HD25 - Cost-Sharing Proposals for Virginia's Medicaid Program


Executive Summary:
In 2004, the General Assembly placed language in the Appropriations Act (Item 326 EEE) directing the Department of Medical Assistance Services (DMAS) to implement a plan of increase cost sharing for recipients of the Medicaid program through enhanced copayments. The uses of copayments are believed to reduce the cost of public healthcare in two ways. First, by requiring a large number of recipients to pay slightly more for the services they receive, significant aggregate savings can be realized for the Commonwealth. Second, proponents of greater cost sharing for Medicaid recipients contend that such strategies discourage participants from purchasing unnecessary care, thereby lowering utilization and slowing the rate of growth in public healthcare spending.

Based on federal law and within the prescribed regulatory framework governing the administration of cost sharing for Medicaid, Virginia charges standard (fixed) copayments for eight different services. Based on the state’s average daily payment, recipients are typically charged between $1.00 and $3.00 copayments depending upon the services they receive.

There are a number of changes that can be made by DMAS to the State’s Medicaid copayment policies that would generate savings for the Commonwealth. However, it is important to note that not all of the available options can be easily implemented. Moreover, some others lack the necessary probity that should be associated with healthcare policy for the poor and disabled. This in mind, DMAS recommends several changes to the State’s existing policy for its fee-for service Medicaid recipients (see table). It is estimated that these changes will produce more than $308,000 in annual savings to the State’s general fund.


Medicaid Service.................Co-payment.......*Annual................General Fund
............................................Amount............Savings..................Savings

Durable Medical Equipment.........$1.00........$282,903...................$141,451
Inpatient Hospital Stays..............$3.00..........$17,649.......................$8,825
Clinic Visits.............................**$2.00..........$39,235.....................$19,618
Vision Screenings....................**$2.00..........$14,157.......................$7,079
Outpatient Psychological Care....$2.00...........$28,030.....................$14,015
Lab and X-rays...........................$1.00.........$235,718...................$117,859

Total Savings................................X.............$617,692...................$308,846

Note:
*The savings reported in this table have not been offset by the administrative cost that will be associated with implementing these changes. Also, as noted in the report, it is unlikely that providers will be able to collect the increased co-payments from a majority of Medicaid recipients. **This represents a $1.00 increase over existing co-payments presently required for these services.

DMAS plans to generate the additional savings required by the General Assembly by imposing co-payments on recipients who receive their care through Health Maintenance Organizations (HMO). However, because of the length the State’s existing HMO contracts, this policy change will not take effect until FY 2006.

Notwithstanding the proposals presented in this report, it should be noted that there is a growing body of research that calls into question the effectiveness of cost-sharing policies as a means of lowering healthcare cost for low-income individuals. Rather than limit the consumption of unnecessary care, cost-sharing policies have been found to suppress access to important preventive and diagnostic healthcare, thereby raising the long-term cost of healthcare for the poor. Findings of this nature argue for prudence in the application of copayments in the Medicaid program.