Medicaid Opportunities & Challenges Task Force May 14, 2013 Jeff Bechtel, Senior Consultant

1. Cost Sharing in Medicaid and Health Insurance Exchange Medicaid Opportunities & Challenges Task Force May 14, 2013 Jeff Bechtel, Senior Consultant

2. Presentation Overview • Medicaid Cost-Sharing Rules • Current South Dakota Cost Sharing Amounts • Cost Sharing in Medicaid vs. Exchange • Proposed New Federal Rules • Opportunities for Waivers of Federal Limitations • Discussion Items

3. Medicaid Cost-Sharing Rules • States have the option to establish cost sharing requirements within federal guidelines for Medicaid enrollees. May include copayments, coinsurance, or deductibles. • Copayments or coinsurance are charges that beneficiaries pay when they receive a service. • Premiums are periodic payments beneficiaries must pay to be enrolled in health coverage. • The ACA did not change cost-sharing rules, so existing federal cost-sharing policies apply to the newly-covered populations (adults up to 138% FPL).

4. Medicaid Cost-Sharing Rules (cont’d) • Federal rules do not allow cost-sharing for several groups including pregnant women who earn less than 150% FPL, terminally ill individuals receiving hospice care, low-income children, and foster children. • Additionally, cost-sharing cannot be imposed for emergency services, family planning services, preventive care for children, or pregnancy-related care. • American Indians receiving services through IHS or upon IHS referral are exempt from co-payments.

5. Current Medicaid Cost-Sharing Rules Overview 5

6. Current Medicaid Cost-Sharing Rules Overview *Maximum Nominal Out-of-Pocket Costs are $2.65 deductible, $3.90 copayment, or 5% coinsurance. Maximum based on what state pays for that service.

7. Current South Dakota Medicaid Cost-Sharing • Within federal parameters, South Dakota imposes cost sharing requirements on its consumers to promote the efficient use of services. • However, as a result of South Dakota’s limited eligibility policy, and the broad exemptions included in federal law, the state has a very low number of Medicaid enrollees to whom copayments are applicable. • Examples of South Dakota Medicaid copayment amounts include the following: • Non-generic prescription drugs: $3.30 • Generic prescription drugs: $1.00 • Durable Medical Equipment: 5% • Non-emergency dental services: $3 co-pay, $1,000 annual limit for adults • Inpatient Hospital: $50 per admission • Non-emergency outpatient hospital services, which includes emergency room use for non-emergent care: 5% of billed charges, maximum of $50 • Copayments are collected by the provider and the payment for the service is reduced by the copayment amount.

8. Cost-Sharing in Other State Medicaid Programs • A total of 45 states have copayment requirements, including five states (DE, LA, MD, NH and WV) that impose copayments only on drugs. • Only six states (CT, HI, NV, NJ, RI and TX) report no copayment requirements at all. • A number of states proposed or implemented increases or new copayment requirements in recent years. • Source: Policy Brief, Premiums and Cost-Sharing in Medicaid, Kaiser Commission on Medicaid and the Uninsured (February 2013);  http://kff.org/medicaid/issue-brief/premiums-and-cost-sharing-in-medicaid/

9. New, Proposed Federal Cost-Sharing Flexibility • In January, HHS released a proposed rule that includes proposed changes to streamline Medicaid premium and cost-sharing regulations and give states additional flexibility. • Proposed changes include increases in the nominal cost-sharing amounts: • For individuals with incomes below 100% of FPL, the rule would increase nominal cost-sharing for outpatient services to a flat rate of $4.00.  • For non-exempt individuals with incomes between 100% and 150% of FPL receiving non-exempt services, CMS would allow states to impose cost-sharing at a rate of up to 10% of the amount the state pays for the service.

10. New, Proposed Federal Cost-Sharing Flexibility (cont’d) • Proposed changes also include increases in cost-sharing for nonemergency use of the emergency department. For individuals with incomes between 100% and 150% of the FPL, states could establish cost-sharing of up to $8.00 for non-emergency ED services.  • Proposed rule also seeks comments on alternatives to current policy for inpatient cost-sharing because inpatient services are high cost for low-income populations, and services can generally not be avoided or prevented.

