KFF designs, conducts and analyzes original public opinion and survey research on Americans’ attitudes, knowledge, and experiences with the health care system to help amplify the public’s voice in major national debates.
Sources: Urban Institute analysis of data from Health Care Financing Administration’s website.
Liska, D et al. “Medicaid Expenditures and Beneficiaries, 1990-1995.” Kaiser Commission on the Future of Medicaid. Washington, DC. 1997.
(a) PCCM refers to primary care case management plans.
Note: Includes managed care for a full-range of acute care services only. Does not include limited service plans such as mental health or dental only plans.
The January/February 1998 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health issues covered in the news, including questions on Abortion, Medicare and Health Care Costs. The survey was based on a national random sample of 1,209 Americans conducted February 13-17, 1998 which measures public knowledge of health stories covered by the news media during the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.
Medicaid plays several different roles of significance to Native Americans. Through its purchase of managed care products, Medicaid is reshaping the health care delivery system for many Native Americans and other underserved low-income populations. Medicaid also assists low-income elderly and disabled Indians who are eligible for Medicare in meeting their premium and cost-sharing obligations. Finally, Medicaid offers coverage for nursing home care and other long-term care services needed by frail elderly and disabled Native Americans. This report provides an overview of Medicaid from the standpoint of Native Americans with an emphasis on Medicaid as an insurance program and a purchaser of managed care
The State Children’s Health Insurance Program, enacted as part of the Balanced Budget Act of 1997, provides over $20 billion in federal funds over five years to cover low-income uninsured children. This policy brief examines how many children will participate and the public costs per covered child.
Medicare Beneficiaries & HMO’s: A Case Study of the Los Angeles Market
Note: This publication is no longer in circulation. However, a few copies may still exist in the Foundation’s internal library that could be xeroxed. Please email order@kff.org if you would like to pursue this option.
Native Americans and Medicaid:Coverage and Financing Issues
Medicaid and Welfare
Until 1996, families with children who received cash assistance under the Aid to Families with Dependent Children (AFDC) program were automatically entitled to Medicaid coverage. The welfare law enacted that year, Public Law 104-193, repealed the AFDC program and created a Temporary Assistance for Needy Families (TANF) block grant to the states. The 1996 welfare law also severed the automatic eligibility linkage between welfare and Medicaid. States may now use different eligibility rules for families under their welfare block grant programs than they use under Medicaid. At a minimum, states must maintain their Medicaid eligibility standards for families with dependent children at the level of those in effect as of July 16, 1996, under the state’s AFDC program.
In states that choose to use different eligibility rules for mothers and children under the welfare block grant than they do under Medicaid, low-income families who qualify for cash or other assistance under the welfare block grant may no longer automatically qualify for Medicaid. Instead, they may have to file a separate application for Medicaid benefits, perhaps in a different location. In such cases, there is a risk that eligible individuals, especially children, will not be enrolled in Medicaid due to logistical and administrative barriers.
Under the welfare law, tribes may elect to receive federal (but not necessarily state) welfare block grant dollars directly to operate their own “tribal family assistance” program separately from that of the state in which their members reside. However under Medicaid law, tribes are not expressly authorized to administer their own Medicaid programs. As a legal matter, it is possible that a tribe could, with cooperation from the state in which it is located and the approval of the Secretary of HHS, operate its own Medicaid program under a demonstration waiver under section 1115 of the Social Security Act. The legal issues are by no means clear, the technical issues are formidable, and no such waiver has been granted.
Medicaid and Resource Testing
Financial eligibility criteria for Medicaid generally include resource as well as income requirements. For example, disabled and elderly individuals who seek to qualify for Medicaid on the basis of receipt of SSI benefits must have countable resources of less than $2,000 ($4,000 for a couple). Similarly, families who seek to qualify for Medicaid coverage on the basis that they meet the eligibility requirements for AFDC in effect in a state as of July 16, 1996, must have countable resources of less than $1,000. Not all resources are countable; for example, a home of any value is excluded from the calculation of an individual’s resources. States have the option, with respect to certain eligibility groups, to liberalize these resource requirements or to discard them altogether. Many states have chosen to apply only an income test in determining the Medicaid eligibility of children with incomes at or below the poverty line.
Resource tests pose some unique issues for American Indians and Alaska Natives. Certain income-producing property, such as pick-up trucks and fishing boats, can disqualify an individual for Medicaid. Similarly, non-trust land which an individual owns may result in denial of Medicaid eligibility due to excess resources. States have the flexibility under federal Medicaid law to reduce or eliminate these barriers to eligibility by using less restrictive methodologies for counting resources. For example, a coastal state could choose to disregard the first $75,000 dollars in equity value of a boat used to produce income during the fishing season.
Coordination of Medicaid and IHS Coverage
Native Americans who are eligible for health care through the IHS are also entitled to Medicaid coverage if they meet the categorical and financial eligibility requirements of the Medicaid program in the state in which they reside. In cases in which an individual is eligible for both Medicaid and IHS services, and a service (such as hospital care) is covered both by Medicaid and by the IHS, the Medicaid program is required to pay for the service. Where a Medicaid beneficiary receives a service provided by the IHS that is not included in the Medicaid benefits package in that state – for example, non-emergency dental care for adults – the IHS, as the residual program, has the responsibility to pay.
Medicaid as a Source of Revenue for Hospitals and Clinics
The IHS is an appropriated program rather than an entitlement program. That is to say, the federal funding for all the IHS, tribally-operated, and urban Indian programs are appropriated in advance each year in fixed amounts. These annually appropriated amounts are then allocated among the different geographic areas and tribes served by the IHS.
