Small premium increases can have big impact, Medicaid study shows
A look at cost-sharing changes in Michigan's Medicaid program shows just how sensitive consumers can be to price changes.
An analysis of Medicaid premiums in Michigan found that even small premiums could cause low-income enrollees to drop out of the health insurance program.
The study, released by the National Bureau of Economic Research (NBER), looked at enrollee cost-sharing in Michigan, a state that increased Medicaid premiums in 2014 when it expanded its Medicaid program as part of the Affordable Care Act (ACA).
Michigan was one of several states controlled by Republican lawmakers who sought to link Medicare expansion to higher cost-sharing by enrollees. “Proponents of these provisions argue cost-sharing will promote personal responsibility among Medicaid enrollees and encourage them to make better decisions about their health care,” the study’s authors noted.
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However, the NBER analysis found that even small increases in premiums led to higher rates of disenrollment, especially among healthy people.
The Healthy Michigan Plan
The report noted that after the passage of the ACA, some states declined to expand Medicaid, but other states expanded the program with certain waivers. Michigan was one of the first cases of a state increasing its cost-sharing with Medicaid expansion. The program required premium contributions from enrollees with incomes at or above the federal poverty level (FPL). The premium contributions could be as high as 2% of monthly income, and co-payments for certain services were required, regardless of income.
This equaled about $20 a month for enrollees with incomes just over the FPL. The amount might not seem like a lot, but for Medicaid enrollees making under $17,000 a year, it was enough to be a disincentive to participation in the program. As a result, the researchers said, there was a 13% drop in enrollment linked to the imposition of premiums.
“Our main estimate finds each $1 in additional premiums causes a 0.7 percentage point drop. Given a churn of 20% just below the FPL threshold and an average increase of $3.72 in premium amount at the FPL, our elasticity estimates demonstrate that in this program the imposition of premiums increases attrition by a relative 13%,” the study said.
The researchers noted that there are a range of variables that could affect such estimates, and that the more health issues an enrollee had, the less likely they were to drop out of the program. In other words, healthier enrollees were less likely to see the value of paying the higher premiums, and more likely to drop out. This had implications for the risk pool that remained on Medicare health plans.
Short-term savings for states, but in the long run…?
The report also concluded that the imposition of premiums on Medicaid enrollees actually accomplished one of the goals of lawmakers—lower government spending.
“Because the premium amounts are lower than average expenses even for relatively healthy disenrollers, the short-run effect of this policy would be expected to yield savings for public budgets, particularly the federal and state budgets for Medicaid expansion,” the report said. So, although the state loses the income from premiums, it comes out ahead by not having to pay medical expenses for those who drop out.
However, the researchers added, there may be factors that aren’t accounted for in the study’s numbers. For example, there might be costs incurred by non-enrollees who end up using other government programs (state subsidies to hospitals for charity care could be one example).
“More research following those who disenroll from Medicaid due to premiums is needed to fully understand the experiences of these disenrollers and subsequent fiscal consequences,” the study said. “If those who disenroll continue to use medical services subsidized by the state or federal governments, the cost savings may be lower than expected or non-existent.”
In addition, the loss of some low-income residents from Medicaid could have a long-term negative impact on the stability of Medicaid programs, the researchers said.
Overall, they write, more research is needed on the effect of cost-sharing in Medicaid health care plans. “This study represents the Medicaid cost-sharing experience of one early-adopting Medicaid expansion state, which may limit its generalizability,” the report said. “Nonetheless, we believe our results show the potential for increased disenrollment in low-income populations with even modest premiums. States should be aware of this effect and of the potential for adverse selection when making policy decisions about enrollees’ cost-sharing responsibilities.”
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