April 2007

Medicaid Prescription Co–pays Post–DRA: Some Action but Few Changes

Just over a year has passed since President Bush signed the Deficit Reduction Act (DRA), which gave states greater leeway to impose cost–sharing, such as prescription co–pays, on Medicaid beneficiaries. Many advocates, consumers and providers spoke out against expanded or higher co–pays, especially for people with chronic conditions, such as mental illness and addiction disorders. At the 2006 National Conference of State Legislators annual conference, CMS Director of Center for Medicaid and State Operations Dennis Smith observed that co-pays could create inappropriate barriers to adherence with important treatment regimens. In spite of the evidence that prescription co-pays can discourage low-income people from filling needed prescriptions, some states are attempting to impose co-pays. Overall, however, state policies regarding Medicaid prescription co-pays have changed very little since the DRA took effect, thanks to the concerted efforts of providers, advocates and consumers.

The Kaiser Family Foundation has the most comprehensive information about state Medicaid prescription co-pays. Their most recent report on the issue was compiled in 2004. To read that report, go to: www.kff.org/medicaid/benefits/service.jsp?yr=2&cat=5&nt=on&sv=32&so=0&tg=0

Kaiser is working on updating their chart with 2006 data, but it won't be released until late spring-early summer. This State Policy Focus is a supplement to the Kaiser co-pay chart, using recent reports from National Council members to identify trends in the implementation of the DRA.

DRA Changes to Medicaid Copays
At the time the 2004 Kaiser study was released, pre-DRA, Medicaid rules allowed nominal co-pays (i.e., $3 per service). Post-DRA, nominal co-pays are still allowed for Medicaid beneficiaries whose income is below the Federal Poverty Line (FPL), but these co-pays may now be indexed to medical inflation, which has been running at 4-5% annually. For beneficiaries whose income exceeds the FPL, the DRA allows the following co-pays:

* 100-150% of Poverty: Cost-sharing up to 10% of item or service
* Above 150% of Poverty: Cost-sharing up to 20% of item or service

The DRA limits total out-of-pocket costs (premiums + cost-sharing, including co-pays) to 5% of family's monthly or quarterly income. Although states are not required to impose any co-payments or other cost-sharing mechanisms, they may now permit providers to deny services for failure to pay. In other words, services may now be denied for failure to pay.

State of the States
The 2004 Kaiser study reported that 41 of the states (including the District of Columbia) already required some level of co-payment on Medicaid beneficiaries' prescription drugs. More recently, New Jersey Governor Jon Corzine's FY08 budget request states that 45 states have such copays.

Currently, National Council Association Executives report that Pennsylvania raised copays last year, and both New Jersey and Rhode Island have proposals to impose prescription copays. A few states, such as California and Ohio, report no attempts to impose copays. For other states, like Connecticut, the specter of copays is raised on a regular or semi-regular basis. Twice, copays were imposed in Connecticut for all adult Medicaid beneficiaries for medications and services - twice, the Connecticut Community Provider Association (CCPA) worked in coalition with other organizations and with key legislators to have the copays removed. This is the second year in a row that the New Jersey Association of Mental Health Agencies has faced a copay proposal; they were successful in defeating last year's proposal. Although there is no proposal on the table so far this year in Oregon, Gina Firman Nikkel, Executive Director of the Association of Oregon Community Mental Health Programs, acknowledges that "we have to fight copays all the time." Washington state, according to Ann Christian, CEO of the Washington Community Mental Health Council, has consider prescription copays but has not implemented based on experience in other states that suggest negative consequences.

Research on the Impact of Prescription Copays - Consumers
Many providers have relied on data to prevent the imposition of copays or to prevent increases in existing copays. Arizona providers, for example, are under a directive to "maximize copays and premiums," but the state Medicaid agency, Arizona Health Care Cost Containment System (AHCCCS), has produced an analysis challenging the cost effectiveness of the directive: www.nccbh.org/TemporaryFiles/Arizonacostsharing.pdf

The Arizona study focuses primarily on the costs of imposing copays. Although the state could expect to collect over $5.6 million in copays and other cost-sharing measures after taking out the federal share, AHCCCS predicted that the state would incur almost $16 million in administrative costs to collect that sum. Amazingly, the cost projection does not include the potential for increased costs based on changes in consumer behavior (e.g., cutting back on medication, failing to fill prescriptions) that could lead to emergency room visits and other expensive services. The AHCCCS study acknowledged as much:

Members unable to pay cost sharing may need to forego necessary medical services, leading to poorer health and costlier care. Others may choose to move into nursing facilities to avoid going without needed services. The fiscal impact for the state could be substantial because the cost of institutional care is more than three times greater than the cost of [home- and community-based services].