Because no individual American Indian or Alaska Native is entitled to any particular health care service from the IHS, when the funding for a given year has been consumed, the provision or purchase of services must be postponed until the next fiscal year when new appropriations become available. This is particularly evident in the case of contract health (CHS) services, for which waiting lists for non-emergency services are not uncommon in many areas. In contrast, Medicaid is an entitlement program, under which the federal government matches, on an open-ended basis, all state expenditures for covered services on behalf of eligible individuals. In the case of Native American beneficiaries, the federal matching rate is generally 100 percent. Unlike the federal funding for the IHS, federal Medicaid matching funds are not subject to annual appropriations limits.
Under the Balanced Budget Act, growth in federal spending on appropriated programs such as the IHS is tightly constrained for the next five years by across-the-board “caps.” Because the IHS will have to compete for funding with the National Institutes of Health, the Head Start program, and all other domestic programs subject to these appropriations “caps,” IHS funding is not likely to grow nearly as fast as federal spending on entitlement programs like Medicaid, which are projected to grow at around 7 percent per year. As a result, revenues from Medicaid are likely to become increasingly important to many IHS, tribal, and urban programs to help relieve appropriated funding limitations over the next few years.12
Medicaid is already an important source of revenue for IHS hospitals and clinics as well as for tribally operated facilities and urban Indian health programs. In fiscal year 1997, IHS and tribally operated facilities were projected to receive $184.3 million in Medicaid reimbursements, compared with the $1.806 billion appropriated for IHS and tribally-provided health services that year.
The Medicaid program is in transition. Historically, like other health insurers, Medicaid paid for covered care on a fee-for-service basis. Today, most states are encouraging or requiring Medicaid beneficiaries to enroll in managed care in order to receive covered services. Again, there is much variation among the states. Some have enrolled virtually all of their Medicaid beneficiaries in managed care; others have just begun this process. Hospitals, clinics, and other providers – whether or not operated by the IHS or tribes – may face significantly different participation and reimbursement rules when they serve a Medicaid beneficiary on a fee-for-service basis than when they serve a Medicaid managed care enrollee.
Participation in Medicaid by IHS Facilities and Tribal Health Programs
State Medicaid agencies are responsible for establishing and maintaining health standards for public or private facilities in which Medicaid beneficiaries receive care or services. Under federal regulations, a facility owned or leased by the IHS, whether operated by the IHS or by a tribe or tribal organization, is entitled to participate in Medicaid and receive payment for covered services delivered to Medicaid beneficiaries if it meets the requirements and standards generally applicable to the type of facility (e.g., hospital, clinic) under the state Medicaid program. IHS owned or leased facilities are not required to be licensed by the state in order to participate in Medicaid; however, they are required to meet the applicable standards for licensure.
Under the December 19, 1996 Memorandum of Understanding (MOA) between the IHS and the Health Care Financing Administration (HCFA), these same participation rules apply to “638” facilities owned or operated by tribes. These “638” facilities are operated by tribes or tribal organizations under contracts, grants, or compacts under the Indian Self-Determination and Education Assistance Act, Public Law 93-638. Thus, “638” facilities are not required to obtain a state license in order to participate in Medicaid, but they must meet all applicable standards for licensure.
100 Percent Federal Matching for Covered Services Provided by IHS and Tribal Programs
Medicaid has special rules for the financing of covered services provided to Native Americans. In general, Medicaid is a federal-state matching program under which the federal government contributes toward the costs states incur in paying for covered services on behalf of eligible individuals. The federal government’s share of these costs ranges from 50 percent in more affluent states to 80 percent in the poorest states; on average, the federal government pays 57 percent of the cost of Medicaid benefits.
However, a higher federal matching rate applies in the case of services provided by IHS or tribal facilities. Under section 1905(b) of the Social Security Act, the cost of services provided to Medicaid beneficiaries by a hospital, clinic, or other facility of the IHS, whether operated by the IHS or by a tribe or tribal organization, is matched by the federal government at a 100 percent rate. In these cases, the state is reimbursed fully by the federal government and is not required to contribute any of its own funds toward the cost of care. In addition, under a December 19, 1996, Memorandum of Agreement (MOA) between the IHS and the Health Care Financing Administration (HCFA), this same 100 percent federal matching rate also applies to the cost of any covered services furnished on or after July 11, 1996, to Medicaid-eligible American Indians or Alaska Natives by any tribal facility operating under a “638” agreement by grant, contract, or compact. The cost of covered services provided by tribal facilities to Medicaid beneficiaries who are not Native Americans will continue to be matched by the federal government at each state’s regular matching rate.
This 100 percent federal matching rate removes any financial disincentive a state might otherwise face in paying for covered services provided to Native American Medicaid beneficiaries by IHS or tribal providers, because a state does not have to commit any of its own funds. The 100 percent match also provides a financial incentive for states to encourage Native American beneficiaries to use IHS and tribal providers. If these beneficiaries receive covered Medicaid services from providers other than IHS or tribally-run hospitals or clinics, the state would have to contribute the same share of the cost that it is required to match in the case of any Medicaid beneficiaries who are not Native Americans. Note that, because Medicaid is an entitlement program, there is no annual appropriations limit on the 100 percent matching funds for covered services provided by IHS or “638” tribal facilities to Indian beneficiaries.
The December 19, 1996 MOA does not extend to urban Indian health programs. Thus, the cost of covered services provided by urban Indian health programs to Medicaid beneficiaries will continue to be matched at each state’s regular matching rate, whether or not those beneficiaries are Native Americans. A central purpose of the MOA is, by its own terms, “to encourage tribal self-determination in program operation and facility ownership,” as well as “to address state financing concerns.” While 100 percent federal financing for covered services provided by urban Indian health programs would clearly address state financing concerns, it does not apply to tribal self-determination. Whatever the merits of this policy rationale, the effect is clearly to leave the urban Indian health programs in a Medicaid provider category that is less favorable from the states’ standpoint than the category in which the MOA places tribally owned or operated facilities.
