Out-of-Pocket Costs for Medicaid Beneficiaries: In Brief
Released: 2015-01-07T00:00:00

Medicaid is a means-tested entitlement program that, in FY2012, financed the delivery of primary and acute medical services, as well as long-term services and supports, to nearly 57 million people and cost states and the federal government a total of $431 billion. Each state designs and administers its own version of Medicaid under broad federal rules. As a result, there is significant variation across states in terms of who is eligible for coverage, what services are available, and which subgroups of beneficiaries are subject to out-of-pocket costs. Cost-sharing requirements may include participation-related cost-sharing, such as monthly premiums or annual enrollment fees, as well as point-of-service cost-sharing such as co-payments—flat dollar amounts paid directly to providers for services rendered. Similar types of out-of-pocket cost-sharing can apply to individuals enrolled in private health insurance, although the amounts to which such beneficiaries may be subject can be higher than the amounts allowed in Medicaid.

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA 1982, P.L. 97-248 , Subtitle B) added to the federal Medicaid statute the authority for states to impose enrollment fees, premiums, or similar charges as well as point-of-service cost-sharing. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) made additional, major changes to cost-sharing requirements that could be applied to Medicaid beneficiaries, including allowing states to permit providers to deny services when a co-payment requirement is not met. In July 2013, the Centers for Medicare and Medicaid Services (CMS) issued new regulations for Medicaid premiums and cost-sharing.

Today, participation-related cost-sharing (e.g., premiums) in Medicaid tends to be limited to certain subpopulations, and states use point-of-service cost-sharing more broadly. States can require certain beneficiaries to share in the cost of Medicaid services, but there are limits on (1) the amounts states can impose, (2) the beneficiary groups that can be required to pay, and (3) the services for which cost-sharing can be charged. In general, premiums and enrollment fees are often prohibited. However, premiums may be imposed on enrollees with income above 150% of the federal poverty level (FPL). A survey by the Kaiser Family Foundation found that in state fiscal year (SFY) 2013, 39 states had at least one group able to participate in Medicaid by paying a premium, with a total of 59 different premium programs.

States can also impose point-of-service cost-sharing, such as co-payments, coinsurance, deductibles, and other similar charges, on most Medicaid-covered inpatient and outpatient benefits. However, they cannot impose cost-sharing for emergency services or family planning services and supplies. Some subgroups of beneficiaries are exempt from cost-sharing (e.g., children under 18 years of age and pregnant women). The cost-sharing amounts that can be charged vary with income. In SFY2013, 46 states (including the District of Columbia) reported having co-payment requirements. Higher beneficiary cost-sharing is allowed in certain circumstances, and federal regulations modified some of these provisions.

Medicaid premiums and service-related cost-sharing incurred by all individuals in a Medicaid household cannot exceed an aggregate limit of 5% of family income applied on either a monthly or quarterly basis, as specified by the state Medicaid agency. States can use either Medicaid state plan amendments (SPAs) or Section 1115 waiver authority in the Social Security Act to establish both premiums and point-of-service cost-sharing. This report includes examples of both types of beneficiary out-of-pocket spending in Medicaid.

Other federal regulations (issued October 1, 2013) address out-of-pocket costs for Medicaid beneficiaries enrolled in Medicaid managed care plans. State contracts with Medicaid managed care plans must follow the same federal regulations applicable under the state Medicaid plan, and they also must comply with specific regulatory requirements.

Participation-Related Cost-Sharing

To obtain health insurance, certain Medicaid enrollees may be subject to monthly premiums, the most common form of participation-related cost-sharing. Such charges are prohibited under Medicaid for many eligibility subgroups.

