-limit levels. F 

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 California’s 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 HCFA’S 

new State Profile Data System (spDATA) for inaccuracies. We found a few 

discrepancies and informed HCFA’S 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 1970’s. Most States began programs during 

the 1980’s. 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 jhqliently used 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 

Types of Service 

Proscrlpt~onDrugs 

Outpatient Hospital 

Optometrists 

Phy8ician Services 

Podiatrists 

Inpatient Hospital 

o 5 

Sharing 

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 

IINorth Carolina I 9 I 751,000 I 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 

Savingsare for prescriptiondrugs only and for the 11 month period 7191-5192 

‘California’s 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 IMPACT’S 

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 sharing pmgnmw 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. 

Wisconsin’s Office of Policy and Budget reviewed the State’s 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.


Montana’s 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 bm”cally a one-time minimal cost for information system 

changes and information diweminatz”on 

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 York’s program and 

the number of notices sent out due to court challenges and delays. However, if New 

York’s initial cost savings projections are correct, New York should recover its 

expenditure in 1 month’s 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 don’t 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 EFFECI’IVE 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 eli”le 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 State’s 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 recipient’s 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 prow”ders. 

Michigan’s 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 

recipient’s 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. 

Wyoming’s 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

E	 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 

k seek legislation to mandate cost sharing for all States. 

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 HCFA’S 

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

APPENDIX A


SELECIED BIBLIOGWHY 

Beck,R.G.. “TheEffectsof Co-Paymenton the Poor.” Journal of HumanResourcesVol. IX (1974): 

129-42. 

Brook,Robert H.,John E.Ware,Jr., WilliamH. Rogers,EmmetB. Keeler,AllysonR. Davies,CathyADonald,GeorgeA. Goldberg,KathleenN. Lohr, PatriciaC. Masthay,and Joseph P. Newhouse. 

“Does Free Care Improve Adults’ Health? Reauhs from a Randomized Controlled Trial.” ~ 

New EtuzlandJournal of Medicine Vol. 309 No. 23 (December 8, 1983): 1426-34. 

Brook, Robert H., John E. Ware, Jr., William H. Rogers, Emmet B. Keeler, Allyson R. Davies, Cathy 

A. Sherbourne, George A Goldberg, Kathleen N. Lohr, Patricia Camp, and Joseph P. 

Newhouse. The Effects of Coinsuran@ on the Health of Adults: Resuha from the Rand 

Health Insurance Exueriment. Santa Monica, CA The Rand Corporation, December 1984, R3055-HHS. 

Congress of the United States, Congressional Budget Office. Economic Implications of Risine Health 

Care Costs. Washington, DC Congress of the United States, Congressional Budget Office, 

October 1992. 

Congress of the United States, Congressional Budget Office. Projections of National Health 

Ext)enditurtx. Washington, DC Congress of the United States,Cmgressional Budget Office, 

October 1992. 

Congress of the United States, Congressional Budget Office. Rising Health Care Costs: Causes, 

Imt)lications. and Strategies. Washington, DC. Congress of the United States, Congressional 

Budget Office, April 1991. 

Curtis, Richard and Ian Hill, eds.. Affording Access to Qualitv Care: Strate~ies for State Medicaid 

Cost Mana~ement. Washington, DC National Governors Association, Center for Policy 

Research, Health Policy Studies, July 1986. 

Fahs, Marianne C.. “PhysicianResponse to the United Mine Workers’ Cost Sharing Program: The 

Other Side of the Coin.” Health Services Research 27:1 (April 1992): 25-45. 

Hopkins, Carl E., Milton I. Roemer, Donald M. Procter, Feline Gartside, James Lubit~ Gerald A. 

Gardner, and Marc Moser. “Cost-Sharing and Prior Authorization Effects on Medicaid 

SeMces in California Part I. The Beneficiaries’Reactions.” Medical Care Vol. XIII No. 7 

(July 1975): 582-94. 

Keeler, Emmet B., Robert H. Brook, George A Goldberg, Caren J. Kamberg, and Joseph P. 

Newhouse. “How Free Care Reduced Hypertension in the Health Insurance Experiment.” 

Journal of the American Medical Association Vol 254, No. 14 (October 11, 1985): 1926-31. 

Keeler, Emmet B. and John E. Rolph. “How Cost Sharing Reduced Medical Spending of Participants 

in the Health Insurance Experiment.” Journal of the American Medical Association Vol 249, 

No. 16 (April 22/29, 1983): 2220-22. 