Note that the special 100 percent federal matching rate applies only to state expenditures for services covered by the state’s Medicaid program. The services which a state Medicaid program covers are sometimes not as broad in scope as the services which an IHS or tribally-operated hospital or clinic delivers. For example, tribally-run facilities may provide preventive dental care or orthodontic services to Indians who are eligible for Medicaid. Under Medicaid law, states have the option as to whether to cover these particular services for adults, and many have chosen not to do so. In these states, the “638” clinic would not receive Medicaid payment for such dental visits by eligible adults, and the state would therefore not receive any federal matching funds for such costs.
Fee-for-Service Reimbursement Rates
In general, states have broad discretion in establishing payment rates to hospitals, clinics, and other providers that participate in Medicaid on a fee-for-service basis. States are generally not required to pay these providers for the costs of delivering care to Medicaid beneficiaries. However, special reimbursement rules apply with respect to facilities operated by the IHS. Minimum payment standards also apply to Federally-qualified health centers (FQHCs), which include “638” tribally-operated facilities and urban Indian programs.
IHS Facilities. State Medicaid programs have the option of paying hospitals and other facilities operated by the IHS at a federally specified or “global” rate for delivering covered services to Medicaid beneficiaries who are Native Americans, and most states do so. This rate, which is revised periodically, is $760 per day for inpatient hospital care and $152 per visit for outpatient care in 1997 (62 Fed. Reg. 26806 (May 15, 1997)). Under the December 19, 1996 Memorandum of Agreement, tribally operated facilities may elect to be treated as IHS operated facilities for purposes of qualifying for this federally specified rate for services provided to American Indians or Alaska Natives. As discussed above, where this federally specified or “global” rate applies, the federal government reimburses the state Medicaid program for 100 percent of the amount paid at this federally specified rate (or, in the case of a state that opts not to use this rate, the alternative rate used by the state).
FQHCs. State Medicaid programs must at a minimum cover certain benefits, including hospital and physician services, and outpatient services provided by Federally-qualified health centers (FQHCs). These centers include programs or facilities operated by tribes or tribal organizations under “638” contracts or compacts as well as facilities operated by urban Indian organizations and funded under title V of the Indian Health Care Improvement Act. States are required to pay all FQHCs, including tribally operated and urban Indian clinics, at a rate equal to 100 percent of a facility’s reasonable cost of providing services to Medicaid beneficiaries. Under the recent Balanced Budget Act of 1997, P.L. 105-33, this minimum payment requirement will begin to decline to 95 percent of cost in fiscal year 2000, to 90 percent in fiscal year 2001, to 85 percent in fiscal year 2002, to 70 percent in fiscal year 2003, and will be repealed thereafter.
In many states, tribally-operated “638” facilities do not bill their Medicaid programs using the 100 percent of reasonable cost rate, even though they are FQHCs and are entitled under federal Medicaid law to do so. Instead, they use the federally-specified or “global” rate. The reasons for billing using the federally-specified rate include more frequent updates and the absence of an annual retrospective audit. The FQHC protection remains important to these facilities, however, because it guarantees that the ambulatory services they provide are included in their state Medicaid program’s benefits package.
Medicaid and Managed Care
Over the past few years, Medicaid in many states has been shifting from a predominantly fee-for-service program to a program that purchases services from managed care organizations (MCOs) or primary care case management organizations (PCCMs), or both, on a prepaid, capitated basis. MCOs are managed care plans that are fully capitated or “full risk” – that is, they assume financial risk for providing covered inpatient hospital, physician, and other services to their enrollees. In contrast, PCCMs are typically not capitated; they provide covered primary care services and manage access to specialist and hospital care for their enrollees in exchange for a monthly management fee and do not assume financial risk for providing inpatient hospital care.
As there is variation among IHS areas and tribes, so there is variation among state Medicaid programs with respect to the use of managed care. Table 2, which is based on HCFA data analyzed by the Urban Institute, shows Medicaid managed care enrollment by state as of June, 1996. Because the data do not distinguish Native American beneficiaries from other Medicaid beneficiaries, it is not possible to draw any conclusions about enrollment by Native American beneficiaries in managed care. The data do, however, show that some states with large Native American populations such as Idaho, Montana, New Mexico, North Carolina, North Dakota, and South Dakota, enrolled none of their Medicaid beneficiaries in full-risk MCOs but relied exclusively on PCCMs. Other states with large Native American populations, such as California, Minnesota, New York, Oklahoma, Washington, and Wisconsin enrolled significant proportions of their Medicaid populations in full-risk MCOs and enrolled almost none of their beneficiaries in PCCMs. Alaska did not enroll any Medicaid beneficiaries in managed care; Arizona and Oregon enrolled most of their Medicaid beneficiaries in full risk plans.
This shift to managed care is likely to accelerate as the result of wide-ranging changes in Medicaid law contained in the Balanced Budget Act of 1997, P.L. 105-33, enacted in August, 1997. Many issues regarding the implementation of these changes remain unresolved. However, the following points seem clear:
Mandatory Beneficiary Enrollment in Managed Care. Effective October 1, 1997, states, without seeking waivers from the Secretary of Health and Human Services, will have the authority to require most Medicaid beneficiaries to enroll in MCOs or PCCMs. These MCOs or PCCMs do not have to serve employer groups; they can do business only with Medicaid. States will be able to require Native Americans who are eligible for Medicaid to receive all covered services through an MCO or PCCM, but only if the MCO or PCCM is the IHS, a tribally operated “638” program, or an urban Indian health program. States do not have authority under the Balanced Budget Act to require Medicaid-eligible Native Americans to enroll in MCOs that are not operated by the IHS, a tribe, or an urban Indian organization. However, states do have the authority to require such enrollment under “section 1115” demonstration waivers (as in the case of Arizona) or under “section 1915(b)” program waivers (as in the case of New Mexico).