Enrollment fees, premiums or similar charges must adhere to the following rules: a minimum charge of at least $1.00 per month is imposed on (a) one- or two-person families with monthly gross income of $150 or less, (b) three- or four-person families with monthly gross income of $300 or less, and (c) five- or more person families with monthly gross income of $350 or less. Any charge related to gross family income that is above these minimums may not exceed the standards shown in Table 1 :

Different federal regulations apply to certain Medicaid subgroups for families with income exceeding 150% FPL (see Table 2 ). Except for premiums applicable to Medicaid beneficiaries classified as medically needy, the state Medicaid agency may choose to terminate individuals' Medicaid coverage on the basis of failure to pay for 60 days or more.

Table 2 provides information about optional premiums that states can choose to apply to specific Medicaid subgroups with income that exceeds 150% FPL. For several of these subgroups, states are allowed to set premiums on a sliding scale based on family income. Other caveats apply to specific subgroups, also identified in this table. As of SFY2013, a total of 39 states indicated that at least one group participated in Medicaid by paying premiums, and 11 states and the District of Columbia did not require premiums under Medicaid.

Service-Related Cost-Sharing

Beneficiary out-of-pocket payments to providers at the time of service can take three forms. A deductible is a specified dollar amount paid for certain services rendered during a specific time period (e.g., per month or quarter) before health insurance (e.g., Medicaid) begins to pay for care. Coinsurance is a specified percentage of the cost or charge for a specific service delivered. A co - payment is a specified dollar amount for each item or service delivered. Deductibles and coinsurance are infrequently used in Medicaid, but co-payments are applied to some services and groups.

Federal rules place limits on which services cost-sharing can be applied to (including which specific services are exempt, discussed below) and what amounts can be charged. Cost-sharing can be charged for allowed services regardless of income, but the maximum amount can be substantially higher for individuals with incomes greater than 100% FPL. Table 3 provides a comparison of the maximum charges allowed for service-related cost-sharing applicable to outpatient services and inpatient stays for three family income subgroups.

Table 4 provides a comparison of maximum allowable charges for service-related cost-sharing for prescription drugs (preferred and non-preferred) as well as nonemergency use of an emergency department, also based on family income. Some services are exempt from co-payments, including, for example, emergency use of emergency departments.

Apart from point-of-service cost-sharing for drugs and nonemergency services provided in an emergency department (described in Table 4 ), federal regulations specify that the maximum allowable cost-sharing dollar amounts will increase annually, beginning October 1, 2015, for certain Medicaid enrollees. Specifically, for individuals with income at or below 100% FPL, the maximum allowable cost-sharing amounts must increase each year by the percentage increase in the medical care component of the consumer price index for all urban consumers (CPI-U) for the period of September to September of the preceding calendar year, rounded to the next higher 5-cent increment.

Optional Targeted Cost-Sharing for Specific Medicaid Subgroups

Federal Medicaid regulations allow states to target cost-sharing to specific subgroups. For example, the state Medicaid agency may apply cost-sharing to specific groups with family income above 100% FPL. The state Medicaid agency also may target cost-sharing to specified groups of individuals regardless of income for non-preferred drugs and for nonemergency services provided in a hospital emergency department.

In states without fee-for-service payment rates, individuals at any income level may not be subject to cost-sharing that exceeds the maximum amounts established for individuals with income at or below 100% FPL for both inpatient and outpatient services and at or below 150% FPL for outpatient services, inpatient stays, prescribed drugs, and nonemergency use of the emergency department (i.e., the co-payment rates by type of service and family income as shown in Table 3 and Table 4 ). In no case can the maximum cost-sharing established by the state be equal to or exceed the amount the state Medicaid agency pays for both inpatient and outpatient services.

Certain Medicaid subgroups and specific Medicaid services are exempt from the application of deductibles, coinsurance, co-payments, or similar charges. Such subgroups include individuals classified as either categorically needy or medically needy who are children under the age of 18 (or up to the age of 21 at state option); certain pregnant women for services related to the pregnancy or to any other medical conditions that may complicate the pregnancy; and certain institutionalized individuals who are required to spend all but a minimal amount of their income required for personal needs.

