Pinching the Poor? Medicaid Cost Sharing Under the ACA

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In December 2013, the Centers for Medicare & Medicaid Services agreed with the State of Iowa to expand Medicaid to low-income adults under the Affordable Care Act (ACA). This expansion allows far-reaching cost sharing, including copayments and monthly contributions for many enrollees and is part of a trend in Medicaid that examines critical aspects of balancing state budgets with appropriate incentives and adequate protections for patients. Several other states have embraced Medicaid expansions that involve substantial cost sharing for low-income adults, including a stipulation that enrollees could earn back payments by adopting healthy behaviors (eg, smoking cessation and obesity reduction). Several states that are not expanding their Medicaid programs have created proposals that include cost sharing and financial incentives for enrollees.

For most of Medicaid’s history, states could require only “nominal” enrollee contributions, and most required copayments only for services such as prescription drugs. Although the 2005 Deficit Reduction Act permitted states to charge Medicaid enrollees 5% or less of their annual income in cost sharing, most states did this only when they expanded coverage to higher-income enrollees, with certain groups exempt from cost-sharing requirements. About half the states have refused to expand their programs, but others have seen expansion as an opportunity to negotiate with the Centers for Medicare & Medicaid Services for new authority to shift more financial responsibility to enrollees.

Without cost sharing, enrollees have no incentive to consider cost in making decisions about whether and where to seek care or what services to receive. Proponents of cost sharing argue that it will lead enrollees to make more efficient health care choices. A second objective is to foster personal responsibility among enrollees for their own health. This notion blends 2 ideals: (1) to reduce dependence on government services and encourage financial self-sufficiency and (2) to help enrollees make better decisions about their health, that is, choices they might not make without financial incentives. However, research shows that patients are not good at distinguishing between care that is necessary and care that is not, with the result that cost sharing leads to reduced use of preventive services and essential drugs. If cost sharing is not well targeted, it may lead to increases in spending. Monthly premiums can also have negative consequences because they create no new incentives for efficient care once someone is enrolled in coverage. Premiums for Medicaid do reduce enrollment. Premiums may save state’s money, but primarily by keeping people uninsured, thereby working against the ACA’s primary goal of expanding insurance coverage.

Several refinements could increase the likelihood that cost sharing will lead to better outcomes. Medicaid programs could selectively modify copayments to align prices with expected health benefits. Using modest enrollee contributions to encourage health-promoting behaviors could be a reasonable approach if Medicaid programs also provided enrollees with the support services needed to pursue those behaviors. Cost sharing is most likely to succeed when enrollees are able to make informed choices and when financial burdens serve a clear health-related objective.

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