Capitation Payments under Medicaid Managed Care. The December 19, 1996 MOA concerning 100 percent federal matching does not expressly address the issue of payments to MCOs. Presumably, state Medicaid capitation payments on behalf of Indian Medicaid beneficiaries to MCOs or PCCMs that are operated by the IHS or by tribes or tribal organizations would be subject to federal matching at a 100 percent rate. This policy would parallel the clear MOA policy in a fee-for-service context, addressing “state financing concerns” and encouraging “tribal self-determination in program operation and facility ownership.” However, the treatment of capitation payments on behalf of Indian beneficiaries to MCOs or PCCMs that are not IHS- or tribally-operated is less clear. One possible interpretation is that capitation payments in such cases would be matched by the federal government at each state’s regular matching rate (on average, 57 percent). Such a matching rate differential would create a fiscal incentive for states to encourage enrollment of Indian beneficiaries in MCOs or PCCMs operated by the IHS or by tribes or tribal organizations.13
Strategic Choices for Native American Health Facilities
IHS Facilities and Medicaid Managed Care. Under Medicaid law, IHS facilities have three basic options in states implementing Medicaid managed care programs.
They can establish their own MCO or PCCM and seek to contract with the state to enroll Indian (and non-Indian) Medicaid beneficiaries residing in their service area. There is no current example of an MCO or PCCM that is fully owned by a tribe. One close variant of this approach is the Pascua Yaqui Health Plan in Tucson, Arizona, which contracts with the Southwest Catholic Health Network to operate an MCO in which some 3,500 tribal members are enrolled. The Network also operates Mercy Care, a Medicaid MCO, into which tribal members who qualify for Medicaid may enroll. 14
They can subcontract with a private MCO or PCCM and provide services to the Indian (and non-Indian) enrollees of that MCO or PCCM. An example of this approach is the Indian Health Board of Minneapolis, which subcontracts with four different Medicaid MCOs, including an MCO operated by the County Medical Center.
They can continue to be reimbursed by Medicaid on a fee-for-service basis and remain unaffiliated with any Medicaid MCO or PCCM. One example of this approach in a state with very low Medicaid managed care enrollment is the Chief Andrew Isaac Health Center in Fairbanks, Alaska, operated by the Tanana Chiefs Conference, Inc., under a “638” self-governance compact.
The first of these options may in many cases prove impractical due to the unavailability of start-up capital for information systems, reserve funds, and planning and marketing costs; legal issues relating to the assumption of risk by IHS-operated programs; and state licensure requirements. Some of the issues that arise in the context of developing an MCO do not come up for IHS facilities seeking to establish PCCMs. In either case, the first option will often give the IHS facility the best protection against market forces that may otherwise result in the erosion of its patient base and fiscal stability over the long run.15 Of course, participation in Medicaid as an MCO is not an absolute guarantee of survival for a hospital or clinic. There are other reasons why a provider’s Medicaid revenues would decline, including loss of eligibility by beneficiaries due to income fluctuations and changes in state Medicaid eligibility standards.
IHS facilities that are able to establish their own MCO or PCCM are not guaranteed a contract with a state Medicaid program even if they meet the state’s solvency, quality, and other requirements. That is because states are not under federal law required to contract with every qualified MCO or PCCM; instead, states can limit the number of contracting MCOs or PCCMs to two in urban areas and to one in rural areas. Unless they receive a waiver from the Secretary of HHS, however, states can not require Medicaid-eligible Indians to enroll in any MCO or PCCM that is not an IHS- or tribally-operated program. Where a state contracts with an MCO, the state must pay capitation rates that are set on an “actuarially sound” basis whether or not the MCO is operated by the IHS.
Medicaid MCOs may, but are not required to, contract with IHS facilities for the provision of hospital or other services. If an MCO chooses to contract with an IHS facility, it is not required to pay the specified federal reimbursement rate for services rendered to MCO enrollees, and it is not required to pay the IHS facility at the same rate it pays non-IHS providers for the same services.
In those states that have adopted federally-specified rates for IHS facilities, those IHS facilities that remain unaffiliated with MCOs or PCCMs are eligible for payment at such rates for covered inpatient and outpatient services provided to Medicaid-eligible Indian beneficiaries who are not enrolled in MCOs. Where an IHS hospital provides emergency care to a Medicaid-eligible MCO enrollee (whether or not that enrollee is a Native American), the MCO must reimburse the hospital for the care if a “prudent layperson” would have sought emergency care under the same circumstances. Note that if a Medicaid-eligible Indian is enrolled in an MCO or PCCM that is not operated by the IHS but continues to use the IHS facility as a source of health care without a referral from the MCO, the MCO is not obligated to pay for nonemergency services provided by the IHS facility to its enrollee, unless state regulations require the MCO to pay. The IHS facility will not be able to bill the state Medicaid program directly because the MCO has assumed financial responsibility for the beneficiary’s care.
In these circumstances, the IHS facility has two basic options for protecting itself against using its own resources to pay for nonemergency care for Indian MCO beneficiaries. One option is to affiliate with the MCO as a participating provider. The MCO is under no federal law obligation to affiliate with the IHS facility or to do so on reasonable terms, however. The other option is for the state Medicaid agency to include in its contracts with MCOs a provision allowing Indian enrollees to go “out of plan” to receive care from IHS facilities without a referral from the MCO. This contract provision could potentially be structured so that the federal government, through its 100 percent matching for state expenditures, reimburses the IHS facility for the costs of this care, holding the beneficiaries and the MCO harmless for such costs.
