For many years, states have used Medicaid funding to purchase private health insurance for Medicaid beneficiaries as an alternative to providing coverage directly through the state Medicaid program. This approach, known as premium assistance, typically has been used to help people eligible for Medicaid afford the premiums for employer-sponsored insurance and has been a relatively small component of state Medicaid program enrollment prior to the Affordable Care Act (ACA). Since 2014, some states seeking alternative ways to implement the ACA’s Medicaid expansion have been interested in expanding Medicaid premium assistance programs to cover more beneficiaries and adopting new models to purchase coverage in the individual market. 1 These initiatives can be informed by an understanding of how pre-ACA premium assistance programs are working, particularly regarding so-called “wrap-around” benefits and cost-sharing protections, which states generally must provide to supplement the private coverage and make it comparable to Medicaid.
This issue brief examines states’ approaches to administering wrap-around benefits and cost-sharing in long-standing Medicaid premium assistance programs and the information available to beneficiaries about how to access these program features. We sought to collect updated data and ascertain what states considering premium assistance in the Medicaid expansion context could learn about wrap-around benefits and cost-sharing based on long-standing premium assistance programs. We present findings based on data from our survey in 2014 of eight states that had previously reported spending dedicated to premium assistance wrap-around benefits. The states include Alabama, Louisiana, Nevada, Rhode Island, Texas, Utah, Vermont, and Wisconsin. We identified these states because they had reported such spending in 2009 in a Government Accountability Office (GAO) report. 2 Of the 45 premium assistance programs in 37 states in the GAO report, nine states reported spending for wrap-around benefits. Of these, we excluded Virginia because its premium assistance program is limited to CHIP beneficiaries and only provides wrap-around benefits for immunizations. Since our survey, Vermont has discontinued its program, and Louisiana recently announced that it intends to discontinue its program as of December 1, 2015.
We supplement our analysis by examining these states’ written materials designed to inform beneficiaries about premium assistance coverage. We asked state officials to share these materials and accessed others online at the states’ websites. We did not receive written beneficiary materials from Vermont, and were unable to access materials online as its program was discontinued in 2014; we did receive a limited response to our survey on some of the spending questions. The brief ends with a discussion of post-ACA premium assistance programs.
State options to use premium assistance to purchase private coverage for Medicaid beneficiaries predate the ACA. 3 The most common form of Medicaid premium assistance is the use of Section 1906 authority to purchase private group insurance with Medicaid dollars, authorized in 1990. 4 These programs are commonly referred to as Health Insurance Premium Payment (HIPP) programs. If premium assistance for group coverage is deemed cost-effective by the state, relative to the cost of providing Medicaid coverage directly, beneficiaries may be required to enroll in Section 1906 premium assistance programs. While these programs can be implemented through a state plan amendment, some states operate premium assistance programs with similar features through Section 1115 demonstration authority. Because relatively few Medicaid beneficiaries have access to employer-sponsored or other private group health insurance, these premium assistance programs have remained small. 5
In addition to subsidizing group coverage, the Centers for Medicare and Medicaid Services (CMS) has used Section 1905(a) to authorize Medicaid premium assistance for individual market coverage. 6 Prior to the ACA, Medicaid beneficiaries’ access to individual market coverage was limited because the cost was often unaffordable, and insurers could deny coverage based on pre-existing medical conditions. The creation of the Marketplaces under the ACA has generated new interest among some states in using Medicaid as premium assistance for individual market coverage, and in 2013, CMS released regulations and guidance for such programs. 7 Enrollment in Section 1905(a) premium assistance programs is voluntary, unless the state obtains Section 1115 demonstration authority from CMS to make enrollment mandatory; in such cases, states must offer beneficiaries a choice of at least two health plans. 8