11. 1115 Waiver (In)Flexibility • States are only allowed to request waivers of certain Medicaid requirements. • Waivers are not intended to change fundamental aspects of the Medicaid program. • California was recently denied a request to impose enforceable, significant copayments on its Medicaid patients beyond federal limits because the Centers for Medicare and Medicaid Services was “unable to identify the legal and policy support” for the request. Bloomberg, Obama Blocks California from Charging for Care in Medicaid (February 6, 2012); http://www.bloomberg.com/news/2012-02-06/california-can-t-charge-medicaid-patients-for-hospital-care-u-s-says.html • Due to the significant research on the drawbacks of cost-sharing for Medicaid recipients, future waivers are doubtful.

12. Effect of Cost-Sharing on Medicaid Population • A large body of research shows that premiums and cost sharing can act as barriers for low-income population in obtaining, maintaining and accessing health coverage and health care services. • These barriers can result in increases in uninsured, unmet health care needs and adverse health outcomes. • State savings from cost-sharing and premiums may accrue due to declines in coverage and utilization more so than from increases in revenues.

13. Effect of Cost-Sharing on Medicaid Population (cont’d) • These changes can strain the health care safety-net and effectively reduce reimbursement for providers serving the Medicaid Program. Co-pays are extremely hard to collect. • Source: Issue Paper, Premiums and Cost-Sharing in Medicaid: A Review of Research Findings, Kaiser Commission on Medicaid and the Uninsured (February 2013); http://kaiserfamilyfoundation.files.wordpress.com/2013/02/8417.pdf

14. Cost Sharing for Medicaid Consumers vs. Exchange Consumers • Exchange Cost-Sharing Re-cap • Premium Credits • Cost-Sharing Assistance • Payments to Increase Actuarial Value • Summary Chart • Observations

15. Exchange Cost-Sharing – Premium Credits • The amount will vary from person to person: it depends primarily on household income and the premium for the plan in which the person is enrolled. • The amount of premium is capped as a percent of income.  Examples: • 100-133% FPL – 2% of income • 133.1% FPL – 3% of income • 150% FPL - 4% of income • 250% FPL – 8.05% of income

16. Exchange Cost-Sharing – Cost Sharing Assistance • People who qualify for premium assistance tax credits will also be eligible for cost sharing assistance if they enroll in a silver plan.  Federal rules set an out-of-pocket maximum contribution based on IRS limits for high-deductible plans. • Out-of-pocket maximums are: one-third of IRS limit for families between 100-250% FPL, one-half of IRS limit for families between 250-350% FPL, and two-thirds of limit for families between 350-400% FPL. • Examples if out-of-pocket caps were available in 2011: • 100 to 133% - $3,967 / year (family of 3) • 133.1% - $3,967 / year • 200% - $3,967 / year • 300% - $5,950 / year • 400% - $7,933 / year

17. Exchange Cost-Sharing – Payments to Increase Actuarial Value • Federal payments will be made to health insurers to increase the actuarial value of the plan for people with incomes under 250% of poverty. • For example, for people with incomes between 100 and 150% FPL, the actuarial value of the plan will be increased to 94%. • This means that in addition to keeping within the lower out of pocket maximums, insurers must make other changes to increase the actuarial value of the coverage. • Most likely this will mean reducing plan deductibles, coinsurance or copayments in order to meet the higher actuarial value requirements.

18. Exchange Cost-Sharing Summary

19. Exchange Cost–Sharing Example • Family of 3 • Income Below 138% of FPL ($26,344) • Premium for Second Lowest Cost Silver Plan : $9,000 (estimate) • Family Pays: $526 Premium (2% of Income) • Government Pays: $8,474 (premium less family maximum contribution) • Maximum Out-of-Pocket Cap: $3,967 (1/3 of limit for IRS high-deductible plans) • Premium Plus Out-of-Pocket Cap: $4,493 ($526 Premium plus $3,967 out-of-pocket cap) • Required Actuarial Value of Plan: 94%

20. Observations – Medicaid vs. Exchange Cost Sharing • Premium Tax Credits and Cost Sharing subsides are intended make health insurance coverage more affordable for low-income people through the Exchanges • Premiums and out-of-pocket costs may be significant, however, for lower-income individuals seeking coverage through an Exchange. • Individuals from 100 – 138% FPL in States that choose to Expand Medicaid will be subject to much lower out-of-pocket costs (due to restrictive Medicaid cost-sharing requirements) and will not pay premiums.

21. Discussion

22. Questions? Sellers Dorsey sellersdorsey.com Jeff Bechtel Senior Consultant Sellers Dorsey 717.695.4342 jbechtel@sellersdorsey.com