Federal statute and regulations prohibit states from requiring out-of-pocket costs for the following exempted services:

emergency services (e.g., both inpatient and outpatient services furnished by a qualified provider) that are needed to evaluate or stabilize an emergency medical condition; family planning services and supplies for individuals of childbearing age including contraceptives and pharmaceuticals for which the state claims or could claim a 90% federal share of the total cost; preventive services, including well-baby and well-child care services in either the managed care or fee-for-service delivery systems; pregnancy-related services; provider-preventable services (e.g., health care acquired conditions).

Based on data from the same Kaiser Family Foundation survey noted above, 46 states (including the District of Columbia) required co - payments in SFY2013. Five states (Hawaii, Nevada, New Jersey, Rhode Island and Texas) had no co - payment requirements. Two states indicated that co - payments were enforceable (e.g., providers are allowed to deny services when a co - payment requirement is not met). In Arkansas, such enforceability applies to co - payments for adults with income over 100% FPL (pending waiver approval). Maine plans to make pharmacy co -p ayments enforceable for those with income over 100% FPL. In addition, Maryland will end co - payment enforceability for a waiver group as it transitions to the Patient Protection and Affordable Care Act ( ACA ; P.L. 111-148 as amended) expansion coverage.

Another Kaiser Family Foundation report noted that, in January 2013, non-zero co - payment amounts for non-preventive physician visits applicable to children in families with income at 151% FPL ranged from a low of $0.50 in Georgia to a high of $25 in Utah and Texas. Higher co - payment amounts for a non-preventive physician visit applied to children in families with income at 201% FPL and ranged from a low of $0.50 in Georgia to a high of $25 in Utah and Texas. In addition, a co - payment amount equal to 10% of the cost of a non-preventive physician visit applied to children in families with income at 201% FPL in Louisiana .

Beneficiary Subgroups Not Subject to Premiums or Point-of-Service Cost-Sharing

Specific Medicaid subgroups are exempt from out-of-pocket costs, including (1) certain children, (2) pregnant women, (3) individuals in nursing homes or who receive services provided in home and community-based settings, (4) terminally ill individuals receiving hospice care, (5) Indians who receive care through Indian health care providers or through what is called contract health services, and (6) individuals with breast or cervical cancer. Exclusions from the application of both premiums and point-of-service cost-sharing are identified in Table 5 below.

Public Notification Requirements Regarding Beneficiary Out-of-Pocket Cost Obligations

Federal regulations delineate beneficiary and public notice requirements related to out-of-pocket costs for Medicaid beneficiaries. The state Medicaid agency must provide a public schedule describing current premiums and other cost-sharing requirements, including (1) individuals who are subject to premiums or cost-sharing along with the current amounts; (2) the mechanisms for making payments for required premiums and cost-sharing charges; (3) the consequences for applicants or recipients who do not pay a premium or cost-sharing charge; (4) a list of hospitals charging cost-sharing for nonemergency use of the emergency department; and (5) a list of preferred drugs or a mechanism to access such a list, including the state Medicaid agency website.

Finally, state Medicaid agencies must make the public schedule available to a number of subgroups in a manner that ensures that affected applicants, beneficiaries and providers are likely to have access to such a notice. For beneficiaries, this information must be made available at the time of enrollment or reenrollment subsequent to the redetermination of Medicaid eligibility. It must also be made available when premiums, service-related cost-sharing charges, or aggregate limits are revised. For applicants, this information must be available at the time of application. The general public must also have access to this information. When a state wishes to establish or substantially modify existing premiums or cost-sharing, or to change the consequences for nonpayment, the agency must provide the public with advance notice of the state plan amendment (SPA), specifying the amount of premiums or cost-sharing and who will be subject to these charges. The agency must also provide a reasonable opportunity to comment on such SPAs, and it must submit documentation with the SPA to demonstrate that these requirements are met. If premiums or cost-sharing are substantially modified during the SPA approval process, the agency must provide additional public notice.