Tribally Owned and Operated Facilities and Medicaid Managed Care. Tribally owned and operated facilities face many of the same basic choices as IHS facilities with two important differences. First, the tribal facilities that qualify as FQHCs are given a special statutory protection until 2003. State Medicaid programs must include services provided by FQHCs in the benefits package they provide to all of their eligible beneficiaries. While states that contract with MCOs are not required to include FQHC services in those contracts, if they choose not to do so, they must then “carve out” this benefit from their contracts with MCOs and continue to pay for the services separately. The logistical problems associated with “carve out” arrangements provide a strong incentive for states to contract with MCOs directly for the provision of FQHC services.
Under the Balanced Budget Act, MCOs that subcontract with FQHCs must pay an FQHC at the same level and amount which they would pay any other provider for the same services. In addition, the Act requires state Medicaid programs to pay each subcontracting FQHC the difference between the payment it receives from the MCO and the payment it would receive under fee-for-service Medicaid (i.e., 100 percent of cost phasing down to 70 percent of cost by 2003). These protections expire on October 1, 2003.
The other option that tribally-owned or operated facilities may have that IHS facilities may not have is the legal capacity to assume financial risk, which is a prerequisite to becoming an MCO. In many cases, “638” facilities have a legal structure that allows them, under state law, to bear risk. Whether, as a practical matter, they have the necessary capital and technical capacity to do so, and whether it makes strategic sense for them to do so, will of course vary from case to case.
Urban Indian Facilities and Medicaid Managed Care. Urban Indian programs that provide primary care face major challenges. Many of them have historically been underfunded and require significant capital and technical assistance that will be difficult for the IHS to provide under current budget constraints. And, as discussed above, urban Indian health programs are not covered by the December 19, 1996 MOA, so that state reimbursement for the care they provide to Medicaid beneficiaries is matched by the federal government at the state’s regular matching rate rather than 100 percent as in the case of tribally-run programs. This will make it more difficult for urban Indian health programs to survive the phase-out of the “reasonable cost” payment protections for FQHCs.
The Balanced Budget Act prohibits states from mandating the enrollment of urban Indian Medicaid beneficiaries in MCOs or PCCMs unless the MCO or PCCM is an urban Indian health program. This in theory gives urban Indian programs the ability to negotiate exclusive enrollment agreements with state Medicaid programs. However, because urban Indian programs are generally small in scale, it is unlikely that many of them will be able to qualify as MCOs or PCCMs for this purpose. In most cases, the only practical option is likely to be subcontracting with one or more Medicaid MCOs or PCCMs. Because this subcontracting is optional with the MCO or PCCM, there is no assurance that urban Indian health programs will be allowed to affiliate with the MCO or PCCM at all, much less on terms that are favorable to the urban Indian organization.
Choices Under The New State Child Health Insurance Program: What Factors Shape Cost And Coverage?
January 1998
The State Children’s Health Insurance Program (CHIP), enacted as part of the Balanced Budget Act of 1997, provides over $20 billion in federal funds over five years to cover low-income uninsured children. This program gives states considerable flexibility in designing expanded health insurance coverage for children. The way states design their programs — use of Medicaid or a separate program, scope of benefits, how much families are charged in premiums — will make a considerable difference both to how many children the expansions actually cover and to the costs states incur. States’ design choices will, in turn, be influenced by how they expect various factors to affect both the number (and insurance status) of children that participate and the public costs for each participating child–the two components of an expansion’s total public costs. The purpose of this paper is to lay out these factors — first, those that affect participation; then, those that affect cost per participating child. The goal is to assist state decision-makers in evaluating their options and to enable the broader community to participate in the decision-making process.
How Many Children Will Participate?
Analysis of experience with private and public health insurance programs suggests that a number of design features will influence both how many and what kind (uninsured vs. previously insured, higher income vs. lower income) of children are likely to participate in a new public insurance program.
The income level a state chooses as the basis for eligibility defines the total number (or overall pool) of uninsured children in any state who may participate in the program. But not all children in this pool will choose to participate; some will not sign up and will remain uncovered. Similarly, and simultaneously, eligibility levels will define a pool of currently insured children with incomes below that level who may participate in newly available coverage. Here too, some, but not all, of these currently insured children will substitute the newly available coverage for their existing coverage — that is, the new public program will, to some extent, “crowd out” or substitute for private coverage. In addition, public attention and outreach related to a new program may encourage some children eligible for, but not participating in Medicaid to sign up for coverage.
How much families will have to pay, how easy it will be for them to enroll, and how valuable they perceive the benefits are all factors that will influence how many children actually enroll.
Premium Costs
The extent to which families take advantage of newly available subsidies for insurance will depend in large part on whether and how much they are expected to pay. Under CHIP, whether or not a state can charge depends on whether it relies on Medicaid to expand coverage or creates a new insurance program. If a state chooses a Medicaid approach, it cannot in most cases charge cost-sharing and premiums for children (consistent with current Medicaid law). If the state instead creates a new program, it may charge premiums subject to specific rules. For children with family incomes at or below 150% of poverty they may charge about $15.00 to $19.00 per month per family. They may charge higher premiums for people with incomes above 150% of poverty: up to a maximum of 5% of income for premiums and cost sharing combined. For example, if premiums were the only charge, the family cost would be just over $100 per month for a family of three with income of twice the poverty level, or $26,000.
Analysis of participation in Medicaid and private health insurance programs suggests that the cost of coverage to a family is an important determinant of whether or not they will enroll for coverage. Although higher premiums reduce participation across the income spectrum, the impact is likely to be greatest for families with the lowest incomes, where higher prices absorb a larger share of family income. When coverage is free, participation is similar regardless of income. Once there is a cost attached to coverage, participation drops off substantially, regardless of the uninsured families’ income level.