A-1

Keder, Emmet B., Elizabeth M. S1OSS, Robert H. Brook,BelindaH. Operskalski,GeorgeA-Goldberg, 

and Joseph P. Newhouse. “Effectsof Cost Sharingon PhysiologicalHealth, Health Practices, 

and Worry.” Health ServicesResearch22:3(August1987):279-306. 

Levy, Richard A.. Prescrirxion Cost Sharin~ Implications for the Pharmaceutical Industrv. Reston, 

VA. National Pharmaceutical Council, 1992. 

Mornsey, Michael A.. Price Sensitivity in Health Care: Indications for Health Care Policv. 

Washington, DC The National Federation of Independent Business Foundation, 1992. 

Newhouse, Joseph P.. “Insurance Benefits, Out-of-Pocket payments, and the Demand for Medical 

Care.” Health and Medical Care Services Review Vol. 1 No. 44 (July/August 1978): 1-15. 

Newhouse, Joseph P., Willard G. Manning, Carl N. Morris, L.any L. Orr, Naihua Duan, Emmet B. 

Keeler, Arleen Leibowit~ Kent H. Marquis, M. Susan Marquis, Charles E. Phelps, Robert H. 

Brook. Some Interim Results from a ~ntrolled Trial of Cost Sharing in Health Insurance. 

Santa Monica, CA The Rand Corporation, January 1982, R-2847-HHS. 

Phelps, Charles E. and Joseph P. Newhouse. “Effectof Coinsurance: A Multivariate Analysis.” Social 

Securitv Bulletin (June 1972): 20-9. 

Scitovsky, Anne A. and Nelda McCalI. “Coinsurance and the Demand for Physician Services: Four 

Years Later.” Social Securitv Bulletin (May 1977): 19-27. 

Scitovs&, Anne A and Nelda M. Snyder. “Effectof Coinsurance on Use of Physician Services.” Social . Security Bulletin (June 1972): 3-19. 

Soumerai, Stephen B., Jerry Avorn, Dennis Ross-Degnan, and Steven Gortmaker. “Payment 

Restrictions for Prescription Drugs Under Medicaid: Effects on Therapy, Cost, and Equity.” 

The New Etwland Journal of Medicine Vol. 317 No. 9 (August 27, 1987): 550-56. 

Soumerai, Stephen B., Dennis Ross-Degnan, Jerry Avom, Thomas J. McLaughlin, and Igor 

Choodnovskiy. “Effectsof Medicaid Drug-Payment Limits on Admission to Hospitals and 

Nursing Homes.” The New EmzlandJournal of Medicine Vol. 325 No. 15 (October 10, 1991): 

1072-7. 

Soumerai, Stephen B., Dennis Ross-Degnan, Eric E. Fortress, and Julia Abelson. “A Critical Analysis 

of Studies of State Drug Reimbursement Policies: Research in Need of Discipline.” ~ 

Millbank Quarterly Vol. 71 No. 2 (1993): 217-52. 

Valde& R. Burciaga, Robert H. Brook, William H. Rogers, John E. Ware, Emmet B. Keeler, Cathy A. 

Sherboume, Kathleen N. Lohr, George A. Goldberg, Patricia Camp, and Joseph P. Newhouse. 

“Consequences of Cost-Sharing for Children’s Health.” Pediatrics Vol 75 No. 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 State’s 

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 State’s 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 State’s total


1

. = inpatient hospital days 

0 = outpatient hospital 

P = physician visits 

~ = 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 

1statea 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 

Delaware 692,855 

Georgia 5,148.675 

Hawaii 2,647,094 

Idaho 37.470 

Indiana 2,204,139 

Kentuckv 1.384.708 

Louisiana 133,228 

Minnesota 1.048.055 

Nebraska 85,311 

Nevada 203,386 

New Jersey 995,812 

New Mexico 72,110 

New York 6.078.582 

$3,333,697 

$2,677,985 

$15.448.025 

$7,941,282 

S112.41O 

$6,612,417 

$4.154.124 

$399,884 

$3.144.185 

555,649 $1,666,947 

448,327 $1,336,961 

2,574,337 $7.723,011 

1,323,s7 $3,970,641 

18.735 $56205 

1,102,069 $3,34)6,207 

692354 $2.077,062 

88,814 $199,642 

524.027 $1.572.081 

$255,933 I 42,655 $127,965 ]/ 

$610,158 101,693 $305,079 

$2,867,436 497,906 $1,493,718 

$216,330 36,055 $108,185 

$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 

1,717,441 

1 $5,152,323 I 

1 

858,720 

i $2,576,180 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 

Idaho I 232,423 I $232.423 I 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

