Health insurance coverage often includes beneficiary contributions, which require an insured individual to pay some portion of medical expenses. The medical expenses charged to an individual—particularly for certain types of beneficiary contributions—can vary depending on the amount and type of services used. The two most common forms of beneficiary contribution requirements—health insurance premiums and cost sharing—differ in the method and frequency with which they are applied. Premiums are charged at regular intervals, such as monthly, and generally the same amount is charged each time. In contrast, cost sharing charges can vary depending on the amount and type of services used. There are three types of cost sharing arrangements: coinsurance, copayments, and deductibles (see table 1). Among low-income populations, approximately 40 percent of children and nondisabled adults had at least one nonpreventive physician visit during 2000. Among these individuals, children averaged close to three nonpreventive physician visits per year, while nondisabled adults averaged fewer than five visits per year. Similarly, for individuals who filled at least one prescription, the average number of filled prescriptions ranged from approximately 4 per year for children to over 32 per year for adults with disabilities. (See app. I for more information on beneficiary service utilization.) Medicaid and SCHIP generally limit the use of beneficiary contribution requirements. The following sections contain specific information about the programs and the federal laws pertaining to their use of beneficiary contributions. Established in 1965, Medicaid is a joint federal-state entitlement program that finances health care coverage for certain low-income families, children, pregnant women, and individuals who are aged or disabled. In fiscal year 2001, there were more than 46 million Medicaid enrollees, over half of whom were children, and federal and state expenditures totaled $228 billion. Medicaid eligibility is based in part on family income and assets; states set their eligibility criteria within broad federal guidelines. Eligibility criteria for each state’s Medicaid program are outlined in a CMS- approved state plan. Medicaid allows states to require certain beneficiaries to contribute to the cost of their coverage by charging premiums and requiring cost sharing. The populations that can be required to make beneficiary contributions under federal law differ depending on the type of beneficiary contribution—premiums or cost sharing—and the law places limits on the amounts of the contributions states can require. Federal law generally bars states from requiring beneficiary contributions of certain populations, but exceptions do exist. Additionally, states may seek federal approval to waive certain provisions regarding beneficiary contributions. States are prohibited from requiring premiums from certain low-income individuals within certain groups, including children, pregnant women, individuals in families with dependent children, individuals with disabilities, and elderly persons, but exceptions exist. Specifically, in Medicaid, the law allows states to require premiums from certain populations, such as certain working individuals with disabilities and families. (See table 2 for examples of these exceptions.) Additionally, states are allowed to charge premiums to medically needy individuals— generally, people who fall into one of the eligibility coverage groups indicated above, but who incur medical expenses such that their income, less these expenses, makes them eligible for Medicaid. If states require premiums for medically needy individuals, the regulations specify that the premiums be assessed on a sliding scale, from $1 to $19 per person per month, on the basis of their family’s total gross income. Federal law prohibits states from applying cost sharing requirements for certain individuals and certain services. Specifically, cost sharing may not be charged for categorically and medically needy children under 18 years of age, and pregnant women, for services related to the pregnancy or to conditions that could complicate the pregnancy. Additionally, cost sharing may not be charged for the categorically and medically needy for services furnished to individuals residing in a nursing home or other institution, who were required to spend most of their income for medical care; services furnished to individuals receiving hospice care; emergency services; and family planning services and supplies. States may require nominal copayments, coinsurance, or deductibles within federal limits from other beneficiaries or for other services (see table 3). Beneficiaries may be charged only one type of cost sharing per service. Providers may collect cost sharing amounts from beneficiaries and generally are not to be reimbursed by the state if they are unsuccessful in collecting cost sharing from beneficiaries. Providers generally may not deny services if beneficiaries are unable to pay cost sharing amounts. States must seek permission from the federal government to charge premiums or cost sharing beyond what is allowed under Medicaid. Under section 1115 of the Social Security Act, the Secretary of Health and Human Services has broad authority to approve demonstration projects that he determines are likely to promote Medicaid objectives. The Secretary may waive certain provisions of the statute if the Secretary finds it necessary for the performance of the experimental, pilot, or demonstration projects. Section 1115 waivers have been used to provide coverage to individuals not normally eligible