As shown in Figure 1, estimates are that if coverage is free and easy to obtain, an estimated 79% to 83% of uninsured children with incomes from poverty ($13,000 for a family of three) to twice the poverty level ($26,000) would participate. Even with what appears to be a relatively modest premium — about $17 per month or $200 per year (as allowed for children with incomes at or below 150% percent of poverty) — participation drops by an estimated 24 to 38 percentage points, depending upon the income group. Only 41% of the uninsured at poverty and 59% of those with incomes at twice the poverty level are expected to enroll, if the premiums for coverage is $200. At $600, participation for poor children is only expected to be 29%. Not surprisingly, higher premiums — over $50 per month or $600 per year (as allowed under a new program for children with incomes above 150% of the poverty level) — mean even lower rates of participation.
An additional analysis by the Urban Institute of state health insurance programs in Minnesota, Hawaii and Washington similarly found that higher premiums (measured as a share of income) significantly reduced the likelihood of participation. The higher the share of income required to pay the premium, the lower the participation for people eligible for coverage. While just over half (57%) of the eligible uninsured participated with premiums at 1% of income, only 18% participated with premiums requiring 5% of income.
CHIP allows (but does not require) states to impose premiums if they create a new insurance program. A premium will reduce participation, and the reduction will be greatest for the lowest income uninsured. The higher the premium, the greater these impacts will be.
Ease of/Barriers to Participation.
Even if a new program is free, the likelihood that families will participate will depend on how easy or hard it is to enroll in the program. The Urban Institute estimates that 83 percent of all people eligible for Medicaid participate in the program, with a substantially higher rate of participation for people receiving cash assistance. For children eligible only for Medicaid, participation rates have been significantly lower. Non-participation is generally attributed to the complexity or intrusiveness of the eligibility process — having to enroll in person at a welfare office (particularly when not eligible for cash assistance) and having to provide detailed documentation of income and resources.
Analysts think that families will be more likely to enroll in a new insurance program than in Medicaid, in part because of Medicaid’s historical tie to welfare and the complex eligibility determination process in most states. That outcome is more likely if the enrollment process for the separate program is simple (e.g., relying on mail rather than in-person application) and relatively uncomplicated (e.g., relying on modest rather than extensive documentation of resources). However, as many states have already demonstrated, the Medicaid eligibility process can be simplified, potentially overcoming historical reluctance to participate. Regardless of approach, a key factor in estimating participation is how simple or burdensome the enrollment process actually is.
Value of the Coverage.
Families’ willingness to participate in a new insurance program will depend in part on their perceptions of the value of the insurance being offered. Simply lowering the price of a policy is unlikely to enhance participation if the lower price is associated with lower value. “Value” may be understood as a function of the scope of benefits, level of cost-sharing, and the quality of participating providers.
Medicaid has a broad scope of benefits and limited cost-sharing, features which enhance its perceived value. However, to the extent that Medicaid pays providers and plans low rates and does not provide “mainstream” care, its value is likely to be discounted.
A new insurance program contracting with “mainstream” plans may be perceived as attractive relative to Medicaid, thereby promoting participation. However, this enticement to participation may be offset if the plan’s benefits are limited or, alternatively, its cost-sharing high. Similarly, Medicaid may look more attractive if it relies on “mainstream” plans that offer comprehensive benefits.
Crowd-out of Private Coverage.
Families with insurance, as well as families without insurance, will fall within the income eligibility levels that states establish. Among families with incomes below the poverty level, fewer than 20% have employer-sponsored insurance and only about three percent purchase non-group insurance.
By contrast, in families with incomes between 133% and 185% of the poverty level, just over half have employer-sponsored insurance and about five percent have non-group coverage. For these insured families, as for uninsured families, interest in participation will depend upon cost, barriers, and perceived value. However, currently insured families will make judgments about these factors on a relative basis — comparing what they are paying for and getting from their current insurance plans to what they can get under the new programs.
If the new coverage looks relatively attractive or is easy to get, currently insured families become more likely to substitute the newly available coverage for the coverage they have. For example, low-income families paying a substantial share of premiums in an employer-sponsored plan may find themselves able to obtain coverage at substantially lower out-of-pocket cost in the new program. This financial advantage, however, could be offset if participation in a new program entails a burdensome or intrusive eligibility process or requires a switch to plans perceived as offering lower quality care. Alternatively, if these families find that the new subsidies are easy to get and can be applied toward their employers’ plans, a substantial proportion of the currently insured population is likely to enroll in the new program. This would result in a shift in coverage and costs from private insurance to the new public program, with no increase in the number of children insured.
It is not entirely clear whether “crowd-out” is a good or bad thing. On the one hand, it is important to recognize that currently insured low income families who choose to take advantage of new coverage opportunities do so because it gives them financial relief or better coverage. This relief seems at least as legitimate as the relief recent legislation has provided self-employed families through tax preferences (with no evidence of expanded coverage). Further, denying one group of low income families a benefit awarded to others of similar income seems unfair, especially if the insurance coverage they have entails substantial financial sacrifice.
On the other hand, if dollars are limited, the more that subsidies are used by people who already have coverage, the less they are available to people who lack coverage, impeding achievement of CHIP’s major goal of expanding coverage of children. Even more important, if choices are made that make participation particularly attractive and easy for the already covered population (for example, by allowing the use of subsidies for employer-provided coverage), participation may be skewed in favor of this population and away from the uninsured. Particularly if premiums are charged, the already insured may participate at much higher rates than the uninsured, reducing the likelihood that CHIP will expand coverage for children.
The Urban Institute has estimated that almost two-thirds of the children participating in CHIP will be newly insured, with the other third replacing their previous coverage with coverage under the new legislation. These estimates assumed that subsidies could not be applied to employer-based coverage (which may be possible with a waiver under CHIP). Estimates allowing the use of subsidies toward employer coverage (as in the House-passed version of children’s coverage) dramatically reduced the proportion of covered children who were newly insured.
States may make rules that will affect whether people with insurance will be able to participate (e.g., a requirement that a child be uninsured for a period of time before being eligible for CHIP). Rules will also determine whether the new subsidies can be used for employer plans. Both decisions — along with decisions about premiums, ease of enrollment, and value of coverage — will affect the degree to which “crowd-out” occurs.
