Center for Children and Families

Georgetown

Cost Sharing for Children and Families

Research

The body of research on cost sharing is extensive and has been summarized in detail by the Kaiser Commission on Medicaid and the Uninsured (KCMU) and by the Center on Budget and Policy Priorities (CBPP).1 It indicates that cost sharing in Medicaid and SCHIP can depress enrollment and reduce utilization, at times increasing the number of uninsured. Furthermore, unaffordable cost sharing places financial burdens on families and providers, despite the stated willingness of families to pay a reasonable share of costs. These themes are elaborated on in more detail below.

1. Premiums in Medicaid and SCHIP can reduce enrollment.
Research shows that premiums in Medicaid and SCHIP can depress enrollment if the financial burden is too great in light of families’ income and other expenses. This occurs both because fewer families will apply and more families will disenroll if premiums are too high. For example:

An Urban Institute study of Medicaid expansions during the 1990’s estimated declines in enrollment of 16 percent when participants are charged premiums that equal one percent of family income, enrollment declines of about 49 percent if premiums equal three percent of family income and enrollment declines of about 74 percent if premiums are set at five percent of family income.2 In other words, even small premiums discourage participation, with higher premiums resulting in even less participation (see Figure below).

New or increased premiums have been shown to reduce enrollment or increase/hasten disenrollment in SCHIP programs in Arizona, Florida, Kansas, Kentucky, Maryland, Missouri, New Hampshire, New Jersey, Rhode Island, and Vermont.3 A Florida study, for example, found that a $5 premium increase reduced SCHIP enrollment length by more than half, with lower-income children more severely impacted than higher-income children.4 Another study of children in rural Arizona estimated that a $10 increase in monthly SCHIP premiums would cause 10 percent of enrolled children to lose coverage.5

2. Even relatively small premium changes can lead to disenrollment. Among low-income families, even modest-sounding changes in premiums can have a notable impact on enrollment. For example, in January 2003, New Hampshire increased premiums from $20 to $25 for children with income between 185-250 percent of the federal poverty level and from $40 to $45 for children with income between 251-300 percent of the federal poverty level. A study of the impact of the premium change found that the SCHIP caseload dropped and then resumed growing three to five months after the premium increase, although at a slower pace than before the increase.6 Overall, the study authors estimate that the implied effect was a 4 percent reduction in monthly caseload. Disenrollment occurred particularly among children with incomes between 251 percent and 300 percent of the federal poverty level.

3. Cost sharing can reduce use of services.
The seminal work on the topic of how copayments and coinsurance affect use of services comes from the classic RAND Health Insurance Experiment (HIE).7 In the HIE, which ended in 1982, families were randomly assigned to either a free health plan or a health plan which required varying levels of cost sharing. The analyses of the HIA conclude that:

Cost sharing reduces the use of both needed and unneeded health services, primarily because patients sometimes do not initiate care when faced with a cost-sharing charge;

Cost sharing reduces the use of both effective and less-effective care, suggesting cost sharing has little impact on the appropriateness or quality of care sought; and

Cost sharing seems to have little effect on health, however, the most vulnerable (i.e., the poorest and sickest) participants in the experiment had improved health outcomes under the free plan.

In sum, the HIE indicates that cost sharing is a somewhat blunt instrument for changing people’s use of health care services – it will reduce the use of necessary and unnecessary care, and its impact is greatest on those with the fewest resources. In general, these same themes have been reaffirmed and echoed by more recent research on the topic. The KCMU and CBPP reviews of the literature on cost sharing in public programs for low-income families found that service-related cost sharing in Medicaid and SCHIP, even when modest, can reduce utilization, result in unmet need, cause financial stress, and burden providers.8

4. Cost sharing has significant implications for providers and safety net institutions.
Due to their low incomes, some Medicaid/SCHIP enrollees may be unable to afford cost sharing, and providers often bear the burden by providing care without being able to collect the patient cost sharing. For example, Oklahoma Medicaid providers in one survey reported that only 29 percent of the time do Medicaid beneficiaries pay cost-sharing charges.9 Safety net institutions, such as public hospitals and community health clinics can end up being affected when cost sharing results in the loss of Medicaid/SCHIP coverage. For example, research has confirmed that when children lose public coverage they are likely to become uninsured, and as a result, some care shifts from ambulatory care settings to more costly emergency department and hospital inpatient settings.10

5. Medicaid and SCHIP enrollees are not averse to reasonable cost sharing requirements and practices.
Many Medicaid and SCHIP beneficiaries are prepared to pay a share of their health care costs. For example, a survey of potential Medicaid enrollees in Oklahoma found that 68 percent felt that a modest monthly premium was reasonable, 67 percent felt that $5 - $20 copayments were acceptable, and 53 percent thought that total annual out-of-pocket health expenses of 1-2 percent of family income was reasonable.11 A focus group with parents of current and former SCHIP enrollees also found that most do not mind paying premiums when they are reasonable and affordable, although sometimes the process of paying premiums can be problematic.12 Focus group participants noted their appreciation of the balance between coverage and cost sharing. For example, participants would not necessarily want lower premiums if it meant higher copayments or less comprehensive benefits.

Table of Contents