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Office of Kentucky Legal Services Programs:  Overview of Co-payment Issues in KyHealth Choices Waiver Proposal

 

Topic

Co-payments

Overview

The KyHealth Choices waiver proposes extensive co-payments for Medicaid beneficiaries. 

 

Accordingly to an analysis prepared by OKLSP, many Kentucky Medicaid participants at or below poverty would spend significant portions of their income for months at a time on co-payments before cost-sharing caps would kick in.  As a percentage of income, the burden is highest on K-TAP parents. 

 

While the benefit plans at first glance resemble “middle class” health plans, if cost sharing were imposed on median income Kentuckians at the same percentage of income as envisioned for SSI and K-TAP participants, median income Kentuckians would face exposure to co-payments as high as hundreds of dollars a month.

 

Co-payments are an imperfect tool for distinguishing medically necessary from unnecessary care.  If high enough they become cost barriers, simply substituting a financial decision for a medical judgment. 

 

The Cabinet should consider lower annual caps and monthly alternatives, plus tiers designed to protect the lowest income beneficiaries.  Cost-sharing should be avoided for at risk populations, including pregnant women and children.  Careful implementation should assure that impacts are identified and assessed.   

 

Key Provisions of Waiver

The waiver proposes extensive use of co-payments, including new co-payments on some services and increased co-payments on others.  Co-payments would not be charged for preventive services and would not be imposed on Medicaid children.  Cost-sharing would be capped at a maximum of $450 on an annual basis, with separate caps for prescription drugs ($225) and other medical ($225).

 

Expressed Goal or Pledge

The waiver envisions greater “personal responsibility” and interaction between consumers, providers and the plan so that medically necessary services would be provided despite new cost barriers and so that resources are “stretched” further.

 

Questions

1.  Recent emails from Cabinet staff suggest that co-payments will not be imposed on Medicaid children, but will be imposed on KCHIP children.  For this purpose how are KCHIP children defined?  Do they include only those children:

 

  • Under age 1 with income >185% FPL but <200%
  • From age 1 but under age 6 with income > 133% FPL but <200%
  • Children from age 6 to under age 19 with income > 100% but <200% FPL

Or, do they include only those children in the above groups who are above 150% of poverty?

 

Concerns

Co-payments save the state money in two ways:  by shifting the cost of the co-payment itself from the state to the consumer (and requiring the provider to collect it) and by reducing utilization of services. 

 

Of the two, larger cost-savings typically flow from reduction in utilization.  For example, CBO estimates that 80 percent of savings from Medicaid cost-sharing increases now under consideration in Congress will come from lower utilization of services.1

 

In the Kentucky proposal, co-payments would apply both to recipient-initiated services (doctor visits, emergency room use) and provider-ordered services (prescription drugs, several types of therapies).  It is not clear why cost-barriers should be erected to provider-ordered care, since medically judgment is being exercised and the Cabinet now has the capacity to identify unusual practice patterns.  

 

In theory, co-payments affect utilization by creating a financial “occasion” for a medical decision:  is the service needed enough to be worth the cost?  This “stop and think” function can only function to preserve medically necessary care where:

 

  • Recipients have knowledge of or access to guidance on best practices for seeking care
  • Recipients have access to less costly alternatives where cost-barriers have been erected to care or
  • Providers have been “over-treating” and are receptive to messages to alter their practices

 

If co-payments reduced only services that were medically unnecessary, there would be no reason to worry.  Research evidence (see below) suggests this is not always the case.  

 

The prospect of high cost-sharing on services ordered by providers is troubling.  Recipients facing cost barriers may forego care that has been judged necessary (e.g., by not filling a prescription). 

 

The mechanics of cost-sharing also are important:  cost-sharing caps will have no meaning unless the recipient knows of them and they are reliably triggered by tracking by the health plan (not by the recipient “shoe box” records of payments made).          

 

Law

Federal Medicaid law limits cost-sharing to nominal levels.   42 USC 1396o.  It also sets standards for waiver of nominal cost sharing.  42 USC 1396o(f).  Under these standards, the Secretary must find, after public notice and opportunity for comment, that the proposed co-payment plan:

 

  • Will test a unique and previously untested use of co-payments
  • Is limited to a period of not more than two years
  • Will provide benefits equivalent to the risks
  • Is based on a reasonable hypothesis to be tested, including use of control groups
  • Is voluntary or “makes provision for assumption of liability for preventable damage”

 

While some of these elements may be present in the Kentucky waiver proposal, they are not set forth in a single section.  No provision for control groups appears to exist and no two year period is identified.

 

Federal law otherwise guarantees that recipients who are unable to pay co-payments should not be denied a service.  42 USC 1396o(e).  Current Kentucky regulations allow refusal of service for past unpaid co-payments if a provider applies the same policy to other consumers and informs the recipient in advance.  Similar provisions in Minnesota and Oregon have been held invalid by state and federal courts.  Dahl v. Goodno, Minn. Dist. Ct., No. C9-04-7537, 9/15/05.  Spry v. Thompson.  2003 WL 2341196 (D.Or).