Outreach.
The extent of effort at making people aware of the new program will also affect participation. Analysts generally believe that efforts to publicize the program and promote enrollment (particularly by reducing barriers through policies like presumptive eligibility) can enhance participation. Further, they believe that participation will be enhanced not only for newly eligible families, but also for families who are already eligible for Medicaid but not participating. An estimated two to three million uninsured children are believed to fall into this category.
States expanding children’s coverage under CHIP may, therefore, see increases in Medicaid participation for the poorest children at the same time they are pursuing expansions for children who are less poor. How much Medicaid participation rises will undoubtedly be a function of how aggressively and to whom the new program is marketed.
Capped Program Versus an Entitlement.
While the factors described above will affect the number of children who want to participate in a program of expanded health coverage, the amount of federal and state resources available will determine the number of children who can participate. States choosing to expand coverage through a new program may place a cap on the number of participants in the program, while those using Medicaid must provide coverage to any child who is determined to be eligible (i.e., an individual entitlement).
For a state, developing a capped program provides greater predictability in expenses over time. However, it also means that if needs are greater than expected (e.g., the number of uninsured children rises), the resources may not be there to deal with those needs. Under Medicaid or a stand-alone program, the federal government will match state payments under CHIP at a higher rate than they do today under Medicaid, up to a fixed allotment per state. However, under a Medicaid expansion, the federal government would continue to match state expenses — at the normal Medicaid matching rate — even after a state’s allotment of federal CHIP funds were exhausted.
If a program is capped, it may also be important to pay extra attention to issues of crowd out and outreach, in order to assure that limited dollars and coverage are targeted to those with the greatest needs (e.g., children who are uninsured and lowest income).
Estimating Participation.
Predicting how many children, newly insured and previously insured, will actually participate as states expand coverage requires judgments or assumptions about how much impact these various factors will have and how they will interact. For families without insurance, estimators start with a schedule of participation rates (based on observed experience) showing the probability of participation for families without insurance, given premiums as a share of income. These rates are then adjusted to reflect program barriers to participation (for example, enrollment at a welfare office is assumed likely to reduce participation) and the value of coverage (for example, Medicaid-only providers or high deductibles will likely reduce participation). For families with insurance, estimates of who will participate are based on the degree to which families’ enrollment in the new program would lower their out-of-pocket premium costs. If families can get these benefits and stay in their current plans, e.g., by getting a voucher, most are assumed likely to participate. If not, only a modest share is assumed likely to shift to subsidized plans.
What Are The Public Costs Per Covered Child?
As with participation, the question of costs per covered child will be answered differently depending on the choices states make. First and foremost, each state faces the choice of relying on its pre-existing Medicaid program or creating a new program to provide coverage. Imbedded in this choice are decisions about benefits, payments to providers or plans, and administrative investments and expenses. Although, in theory, a state could build its coverage expansion on Medicaid and label it a new program, in practice a new program is likely to reflect a desire to do things differently. Hence, the choices and the cost experience are likely to be different.
Actuarial analysis illustrates both the way various factors will affect costs per covered child in a Medicaid approach as compared to a new program, and how such costs should be estimated.
Benefits.
Under a Medicaid expansion approach for covering uninsured children, federal rules specify that the benefits must be the same as those provided to other Medicaid beneficiaries. Under a separate state program, the federal rules specify that the benefits must be at least as generous as one of three “benchmark” private insurance packages described in the law: the standard Blue Cross/Blue Shield package provided to federal employees, a plan offered to state employees, or the most common benefits package offered by an HMO in the state.
Although there may be variation across states, in general it is likely that the benefits provided through Medicaid are more comprehensive than those in the “benchmark” private packages. For example, Medicaid programs are required to provide Early and Periodic Screening, Diagnosis and Treatment (EPSDT) services, some of which are uncommon in private insurance packages. EPSDT provides a wide range of screening and preventive services, as well as other care identified by a screening exam as necessary.
In choosing Medicaid rather than a new program, then, states are opting for a more expansive and expensive benefit package (all else being equal).
Payment Rates for Providers and Health Plans.
Although somewhat constrained by federal requirements, states have historically established Medicaid fee-for-service and capitation rates on a “take it or leave it basis.” State Medicaid programs have generally been able to attract providers and plans at below-market rates because they are such large purchasers (though in some cases beneficiaries may not have access to a full range of mainstream providers because they are unwilling to participate). Flexibility in setting rates has been enhanced by the Balanced Budget Act, so states will likely be able to continue to pay below-market rates to providers.
In theory, a state could employ a similar approach to a new insurance program for children — using the same plans Medicaid uses and dictating rates. However, if states choose a new program, implicit in that choice may be a decision to use an alternative approach. And, since a stand-alone program will cover fewer people than Medicaid, the state’s purchasing leverage will be more constrained. Under the private insurance approach adopted by California, for example, health plans are free to submit premium bids. This approach would presumably lead to premium levels more similar to those found in the private insurance market, and therefore higher per capita costs than under an expanded Medicaid program.
Administrative Costs.
Regardless of whether a state chooses to rely on Medicaid or develop a new program, administrative costs are likely to be a significant portion of overall program costs. That is because medical service costs for children are significantly lower than the costs for an adult population, while administrative costs per enrollee are similar. For example, if the administrative costs for an adult insurance policy were 15% of the overall premium and the cost of health services for a child were one-third of the cost for an adult, then administrative costs for a child-only insurance policy could be as high as 35% of the overall premium.
