TO: Interested parties

FR: Georgetown Center for Children and Families

DT: March 31, 2008

RE: Premiums for Children’s Medicaid Coverage (Rite Care/Rite Share) in Rhode Island

Background: Research has shown that premiums in Medicaid and SCHIP (Rite Care/Rite Share in Rhode Island) depress enrollment because of the financial burden they impose on low-income families, potentially increasing the number of uninsured children. Because of these burdens, federal Medicaid law prevents children with incomes under 150% of the federal poverty level (FPL) from being charged premiums -- a state must obtain a Section 1115 waiver from the federal government to do so. Premiums can also increase public costs in a number of ways.

Premiums in Medicaid and SCHIP programs are usually determined relative to income, that is, on a sliding scale. According to a survey of Medicaid and SCHIP programs, as of January 2008, no state imposes premiums for children below the federal poverty level (FPL) and only ten states impose premiums for children below 150 percent of the FPL (see Figure 1). Rhode Island currently begins charging premiums at 150 percent of the FPL and has the highest premiums for children’s coverage among Northeast states (see Table 1).

A. Premiums in Medicaid and SCHIP have been shown to reduce enrollment. In a study of Medicaid expansions during the 1990’s, a premium set at one percent of family income was estimated to reduce enrollment by 15 percent, and the higher the premium the fewer families enroll.[i] A study of premiums in SCHIP estimates that a $10 increase in monthly SCHIP premiums will induce 10 percent of enrolled children to disenroll.[ii] In fact, new or increased premiums in public programs have been shown to reduce enrollment or increase/hasten disenrollment, especially for children in lower-income families in a number of SCHIP programs across the country.[iii] Furthermore, research has consistently shown that children are likely to become uninsured when they lose/leave public coverage.[iv]

·  Oregon saw adverse effects on enrollment when it imposed premiums in Medicaid. In February 2003 Oregon redesigned its public coverage for non-elderly adults with income below 100 percent of the FPL (called OHP Standard) by reducing benefits and increasing premiums and cost sharing. OHP Standard’s new cost sharing policies included expanded copayments, increased premiums, a six month lock out period for premium non-payment, and elimination of premium waivers for special populations (such as homeless people or those with zero income). Premiums were $6 to $20 per person, and with other cost sharing changes were shown to have a negative and rapid impact on health care coverage, access, and utilization.[v] Within six months of the program changes, nearly half of OHP Standard enrollees lost coverage, two-thirds of who became uninsured. In addition, most of those who lost coverage reported having unmet health care needs, and almost three-quarters cited cost as the main barrier.[vi] Eighteen months after the changes, two-thirds of OHP Standard enrollees had lost coverage, most of who experienced gaps in coverage of six months or longer, and one-third who were uninsured.[vii]

·  Even small premiums lead to disenrollment. In July 2004, Arizona introduced premiums in KidsCare of $10 per month for one child and $15 per month for two or more children for families with incomes at or below 150 percent of the FPL (children ages 6–18 with incomes between 101 and 150 percent of the FPL and children ages 1–5 with incomes between 134 and 150 percent of the FPL).[viii] Following the premium increase, the rate of disenrollment increased by 38 percent (the rate of disenrollment within the first three months after the new premium increased 45 percent). Disenrollment because of administrative reasons (including premium nonpayment) became more common in the now premium-paying categories after the new premiums were implemented. Furthermore, children with income between 101–150 percent of FPL were 10 percent less likely to re-enroll in KidsCare after the implementation of the new premium.

B. Premiums in Medicaid/SCHIP have the potential to increase public costs. As Medicaid/SCHIP disenrollment contributes to an increase in the uninsured, public costs may increase as care is shifted away from ambulatory care settings and towards more costly emergency department and hospital inpatient settings. For example, one study found that a $10 increase in monthly SCHIP premiums will induce 10 percent of enrolled children to disenroll and raise public expenditures by six percent,[ix] and another study found that a 10 percent disenrollment in Medicaid/SCHIP would increase the costs of health care in the community by $2,121 for each disenrolled child.[x] Another study found that decreases in Medicaid/SCHIP enrollment are associated with an increase in emergency department use among the uninsured.[xi] Additionally, premiums may induce healthier families to disenroll from the program at higher rates, resulting in a phenomenon known as “adverse selection,” which can increase the cost of serving children left in the program.[xii] Finally, by increasing or expanding premiums, the state will bear some administrative costs to collect and process premium payments from families -- these state costs can exceed revenues collected from premiums.

