ABA Health eSource
January 2009 Volume 5 Number 5

T he Medicaid Premium and Cost Sharing Rule or Medicaid Flexibility Rule
By Priscilla Keith, Health and Hospital Corporation of Marion County, Indianapolis, IN

AuthorThe Centers for Medicare and Medicaid (CMS) issued a final rule implementing the provisions of sections 6041, 6042, and 6043 of the Deficit Reduction Act of 2005 (DRA) and section 405(a)(1) of the Tax Relief and Health Care Act of 2006 (TRHCA). 1 The final rule, known as the Medicaid Premium and Cost Sharing Rule or Medicaid Flexibility Rule, was published in the November 25, 2008 Federal Register and takes effect January 26, 2009. 2 These sections amended the Social Security Act (the Act) by adding a new section, 1916A, to provide State Medicaid agencies with increased flexibility to impose premium and cost sharing requirements on certain Medicaid recipients, specifically addressing the use of non-preferred drugs and non-emergency care furnished in a hospital emergency department. 3 The States’ existing authority to impose premium and cost sharing is found in section 1916 of the Act. 4 The amended rule closely follows what is allowed under SCHIP.

States have been asking for this type of flexibility for a long time. The alternative cost sharing is part of a series of regulations implemented by CMS to allow States to modernize their Medicaid programs. 5 The Congressional Budget Office (CBO) projects that the states will collect $1.3 billion dollars in co-pay revenue with a projected savings of $1.4 billion for the federal government and $1.1 billion for States. 6 The higher co-payments will allow states that are dealing with high Medicaid costs to rein in those costs.

While advocates of the Medicaid Flexibility Rule laud the projected savings and the States’ flexibility to provide service, some public health experts contend that many people will delay or forego needed care as a result of the higher co-payment requirements. 7 Moreover, public health experts assert that “it is a tremendous break with the past in terms of what low-income people are expected to pay for their healthcare.” 8 Even CMS admits that a delay in getting care could result in higher costs overall, poorer health outcomes for beneficiaries, barriers to access to care, shifts in costs to providers, and higher rates of uninsured. 9

This article provides a brief summary of the requirements contained in the final rule for alternative premiums, cost sharing, and protections and/or exemptions from the requirements,

I. Alternative Premium, Enrollment Fees or Similar Fee Requirements.

When a State Plan imposes alternative premiums, enrollment fees or similar fees, it must include the following:

  • The group or groups of individuals subject to the premiums, enrollment fees or similar
  • charges.
  • The methodology used to determine the family’s income. States may also use a different methodology for determining the aggregate limits than they do for determining income eligibility.
  • The aggregate amount imposed for all individuals in the family, which may not exceed 5% of the family income of the family involved.
  • A notice to the individual describing the time and manner of required premium payments. It should also outline the consequences for an individual who does not pay.
  • The ability to terminate an individual from medical assistance on the basis of failure to pay for 60 days or more. Alternatively, it may waive the payment of the premium if it determines that requiring payment would impose a hardship.
  • The schedule of the premiums, enrollment fees or similar fees for a group or groups of individuals. 10

II. Exceptions to the Alternative Premium, Enrollment Fees or Similar Fee Requirements.

 A State may not impose alternative premiums upon the following groups or groups of individuals:

  • Individuals under 18 years of age who receive medical care.
  • Pregnant women.
  • Terminally ill patient receiving hospice care.
  • Women who are receiving Medicaid on the basis of the breast or cervical cancer eligibility group.
  • Disabled children who are receiving medical assistance because of the Family Opportunity Act.
  • Any individual who is an inpatient in a hospital, nursing facility, intermediate care facility, or other medical institution, if the individual is required, as a condition of receiving services in that institution under the State Plan, to spend for costs of medical care all but a minimal amount of the individual’s income required for personal needs. 11

III. Alternative Co-Payments, Co-Insurance, Deductibles, or Similar Cost Sharing Requirements.

 The requirements for a State Plan for alternative co-payments, co-insurance, deductibles, or similar cost sharing charges must include notice, methodology, informational process, and item or service for which the item is charged. 12

States may not impose premiums under a State Plan on individuals whose family income is at or below 100 % of the Federal Poverty Level (FPL). 13 States, however, may charge a maximum of $3.40 co-payment for a doctor’s visit or another service for this group or groups of individuals in this category. 14 States may also require groups to share the costs for non-preferred drugs so long as it does not exceed the nominal amount. 15 Moreover, the cost sharing extends to non-emergency services furnished in a hospital emergency department that does not exceed the nominal amount. 16

As for a family whose family income is above 100 % but at or below 150 % of the FPL, the States may require the recipient to pay up to 10% of what the States pay for a service or item. 17 The exceptions to this requirement are two-fold: 1) cost sharing for non-preferred drugs cannot exceed the nominal amount; and, 2) cost sharing for non-emergency services cannot exceed twice the amount stipulated in the final rule. 18

States can charge a recipient whose family income is above 150% of the FPL up to 20% of the payment they would make for the item or service. 19

If the States do not have a fee for service payment rate, any co-payment that the States impose provided by a Managed Care Organization (MCO) may not exceed $3.40 per visit for Federal FY 2009 or $5.70 per visit for Federal FY 2009 for individuals referenced in an approved State child health plan. 20