Administrative costs will vary with a state’s approach. Because Medicaid has an existing administrative infrastructure in each state, there should be minimal start-up expense for expanding coverage under that program. In addition, extra administrative costs should be on a “marginal” rather than “average” cost basis. In other words, while certain costs associated with processing more applications and claims may go up (e.g., more eligibility workers may be needed), many fixed costs should remain the same. In an analysis of the cost of covering uninsured children in California commissioned by the Kaiser Family Foundation, the Actuarial Research Corporation estimated that the Medicaid administrative cost for each newly covered child would be 60% of the current per child administrative cost (plus a small additional amount for new functions to be performed by the state).
The administrative costs of a new state program will likely be higher than under Medicaid. Significantly, the costs would be on an “average” rather than “marginal” cost basis, since there is no existing infrastructure on which to build. The administrative costs associated with non-group insurance (i.e., where insurance is sold directly to individuals or families rather than through employers) are generally in the range of 15 to 20% of benefits for adults and families (and could be two to three times higher than this for children-only insurance policies). While much of these expenses are for marketing — which could be reduced if a state used a purchasing pool structure that eliminated direct marketing, as under a recently-enacted program in California — it is also quite expensive to collect monthly premium payments from individual families (if they are required).
Adverse Selection.
Under either a Medicaid or a private insurance approach, costs per capita will be higher if families whose children are sick and more likely to need coverage, comprise a relatively large proportion of participants. This is often referred to as “adverse selection.” If all eligible children enroll in the program, then there will be, by definition, no adverse selection. Therefore, the extent of adverse selection will depend on how attractive the new program is and how easy it is to enroll.
No matter how unattractive a program is, the sickest children will likely enroll because coverage of any kind is very important to them. But, if enrollment in the program is difficult, the sicker children may not be joined by a large number of relatively healthy and less expensive children. This low participation rate of healthier children will lead to higher costs per covered child.
Estimating the Costs Per Capita.
It is reasonable to estimate the per capita cost of alternative approaches to covering uninsured children based on the current costs of Medicaid and private insurance, respectively. However, because the cost of covering currently uninsured children may differ from the costs found in existing programs, certain adjustments may be required.
Medicaid currently covers a broad range of children, many of whom have health needs that are very different from those children who are currently uninsured. For example, some children become eligible for Medicaid because they are sick and have incurred high medical expenses. The per capita costs of these children are not likely to be reflective of the costs of the currently uninsured, who are believed to be of roughly “average” health.
Instead, the population of children receiving Medicaid and welfare cash assistance together are likely to be the group most similar to children eligible for an expanded program, since they are not necessarily receiving assistance because they are sick. Similarly, it may be appropriate to exclude the cost of expensive conditions found in infants (e.g., for neonatal intensive care), since most low-income infants with expensive health conditions are probably already being covered through Medicaid.
By contrast, when using the cost of existing private insurance programs to estimate the per capita cost under a new program for children, an upward (rather than downward) adjustment may be necessary. For example, some health plans now offer child-only insurance policies on a non-group basis, but in most states that coverage is subject to “underwriting,” meaning that plans may charge higher premiums to children who are sick or exclude them from coverage altogether. Since federal rules do not permit such underwriting under CHIP, these current private sector premiums would have to be adjusted upward to reflect the cost under a new state program.
In an analysis prepared for the Kaiser Family Foundation, the Actuarial Research Corporation estimated how the cost per child under a Medicaid expansion would compare with a stand-alone private insurance program for uninsured children in California (Figure 2).
The analysis found that creating a new private insurance program to cover all of the estimated 580,000 low-income uninsured children in California — assuming no adverse selection — would cost $74.39 per month (including an average per family premium contribution of $8.00). Covering uninsured children through Medicaid would cost 18% less than the private insurance approach ($60.65 per child).
Conclusion
The cost of a new health coverage program for children will depend on a variety of factors, influencing both how many children participate and the cost of coverage per child. Thoughtful assessments of costs require a clear articulation of what these factors are, a review of the evidence on their likely effects, and, in light of this evidence, judgments about their impact. Even careful estimates, well-grounded in evidence, cannot give us certainty about results. But they allow us to compare and evaluate how the effects of different policy choices will vary. The better all parties understand the dynamics of cost estimates, the greater the likelihood that decisions will be based on informed analysis rather than predispositions.
Methodology
This policy brief was prepared for for the Kaiser Commission on the Future of Medicaid by Judith Feder from Georgetown University and Larry Levitt from the Kaiser Family Foundation. The information in this policy brief draws heavily from analysis by researchers at Georgetown University and The Urban Institute for the Kaiser Family Foundation’s Incremental Health Reform Project. It also draws from the Actuarial Research Corporation’s estimates of costs of covering uninsured children in California, commissioned by the Foundation. For additional information on the State Children’s Health Insurance Program or other Kaiser Family Foundation publications, please call the publications request line at (800) 656-4KFF.
En encuestas anteriores, la atencion se ha concentrando en captar las impresiones de la poblacion general, incluyendo sus opiniones sobre la epidemia; su preocupacion personal en cuanto a infectarse con el VIH; sus conocimientos sobre la transmision, curso y tratamiento del VIH y el SIDA; sus experiencias con la prueba de anticuerpos; su punto de vista sobre los esfuerzos nacionales y locales para detener la epidemia; y sus fuentes de informacion sobre el VIH/SIDA. En este informe, presentamos en primer lugar los hallazgos de la muestra general de encuestas a latinos, para despues considerar en detalle a varios subgrupos de latinos.La Encuesta de Kaiser Family Foundation sobre Latinos y el VIH/SIDA esta concebida para informar y estimular un mayor dialogo acerca del VIH/SIDA en las comunidades latinas para proporcionar una mejor comprension de las perspectivas que los latinos tienen en cuanto al VIH/SIDA y a todos aquellos que trabajan para reducir los costes sociales, economicos e individuales de la epidemia del SIDA.
Report: Encuesta Nacional sobre los Latinos y el VIH/SIDA