·  Florida rescinded a premium increase after seeing these kinds of effects. In July 2003 Florida increased KidCare premiums from $15 to $20 per family per month, but rescinded the increase for families with incomes below 150 percent of the FPL by October 2004.[xiii] For children between 101-150 percent of the FPL, the relatively modest premium increase resulted in a 63 percent decline in the length of enrollment and a 36 percent increase in the chance of disenrollment.[xiv] After the premium increase, children with chronic conditions or special health needs were 8-17 percent less likely to disenroll than healthy children, suggesting that some adverse selection was occurring and a possible increase in per capita program costs for the remaining children.

·  Virginia realized it was administratively expensive to impose premiums. In the spring of 2002, Virginia discontinued charging premiums in FAMIS (Virginia’s SCHIP program) after it was determined that the administrative costs to the state of collecting a premium exceeded the amount of premiums collected.[xv] Specifically, the state spent $1.39 for every one dollar in premiums collected from families.

C. Low-income families have other significant expenses including health care. In addition to insurance premiums, families have other health expenses that may consume a significant portion of their income. For instance, one study found that families with incomes below 150 percent of the FPL and children enrolled in public insurance spent 4.5 percent of income on out-of-pocket health care costs (including premiums, copayments, and non-covered services).[xvi] The current premium in Rhode Island for a family of three ($61 per month) consumes 2.8 percent of monthly income for family at 150 percent of the FPL in 2008.

Health care is just one expense among a number of competing priorities in family budgets. Housing, utilities, child care, food, and transportation costs can take up a considerable portion of a family’s income, especially for low-income families. The cost of living in Rhode Island is about 24 percent higher than the national average,[xvii] further straining family budgets. Given the limited budgets of low-income families, many may be unable to afford coverage if Rhode Island imposes new premiums or raises premiums in Medicaid.

D. Low-income families will likely become uninsured if Medicaid/SCHIP premiums rise. Low-income families generally have less access to employer-sponsored insurance (ESI) than higher-income families. For example, among working families, only 53 percent of low-income children have parents whose employer offers health coverage, compared to 91 percent of higher-income children.[xviii] For families who do have access to ESI in Rhode Island, the Rite Share program has been a successful national model to help families access that coverage. Increasing Rite Share premiums would make coverage unaffordable for families and jeopardize the success the Rite Share program has had thus far. Given that the growth in the family contribution of ESI has far outpaced the growth in workers earnings,[xix] without Rite Share subsidies, families will likely be unable to afford any private coverage and as a result would become uninsured.

For more information, please contact Liz Arjun at the Georgetown Center for Children and Families at (202) 784-4576 or

Figure 1

Table 1: Children’s Medicaid/SCHIP Eligibility Levels & Premiums for a Family of Three with Two Children in Northeast States, January 2008
State / Children's Medicaid/SCHIP Eligibility Level / Income Level at Which States Begin to Require Premiums / Annual premium at 151% of the FPL / Annual premium at 200% of the FPL
Connecticut / 300% / 235% / $0 / $0
Maine / 200% / 151% / $192 / $768
Massachusetts / 300% / 150% / $288 / $288
New Hampshire / 300% / 186% / $0 / $600
New Jersey / 350% / 150% / $222 / $222
New York / 250% / 160% / $0 / $216
Pennsylvania / 300% / 201% / $0 / $0
Rhode Island / 250% / 150% / $732* / $924
Vermont / 300% / 186% / $0 / $180
* In Rhode Island, premiums between 150-185% FPL may include coverage for parents.
Notes: Premium levels for a family of three. Vermont covers uninsured children below 225% FPL in Medicaid and Uninsured children between 226-300% FPL through SCHIP; Underinsured children are covered up to 300% FPL in Medicaid; premiums are required in both Medicaid and SCHIP. In Massachusetts, children under six are exempt from premiums.
Source: D. Cohen Ross, A. Horn, & C. Marks, "Health Coverage for Children and Families in Medicaid and SCHIP: State Efforts Face New Hurdles," Kaiser Commission on Medicaid and the Uninsured (January 2008).

Additional Resources on Cost Sharing in Medicaid/SCHIP

S. Artiga & M. O’Malley, “Increasing Premiums and Cost Sharing in Medicaid and SCHIP: Recent State Experiences,” Kaiser Commission on Medicaid and the Uninsured (May 2005).