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 

Georgia 6,641,461 $6,641,461 4,420,740 $4,420,740 

Hawai~ z 600,000 , $600,000 , 300,000 

I 

$300,000 

Idaho 750,107 $750,107 375,053 $375,053 

Indiana 3,261,632 $3,261,632 1,630,616 $1,630,616 

Kentucky 

1 

7,254,476 1 

$7,254,476 I 

3,627,236 

1 

S3,627,236 

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 

II

II

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 Council’s Pharmaceutical 

Benclit.r Under State A4eai’calAssistance Proworrq September 1994p. 77. 

Calculation 

,Types & Se@e: ~~ Savitigs without Exemptions Satigs with‘Exemptions 

Inpatient Hospital Days $42,615,285 $21,307,626 . 

IIOutpatient Hospital Setvices $103,762,221 I $51,881,094 

II Physician vsits I $66,212,332 I $33,106,160 

B-6

Calculation for Federal and State Share of Savings 

AK 50.00 $675,011 $437,506 $437,505 $437,503 $218,752 $218,751 

I 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 

I 

$1,658,483 ] 

r 

$1,659,483 I 

I 

$1,659,480 I 

I 

$929,740 I 

I 

$929,740 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 

1 

54.14 

, $13,720,413 $7,428,232 $6,292,181 , $6,660,206 1 

$3,714,116 

1 

$3,146,090 

I 

ID 73.65 $1,310,919 $965,492 $345,427 $655,457 $462,744 ] $172,713 I 

IN 

t 

63.24 

1 

$13,243,564 

I 

$6,375,230 I 

$4,666,334 

I 

$6,621,760 

1 

$4,187,614 

1 

$2,434,166 I 

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 State’s Medicaid Program for 

FY1S91. 

2 Each State’s 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 State’s 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 

state	 Inpatient 

HospiUd 

AL 50.00 a 

Az 

AR 

CA


co 15.00a


DC


FL


IL 2.00/3.00d


fA


Ks 2S.00a


ME


MD


MA


Ml


MS 5.00 d


MO 10.00a


MT 3.00 d


NH


NC


PA 3.00 d


Sc


SD


VT 50.00 a


VA 100.00a4


w 

WI 3.00 d 

WY 

Total states il 

Rdcralfy 

Rural QuaWi 

Outpatient Physician Health Heakb 

Wspitall &rvicea2 Clitic C4mer 

3.00 1.00 1.00 100 1.00 

5.00 n-e 1.00 

.50-3.00 .50-3.00 .50-3.00 .50-3.00 .50-3 .00 

1.00/5.00n-e 1.00 

3.00 2.00 2.00 

1.00 n-e 1.00 

1.00 1.00 

.50-3.00 

3.00 n-e 

2.00 1.00 2.00 Loo 

3.003 

1.00 1.00 1.00 1.00 

3.00 3.00 

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

5 percent 2.00 

3.00 

3.00 1.0W3.00 

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

3.00/3.00n-e 1.00 

16/5n-e 1“ 15 ? .5. , 4 

1 For ease of charting, we compreaaednon+mergency use of emergency room (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 1.00 gf2.00b .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 1


MS 1.00 [ 2.00 I 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 Health Physical Clinic. ‘[17 Denture Ompixbal

Staic .!:’‘. swvbYi ~_ -m.tT@y suwf?a SCwiCa llta’apy 

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%ona’t .“ 

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 

TWA Sym?s: ‘5 I 4 4 3 11 

= non-emergencysurgery/5.00,dlagnostdrehabthtatwe x-ray and 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 =	 diagnostic radiology/nuclearmedicine/radiation therapy/medicaldiagnostic seMces (when billed in total or onfy 

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,,,G Health Care 

DEPARTMENT OF HEALTH& HUMAN SERVICM Financing Administration 

& 2~ 

�#

‘*3E -$ Memorandum

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 report’s 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 State’s 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 bam”er to receiw”ngnecessaxy medical sexvices. The question of


whether providers deny medical c&e because of a failure to collect the patient’s”


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 Administration’s 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

.

“‘ +* 

DEPARTMENT OF HEALTH& HUMAN SERVICES Dr~­

.. 4 —- ::~Zii!i+-’ - . 

-%,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~!-G’g&(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 COSt sharing 

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~ ~)111~
 on the following: w ..-fl
 Qc c)


o	 -d“--m
 -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 state’s 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