for Medicaid—or to expand coverage to those who are eligible under Medicaid but are not included in the scope of the state’s plan. Beneficiary contribution requirements for individuals who become eligible for Medicaid through an 1115 waiver may be approved at the Secretary’s discretion, subject to some limitations. CMS reviews states’ proposed beneficiary contribution requirements for 1115 waivers as part of the waiver approval process and specifies any terms and conditions that a state must adhere to as a condition of the waiver approval. According to CMS, because the provisions of Medicaid law related to limitations on beneficiary contributions are applicable only to persons eligible under the state plan, specific waivers of the beneficiary contribution provisions are not always necessary. Waivers are necessary when states want to charge premiums or cost sharing amounts that are generally prohibited under federal law for individuals who are already covered under the state’s plan. As of February 2004, two states—Arkansas and Vermont—have received approval to charge individuals premiums and one state—Arizona—has received approval to charge individuals both premiums and cost sharing. For other populations, specific waivers of requirements regarding beneficiary contributions are not necessary. In particular, states are permitted to charge beneficiary contributions in excess of what would otherwise be permitted for populations who, without a waiver, would not be eligible for coverage under the state’s Medicaid plan. For these populations, states are permitted to end coverage for beneficiaries who fail to pay premiums or deny services to those who fail to pay cost sharing. As of February 2004, of the 22 states with statewide 1115 waivers, 21 states covered populations in their Medicaid program for which the Medicaid statutory provisions regarding limits on beneficiary contributions are not applicable. In 1997, Congress established SCHIP, which provides health care coverage to low-income, uninsured children living in families whose incomes exceed the states’ eligibility limits for Medicaid. SCHIP covered over 5.8 million children during fiscal year 2003, and federal and state expenditures were approximately $6.1 billion. States have three options in designing SCHIP—expand their Medicaid program, develop a separate child health program that functions independently of Medicaid, or combine these two approaches. The approach that a state chooses affects its beneficiary contribution policies. A state that uses its SCHIP allocation to expand Medicaid must follow Medicaid rules—thus SCHIP beneficiaries are subject to the state’s Medicaid policies with regard to premiums and cost sharing. For a state with a separate SCHIP program, federal law limits the premium and cost sharing amounts it may charge. States with a separate SCHIP program are prohibited from requiring premium or cost sharing contributions together totaling more than 5 percent of family income. States with separate SCHIP programs are also prohibited from charging any cost sharing on preventive services. In addition, for children in families with income at or below 150 percent of the FPL, there are specific limits on the amounts of premiums and cost sharing that states may charge in a separate SCHIP program (see table 4). For these individuals, federal regulation also prohibits states from requiring more than one type of cost sharing charge on each service. Additionally, regardless of family income or a state’s SCHIP design, states are prohibited from charging premiums or cost sharing to American Indians or Alaska Natives. Similar to Medicaid, to require premiums or cost sharing in SCHIP beyond what is permissible under federal law, states must seek waivers from the Secretary of Health and Human Services. In establishing SCHIP, Congress extended the applicability of section 1115 of the Social Security Act to SCHIP “in the same manner” as it applies to states under Medicaid. According to CMS, six states with SCHIP programs that are Medicaid expansions have received section 1115 waivers to require beneficiary contributions that would be allowable in a separate SCHIP program. In some cases, 1115 waiver approvals have allowed states to increase cost sharing in their premium assistance programs—programs in which the state helps individuals gain access to available employer-based insurance by using SCHIP funds to pay for part of an individual’s share of the cost of coverage. Specifically, two states—Illinois and Oregon—have waivers to allow for increased cost sharing for children in such premium assistance programs. In response to our survey, states reported that children were more likely to be subject to premiums and cost sharing in SCHIP than in Medicaid. Overall, 26 states charged premiums for some portion of children— “some,” “most,” or “all” in SCHIP, and 9 states charged premiums, through the use of 1115 waivers, for some portion of children in Medicaid. Twenty- five states charged cost sharing for children in SCHIP compared to six states for Medicaid. Most states that reported charging cost sharing applied copayment requirements to the six services we reviewed. In addition, the amounts of beneficiary contributions required for children varied on the basis of factors such as family income. Twenty-six states reported charging premiums for some portion of children in SCHIP, compared to 9 states for Medicaid: 5 states charged premiums for some portion of children in both Medicaid and SCHIP, 21 states charged premiums for SCHIP children only, and 4 states charged premiums for Medicaid children only. (See table 5.)