L. Ku & V. Wachino, “The Effect of Increased Cost Sharing in Medicaid: A Summary of Research Findings,” Center on Budget and Policy Priorities (July 7, 2005).

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[i] L. Ku & T. Coughlin, “Sliding Scale Premium Health Insurance Programs: Four States’ Experiences,” Inquiry, 36: 471-480 (Winter 1999/2000).

[ii] T. Johnson, M. Rimsza, & W. Johnson, “The Effects of Cost-Shifting in the State Children’s Health Insurance Program,” American Journal of Public Health, 96: 709-715.

[iii] G. Kenney, et al., “Effects of Public Premiums on Children's Health Insurance Coverage: Evidence from 1999 to 2003,” Inquiry, 43: 345-361 (2006); and G. Kenney, et al., “Effects of Premium Increases on Enrollment in SCHIP: Findings from Three States,” Inquiry, 43: 378-392 (Winter 2006/2007).

[iv] B. Sommers, “From Medicaid to Uninsured: Drop-out among Children in Public Insurance Programs,” Health Services Research, 40: 59-78 (February 2005); and J. Mitchell, et al., “What Happens to Children Who Lose Public Health Insurance Coverage?,” Medical Care Research and Review, 63: 623-635 (October 2006).

[v] M. Carlson, et al., “Short-Term Impacts of Coverage Loss in a Medicaid Population: Early Results From a Prospective Cohort Study of the Oregon Health Plan,” Annals of Family Medicine, 4: 391-398 (2006); J. McConnell & N. Wallace, “Impact of Premium Changes in the Oregon Health Plan,” The Oregon Office for Health Policy & Research (February 2004); and B. Wright, et al., “The Impact of Cost Sharing on Medicaid Enrollees,” Health Affairs, 24: 1106-1116 (2005).

[vi] M. Carlson & B. Wright, “The Impact of Program Changes on Enrollment, Access, and Utilization in the Oregon Health Plan Standard Population,” The Oregon Office for Health Policy & Research (March 2, 2005).

[vii] B. Wright & M. Carlson, “The Impact of Cost Sharing and Benefit Changes to the Oregon Health Plan Beneficiaries: Results, Two Years Later,” The Oregon Office for Health Policy & Research (November 2005).

[viii] G. Kenney, et al., “Assessing Potential Enrollment and Budgetary Effects of SCHIP Premiums: Findings from Arizona and Kentucky,” Health Services Research, 42: 2354-2372 (December 2007).

[ix] T. Johnson, M. Rimsza, & W. Johnson, “The Effects of Cost-Shifting in the State Children’s Health Insurance Program,” American Journal of Public Health, 96: 709-715.

[x] M. Rimsza, R. Butler, & W. Johnson, “Impact of Medicaid Disenrollment on Health Care Use and Cost,” Pediatrics, 119: e1026-e1032 (May 2007).

[xi] P. Cunningham, http://content.healthaffairs.org/cgi/content/full/25/1/237

[xii] E. Shenkman, et al., “Disenrollment and Re-enrollment Patterns in SCHIP,” Health Care Financing Review, xx: x-x (Spring 2002); and R. Stein, et al., “Health of Children in Title XXI: Should We Worry?,” Pediatrics, 112: e112-e118 (2003).

[xiii] E. Shenkman, “Healthy Kids Program Changes in State Fiscal Year 2003-2004 Associations with Enrollee Case-Mix, Health Care Expenditures, and Disenrollment,” A Report to the Healthy Kids Corporation (November 2004).

[xiv] J. Boylston Herndon, et al., “The Effect of Premium Changes on SCHIP Enrollment Duration,” Health Services Research, early release? (2007).

[xv] Virginia Department of Medical Assistance Services memo, (May 15, 2002).

[xvi] S. Zuckerman & C. Perry, “Concerns about Parents Dropping Employer Coverage to Enroll in SCHIP Overlook Issues of Affordability,” Urban Institute (October 1, 2007).

[xvii] ACCRA Cost of Living Index, First Quarter 2007 (May 2007).

[xviii] L. Clemens-Cope, et al., “Access to Employer-Sponsored Health Insurance Among Low-Income Families,” Urban Institute (September 2007).

[xix] Kaiser Family Foundation/HRET, “Survey of Employer Health Benefits, 2007,” (September 2007).