Medicaid serves people with low incomes and who often have greater health care needs relative to other populations. In light of these characteristics, federal Medicaid law contains minimum benefit standards and maximum cost-sharing limitations. Private insurance typically offers fewer benefits than Medicaid does. 9 Certain Medicaid services, most notably non-emergency medical transportation, usually are not covered by private insurance, and some private plans may have more restrictive limits on prescription drugs and other services, such as physical therapy, than are available to adults under Medicaid. In addition, private coverage for children is almost certainly less extensive than Medicaid as Medicaid’s Early Periodic Screening Diagnosis and Treatment (EPSDT) benefit requires states to cover any services “necessary. . . to correct or ameliorate. . . physical and mental illnesses or conditions. . . .” 10 A service that is not covered by private insurance is likely unattainable for people with low-incomes if it is not available through the Medicaid benefit package and therefore must be paid out-of-pocket. Medicaid also limits beneficiaries’ cost-sharing obligations to nominal amounts for adults with income below the federal poverty level and generally prohibits cost-sharing for children, 11 while private insurance is likely to have cost-sharing obligations in excess of Medicaid limits. For people with low incomes, a body of research has established that cost-sharing creates a barrier to accessing needed services. 12
Given the characteristics of the Medicaid-eligible population, federal law generally requires states using premium assistance to provide wrap-around benefits and cost-sharing protections so that Medicaid beneficiaries receiving private coverage will not have access to fewer benefits or pay higher out-of-pocket costs when private coverage fails to meet Medicaid’s level of coverage or is more expensive. 13 States need waiver authority from CMS to limit wrap-around benefits and cost-sharing protections. A small number of pre-ACA premium assistance programs operate under such waivers; these programs may have expanded coverage to populations who were otherwise ineligible for Medicaid and include fewer benefits and/or higher cost-sharing. As of 2014, the ACA provides authority for states to cover nearly all adults without a waiver as full Medicaid beneficiaries with enhanced federal matching funds.
Consistent with the ACA’s coverage expansion, CMS’s 2013 regulations governing individual market premium assistance specify that beneficiaries must be provided with the same benefits and cost sharing protections that they would have had under traditional Medicaid. 14 The preamble to the regulations confirms that “[u]nder all premium assistance arrangements, Medicaid and CHIP-eligible individuals remain Medicaid or CHIP beneficiaries and continue to be entitled to all Medicaid/CHIP benefits and cost sharing protections.” 15 Additional guidance issued in light of state interest in alternative Medicaid expansions using Marketplace premium assistance requires states to provide wrap-around benefits and cost sharing protections to “ensure that coverage is seamless [and] that cost-sharing reductions are effectively delivered.” 16 CMS’s regulations and guidance do not prescribe the specific methods that states must use but rather confirm that “states have the flexibility to determine how best to meet these cost-sharing and benefit responsibilities.” 17
The costs of providing wrap-around benefits and cost-sharing protections must be included when determining whether Medicaid premium assistance programs are cost-effective. 18 States generally cannot use premium assistance unless the cost is comparable to the cost of providing direct coverage through state’s Medicaid program. In addition to the cost of wrap-around benefits and cost-sharing protections, cost-effectiveness determinations also must include the cost of administering premium assistance programs. 19
The GAO identified 47 Medicaid and CHIP premium assistance programs in 39 states in 2009, and received survey responses from 45 programs in 37 states. 20 Overall, enrollment in premium assistance programs is relatively small. Among the states reporting spending dedicated to wrap-around benefits, 2009 enrollment ranged from six beneficiaries in Alabama to nearly 8,700 in Texas. The GAO found that at least eight states target their premium assistance programs to people with high health care costs such as pregnant women, premature or low birth-weight infants, or people with HIV/AIDS, diabetes, or cancer. 21
The GAO noted that “a reported issue with premium assistance programs is that there may be disparities in the benefits and cost-sharing protections offered to enrollees in such programs compared with those in direct coverage.” 22 The GAO also identified some potential advantages of premium assistance programs, such as helping families transition to private coverage, expanding coverage to family members who are ineligible for Medicaid or CHIP, and supporting the private insurance market. It also notes that while premium assistance programs could generate cost savings by leveraging employer contributions, these programs may be more expensive than direct coverage through states’ Medicaid and CHIP programs. 23
Few premium assistance programs reported spending dedicated to wrap-around benefits or cost-sharing protections in 2009. Nine of the 36 programs that provided at least some wrap-around benefits reported the dollar amount spent for those benefits. 24 Four of the 34 programs that paid at least some cost-sharing (including copayments, coinsurance, and deductibles 25 ) reported the dollar amount spent for wrap-around cost-sharing. 26 Thus, limited data are available to assess state spending on wrap-around benefits and cost-sharing protections in Medicaid premium assistance programs.