Expanding Medicaid and cost sharing: A recipe for disaster?

From 1974 to 1982, a group of researchers conducted the RAND Health Insurance Experiment. In lay terms, what they did was assign people to different levels of insurance coverage, with a particular focus on the amount of co-payments, co-insurance, and deductibles that people had to pay, and then they observed their use of the health care system. As you might expect, those who had to pay more out of their own pockets used less health care. More importantly, they didn’t make a distinction between necessary and unnecessary care.

This is why insurance companies use these methods of cost-sharing to help keep utilization and costs down. The reasoning goes that when people have to spend some of their own money at the time that they are deciding whether or not to utilize the health care system, they will be more judicious in their use of resources. In other words, if you are feeling a little bit under the weather and you don’t have to pay anything to go to the doctor, you are more likely to go than if you have to fork over $20. On the other hand if you are “truly” sick, paying the $20 will be totally worth it.

But what about the very low-income? For them, even when they are extremely sick, $20 may be too much money to spend on health care. They may have the money, but need to spend it on other things like food, or–if they are very poor–they may not have the money at all. In other words, for the low-income, cost-sharing goes from being a motivator of the judicious use of resources to a barrier to accessing the health care system. For this reason, Medicaid–the insurance program for low-income Americans–has historically limited the amount of cost-sharing that states can impose on beneficiaries.

States, meanwhile, complain of the burden that the Medicaid program places on their budgets, and they want the federal government to permit more cost-sharing. After all, they say, the economic principles that motivate cost-sharing do not play favorites. They work for those of all different income levels.

The problem is, that’s not true. Cost-sharing is not based relative to income, but rather is a fixed amount and/or a percentage of health care charges. Therefore, common sense points out that the overall burden of any given level of cost-sharing decreases as an individual’s income increases. Translation: cost-sharing hits the poor the hardest.

Now, in an effort to woo states that have so far declined to participate in the Medicaid expansion under the Affordable Care Act, the Department of Health and Human Services has published a proposed rule that would permit states to charge “higher than nominal levels” of cost-sharing to Medicaid beneficiaries earning more than 100% of the federal poverty level.

While this does continue to protect the poorest of the poor, it exposes those marginally less poor to a significant cost barrier, which the RAND Health Insurance Experiment tells us means they will seek less care. As we know from the Oregon Health Study, when the uninsured suddenly gain Medicaid coverage, they have better access to care, use more of it, and it costs more money than leaving them to go without altogether.

Unfortunately, the current political compromise is likely to throw a wrench into the works. Expanding coverage for low-income Americans, while shifting more of the financial burden of their care directly onto them, is a recipe for a disaster of underinsurance, where individuals are covered in spirit, but remain vulnerable in practice. We would do better to be honest with ourselves and just deny them coverage.

Brad Wright is an Assistant Professor of health management and policy who blogs at Wright on Health.

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  • CL3579

    On Medi-Cal, California’s version of Medicaid, in a rural Northern California county (I don’t know if all California counties use the same limits or not), a couple is allowed $934 “maintenance need” in income to cover living expenses but anything over that $934 becomes their “share of cost” each month. This means that the patient must use all of the income over $934 per month for medical expenses each month before Medi-Cal begins to pay. This is not a yearly deductible, this is each month.

    The 2013 federal poverty level for a family of two is $15,510, or $1292.50 per month, so the maintenance need of $934 that Medi-Cal allows for a couples monthly living expenses is only 72% of poverty level income. A patient whose income is 100% of federal poverty level would have to pay out of pocket $358.50 each month for their medical expenses before Medi-Cal would begin to pay, while somehow trying to keep their housing, food and any other necessary expenses down to $934.

    If you qualify for a particular Medi-Cal disability program (there is more than one) you may have zero share of cost if your income is higher than the $934 maintenance need, apparently to allow for the fact that you need more medical care than your income would cover because you are sick enough to be classed as disabled, but only up to an income of slightly over $1800 per month. Once you reach that threshhold, a patient is transferred to a different disability program that uses the maintenance need of $934, so that disabled patient must now put all of the income above $934 into share of cost each month before Medi-Cal will pay anything. So the patient jumps from having no share of cost to having to pay some eight hundred dollars or more each month in share of cost. There is no sliding scale, it just goes from zero to several hundred dollars.