In addition to citing high administrative costs associated with collecting copays, the Arizona study identifies reasons why the cost-sharing components of the DRA yield less of a pay-off than state officials might expect. For instance, states must return to the federal government the federal share of any premiums of copayments imposed on Medicaid members. In addition, the DRA does not allow states to impose copays on most Medicaid beneficiaries, exempting for example Medicaid-eligible individuals with family income at below 100% FPL. Certain services are also exempted from copays, such as preventive services for children under 18 and emergency services (except for non-emergency use of an emergency room). The DRA's cap on total cost-sharing also limits how much states will collect. As an Oregon study concluded, if states are to save money by increasing copays and other cost-sharing mechanisms, the savings come not from increased revenue but because beneficiaries choose to go without services. ¹ 

Most of the research on the impact of copays has examined consumer behavior, and these studies confirm the concerns raised, but not quantified by, the Arizona Medicaid agency. Prescription drug copays, in particular, have an adverse effect on consumer use of medication as prescribed. A study in Utah, for example, found that newly imposed copays produced statistically significant decreases in utilization of prescription drugs.²  Similarly, when Oregon increased copays in a waiver program, one in four adults responding to a survey reported that they did not fill prescriptions because they could not afford the copay.³ 

Evidence shows that uniform copays—e.g., $3 per prescription, regardless of the medication's purpose—results in across the board reductions in all service usage, not just less important services or products.⁴  While this might not harm the average person, research demonstrates that people at risk of poor health are adversely affected by copays; people at risk of poor health who are also low-income face an even greater chance of being harmed by copays.⁵ 

Since the landmark Rand Health Insurance Experiment (HIE) study in the 1970s, more research has been done on the impact of copays, especially in the area of prescription drugs. For example, two 2004 studies use survey data on patient "cost-related prescription drug underuse" to show that people who report underusing medications because of cost have poorer health than those who use the medications as prescribed.⁶  While a 2006 study found that increases in copays had "little effect on hospital use for the average elderly person," they resulted in a "significant offsetting rise in hospital admissions" for chronically ill patients.⁷ 

Research on the Impact of Prescription Copays - Consumers
States may not worry about the consumer impact of prescription copays because many providers ensure that their clients never have to choose between their medication or groceries. Prior to the DRA, Medicaid beneficiaries could not be denied services because of a failure to pay copays. The DRA explicitly allows states to permit providers to deny services for failure to pay, but the DRA also allows providers to reduce or waive the copays on a "case-by-case basis," regardless of the state's position. Providers are notoriously reluctant to deny needed medication to their clients, knowing that most would decompensate and lose whatever degree of stability and independence they have achieved.

Because providers refuse to withhold medication, the burden of copays often falls on their shoulders. As Terry Edelstein, President and CEO of the CCPA, observed,"[W]e would have continued to provide services to the clients, so [copays were] a cut to providers." Research in Oregon and Washington state confirm Connecticut's experience. In both cases, "[c]overage losses and affordability problems stemming from increased out-of pocket costs led to increased pressures on providers and the health care safety-net."⁸  Given the historic underfunding of behavioral healthcare services, copays are a cost providers can little afford to absorb.

Different Approaches to Copays
Some are searching for solutions to eliminate the recurring battles over copays for mental health and addictions medications. At least one state, Massachusetts, has been able to secure permanent statutory change to exempt mental health & substance abuse services from copays. The Mental Health and Substance Abuse Corporations of Massachusetts (MHSACM) reported that the legislature proposed raising co-pays in FY04, a fiscally challenging period. MHSACM was able to secure the change to the Massachusetts Medicaid statute using a rider during the budget process. The statute states: "The division may also require, to the extent permitted by federal law, that recipients be liable for a co-payment of up to $3 for all other covered services with the exception of mental health and substance abuse services." (emphasis added)

Another approach, Value-based Insurance Design (VBID), argues that copays should be based on the relative "value of clinical services (benefits and costs)—not exclusively the costs."⁹  There are two VBID designs being used in private insurance models. In the first design, specific medications that confer important benefits are targeted for copay reduction or elimination. Pitney Bowes uses this approach, reducing copayments for all users of drugs commonly prescribed for three common, chronic conditions—diabetes, asthma, and hypertension. The second VBID approach attempts to tailor the copay more specifically to the patients' needs by identifying and reducing or eliminating copays for people with particular classes of chronic diseases. Asheville, North Carolina, and the University of Michigan are two employers who have implemented the second program, lowering copayments for selected medications for employees with diabetes.¹⁰  Although VBID is still an experimental design, the approach is worth studying for its possible application in the Medicaid context.

For more information on copays, please see the National Council's fact sheet at www.nccbh.org/POLICY/COPAYS.PDF

If you have any questions, please contact Tammy Seltzer at TammyS@nccbh.org

¹ S. Artiga and M. O'Malley, "Increasing Premiums and Cost Sharing in Medicaid and SCHIP:Recent State Experiences," Kaiser Commission on Medicaid and the Uninsured (2005): 3.
² Id. at 18.
³ Id. at 17.
⁴ J. Gruber, "The Role of Consumer Copayments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond," Kaiser Family Foundation (2006): 4.
⁵ Id. at 6.
⁶ Id. at 10.
⁷ Id.
⁸ S. Artiga and M. O'Malley (2005): 3.
⁹ M.E. Chernew, A.B. Rosen, and A.M. Fendrick, "Value-Based Insurance Design," Health Affairs 26 (2007): w196 (published online 30 January 2007; DOI 10 1377/hlthaff.26.2.w195).
¹⁰ Id. at w197-w198.