 

Research

The Kentucky waiver is proposed at a time when an extensive body of research on the effect of co-payments already exists.  Useful summaries have been compiled by the Center on Budget and Policy Priorities.2 

 

Generally, studies establish that co-payments reduce utilization, including use of both “effective” and “less effective” services, and that health status is more often affected in low-income, at risk populations.  Highlights: 

 

  • The famous RAND Health Insurance Experiment found that co-payments led to larger reduction in use of medical care by low-income children and adults than by higher income groups, including care viewed as “effective.”3

 

  • RAND found that co-payments led to poorer health for those with low income.  For example, co-payments increased the risk of dying by about 10 percent for low-income adults at risk of heart disease.3

 

  • A recent study published in the Journal of the American Medical Association found that, after imposition of co-payments, welfare adults in Quebec filled fewer prescriptions for essential medications.  The result:  an increase in “adverse incidents,” including hospitalization, emergency room use, nursing home admission and death.4

 

Analysis

OKLSP prepared a number of spreadsheets based on the cost-sharing proposed in the Kentucky waiver Global Plan.  The spreadsheets focused on co-payments that would be incurred by non-institutionalized SSI adults and by K-TAP parents.  The tables show that:

 

  • To “cap out” on both prescriptions and other medical services, SSI adults would have to spend 6.2% of annual benefit income and K-TAP parents 14.3%.  In each case, households are by definition below poverty to begin with.  K-TAP households include children. 

 

  • To maintain a medium intensity prescription regimen of 3 generics and 1 preferred brand name drug, adults would pay $25 a month under the waiver.  For an SSI individual, that represents 4.1% of income.  For a K-TAP parent, it represents 9.5%.  The equivalent 9.5% of Kentucky median income would be a co-payment of $273 a month.

 

  • The medium intensity Rx individual described above would have to pay the $25 co-payment most of the time.  He or she would “cap out” on the prescription drug co-payments only after 9 months.  

 

  • Combining prescriptions with episodes of other care creates high-cost scenarios.  If the same medium intensity person above were hospitalized, the episode at a minimum would represent 7.5% of the monthly SSI benefit and 17.2% of K-TAP income.  The median income equivalent of the K-TAP co-payment:  $492.

 

The cost consequences would be greater for the large number of Kentuckians who may at some time exceed the “soft limit” of four prescriptions, or who utilize additional ongoing services such as physical or occupational therapy, durable Medicaid equipment, etc.  Many would pay large portions of their income for several months.      

 

Recommendations

 
  1. No co-payments should be charged for services to pregnant women and children.  Unhindered access to care for these both groups pays off in prevention and wellness. 

 

  1. If co-payments are charged for KCHIP children, they should be imposed only on KCHIP children in households above 150% of poverty. 

 

  1. Cost-sharing caps should be lowered.  They also should be tiered by income, either by setting the cap as a percentage of benefits (or income) or by establishing lower dollar caps for K-TAP households. 

 

  1. To avoid circumstances in which a large percentage of very low benefits must be paid during a month, caps should be set on a monthly basis.  (We would be happy to provide further analysis of how this might work.)

 

 

  1. No co-payments should be charged for services approved in excess of service limits otherwise imposed by the plan.  (This approach would protect chronically ill people with multiple conditions and those requiring intensive therapies.) 

 

  1. Co-payments should be tracked by the plan rather than by the participant, so that caps are triggered automatically and consistently.

 

  1. Plan participants should be given clear information on cost-sharing and caps and ways to check their status relative to caps, including a call-in option. 

 

  1. To assure that the co-payment proposal meets the standard for waiver, Kentucky should use its new information capabilities to assess affects.  Approaches might include:

 

·        Identifying and tracking “adverse incident” indicators including emergency room usage and hospitalizations

·        Delaying implementation so that baseline data can be gathered (in effect creating a control group)     

 

  1. Kentucky should eliminate the rule that providers may refuse service for past unpaid debt.

 

End Notes

 

1    Robert Greenstein, Sharon Parrot and Isaac Shapiro, “CBO Information Shows House Budget Bill Passed Last Night Would Hit Poor Hard,” Center on Budget and Policy Priorities, November 18, 2005.

 

2   Leighton Ku and Victoria Wachino, “The Effect of Increased Cost Sharing in Medicaid:  A Summary of Research Findings,” Center on Budget and Policy Priorities, revised July 7, 2005.  

 

3    Joseph Newhouse, Free For All?  Lesson from the Rand Health Insurance Experiment, Cambridge: Harvard University Press, 1996.

 

4   Robyn Tamblyn, et al., “Adverse Events Associated with Prescription Drug Cost-Sharing among Poor and Elderly Persons,” Journal of the American Medical Association, 285(4): 42-429, January 2001.  

 

Prepared by:                          

 

Richard J. Seckel

richseckel@prodigy.net

Office of Kentucky Legal Services Programs

201 West Short Street, Suite 310

Lexington, KY 40507

859-233-3057