The aggregate amount of cost sharing for individuals with family income at or below 100 % of FPL or above 100% of the FPL cannot exceed 5% of the family income for the monthly or quarterly period, as defined by the State plan. The States have the authority to define family income and for what particular period. The States also have the flexibility to use gross income or any other methodology as a determinative factor. 21

Section 6041 of the final rule also requires the Secretary to increase the “nominal” cost sharing amounts for each year by the annual percentage increase in the medical care component of the consumer price index for all urban consumers (CPI-U) as rounded up in an appropriate manner. 22

  IV. Exemptions from the Alternative Cost Sharing Premium Requirements.

The exceptions to the alternative cost sharing requirements are the same as that of the general alternative premium with several additional requirements. These other protections or exceptions include preventive services provided for children under 18 regardless of family income, emergency services, family planning services and supplies, and preferred drugs within a class for individuals for whom cost sharing may not otherwise be imposed. 23

V. Preferred and Non-Preferred Drugs.

States have the option of establishing cost sharing requirements for drugs to encourage the use of preferred drugs. States may also amend their State plans to require increased cost sharing by certain groups of individuals for non-preferred drugs and to waive or reduce the otherwise applicable cost-sharing for preferred drugs. 24 In the case of a non-preferred drug, the cost sharing is limited to the amount imposed for a preferred drug for two reasons. First, the prescribing physician has determined that the preferred drug would be less effective or have adverse effects. Secondly, the State criteria for prior authorization, if any, are met. 25

States may also permit pharmacy providers to require the receipt of a cost sharing payment from an individual before filling a prescription. The pharmacy or hospital may not, however, require an individual whose family income is at or below 100 % of the FPL to pay the cost sharing charge as a condition of payment of receiving service. 26

VI. Non-Emergency Use

The Medicaid Flexibility Rule also allows States to amend their State plans to allow hospitals, after an appropriate medical screening examination under Section 1867 (EMTALA) of the Act, to impose higher cost sharing upon certain groups of individuals for non-emergency care or services provided in a hospital emergency department. If the hospital determines that an individual does not have an emergency medical condition, before providing the non-emergency services and imposing cost sharing, it must inform the individual that an available and accessible alternate non-emergency services provider can provide the services without the imposition of the same cost sharing and that the hospital can coordinate a referral to that provider. After notice is given, the hospital may require payment of the cost sharing before providing the non-emergency services to the individual.


The Medicaid Premium and Cost Sharing Rule or Medicaid Flexibility Rule may, as CMS and others advocate, provide States with increased flexibility to meet the health care needs of Medicaid enrollees. While it is not intended to be a panacea for States during difficult economic times, it also allows the States to contain the growth of the program and contain costs. The long term goal is to help States modernize their Medicaid programs and ensure the long-term sustainability of the program.

Nevertheless, while this proposition has significant merit, there is the counterargument by others that it is “one thing to transfer costs and make other programmatic changes in the name of personal responsibility and efficiency; it is another to ensure that beneficiaries have tools to truly take control of their health. They must have meaningful access to providers. 27

1Federal Register, Vol. 73, No. 228, page 71828.





6National Council for Community Behavioral Healthcare, Final Rule on Changes to Federal Cost Sharing Rules, December 2008, page 1 citing Congressional Budget Office Cost Estimate (January 27, 2006), s. 1932 Deficit Reduction Act of 2005, see Uhttp:/cbo.gov/ftpdocs/70xx/doc7028/s1932conf.pdfU.

7National Council for Community Behavioral Healthcare, Final Rule on Changes to Federal Cost Sharing Rules, December 2008, page 1.

8See www.emaxhealth.com, States Allowed to Charge Medicaid Beneficiaries Premiums, Higher Copayments, quoting Sara Rosenbaum, J.D., Chair of the Department of Health Policy and Harold and Jane Hirsh Professor of Health Law and Policy at the George Washington University School of Public Health and Health Sciences.

9Federal Register, Vol. 73, No. 228, page 71831.

10Id. at 71852.

11Id. See Section 1902(a) (10) (A)(i) of the Act for individuals under 18 years of age, Section 1905(o) of the Act for terminally ill patients receiving hospice care, Sections 1902(a)(10)(A)(ii)(XVIII) and 1902(c) of the act for disabled children, and Section 1902(a)(10)(A)(ii)(XVIII) and 1902(aa) of the Act for women who are receiving Medicaid on the basis of the breast or cervical cancer eligibility group.


13Id. at 71853.

14Id. at 71851 and 71953. See Section 1916 of the Act and Section 447.54.

15Id. at 7183. Cost sharing may not exceed nominal amount as defined in Section 447.54

16Id. This remains in effect as long as no cost sharing is imposed to receive such care through an outpatient department or other alternative non-emergency services provider in the geographic area of the hospital emergency department involved as defined in Section 447.54.

17Id . at 71840. See Section 447.54.

18Id . at 71853. See section 447.54.

19Id .

20Id. See Title XXI pursuant to Section 457.70(c) regarding a State child health plan.

21Id. at 71854.

22Id . at 71828.

23Id . at 71852. See Section 447.53(b)(4) for emergency services and Section 1905(a)(4)(c) of the Act for family planning and supplies.

24Id. at 71828.

25Id . at 71853.

26Id . at 71828.

27Laura d. Hermer, Personal Responsibility: A Plausible Social Goal, But Not For Medicaid Reform, Hastings Center Report 38, No. 2 (2008): 16-19, page 18.

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