    Since it’s not actually possible to survive on $934 per month, the patient can only obtain very limited health care, even though their medical problems are so severe that they are considered disabled. Works well for Medi-Cal, since few patients in this situation can get by on $934 and put the rest of their monthly income into medical care, so they go without needed treatments, testing, etc. Doesn’t work so well for these very ill patients.

  • http://www.facebook.com/beau.ellenbecker Beau Ellenbecker

    We already deny them coverage. I work in Texas. Most of the providers here don’t take Medicaid. Not that it matters because almost no one qualifies for Medicaid here anyways. You have make less than about 15,000 to qualify for Medicaid (or about $7 an hour).

    • http://www.facebook.com/healthservicesresearch Brad Wright

      You’re right that many providers opt not to accept Medicaid patients. You’re also right that the income-eligibility level to qualify for Medicaid is particularly low prior to the ACA–and in fact, thanks to categorical eligibility requirements, being poor wasn’t even enough to qualify, you had to be poor AND something else (a child, pregnant woman, etc.). In states that participate in the expansion, much of this will change. There is no more categorical eligibility, and the income limit gets raised to 138% of the poverty level, which is much higher than prior limits. Whether providers will take Medicaid patients remains to be seen, once that becomes a much larger segment of the population. But for those providers who are caring for the uninsured, the hope that they will soon get Medicaid reimbursement is a big deal.

      • johnfembup

        “Whether providers will take Medicaid patients remains to be seen, once that becomes a much larger segment of the population.”

        I worry that not much will change.

        Does it seem reasonable that a physician who is already losing money on Medicaid patients will consider medicaid expansion a golden opportunity to make up the losses on volume?

        Will added demand for physicians’ services be more likely to reduce or to increase wait times for appointments?

        Does it seem reasonable that physicians will choose to see patients who cannot pay their fees in full (or, at all) before seeing patients who can pay their fees?

        Keep in mind that ACA – including Insurance Exchanges as well as Medicaid expansion – is expected to reduce the number of uninsured, but is not expected to result in universal coverage – a significant number is expected to remain uninsured.

        It’s possible that physicians who are already seeing uninsured patients will benefit if/when those patients become covered by Medicaid. We’ll have to wait and see how significant that is, if it happens.

    • querywoman

      Very few doctors have accepted Medicaid from its inception.
      Here’s what the expansion of Medicaid really means in Texas. The county hospital districts in the larger Texas counties have been providing for the local lower income populations quite well. They will make people provide for Medicaid if eligible before they spend county funds.
      Medicaid is half federal and half state money.
      The county hospital districts jump to get that extra money and court the Medicaid business. And then they still squawk for more local tax money.

      Now, the question I have is why doesn’t that free up the local tax money the county hospital districts have to do more for the low-income, mid-income, and higher income uninsured who can’t get Medicaid?
      If Obamacare puts more people on Medicaid, why doesn’t Texas provide reasonable adult dental services at a low cost?
      Governor Perry doesn’t answer questions like that; I have tried.
      And Parkland Hospital in Dallas has been in the federal hot seat for several years for stockpiling money and skimping on patient care.
      And Dallas County actually has prosecuted a few people from higher income counties for lying to get Dallas County tax-supported health care for serious illnesses like cancer.
      UT Southwestern has been stockpiling funds, too!
      Don’t know much about Tarrant County and the osteopathic school of medicine there.

  • Homeless

    We can be really honest with ourselves and say we think they are lazy and don’t deserve medical care because medical care is a privilege.

    • Molly_Rn

      Now if they would only die and get out of the way it would be problem solved. There but by the grace of god go I.

  • Myles Riner, MD

    This proposed rule allowing for an increase in Medicaid cost sharing is going to have a particularly adverse impact on patients who have an acute illness and face having to decide whether or not to go to the only place many of them can go to get care: the ER. See: http://www.ficklefinger.net/blog/2013/01/26/analysis-of-proposed-new-cms-rules-on-medicaid-cost-sharing-for-er-care/