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CMS Directive: Waiting Period & Cost Sharing Elements

What the Directive Requires

Under the August 17, 2007 directive, the Centers for Medicare and Medicaid Services (CMS) specified that a state that expands eligibility above 250 percent of the federal poverty level (FPL) must establish two program elements for the expansion group.

• 12-Month Uninsurance Requirement. A state must “establish a minimum of a one year period of uninsurance for individuals prior to receiving coverage.”
  

• Cost Sharing Requirement. A state must adopt a cost sharing requirement that is comparable (within one percent of the family income) to that of a competing plan sold in the state’s private insurance market, “unless the public plan’s cost sharing is set at the five percent family cap.” Under federal law, the maximum SCHIP premium level a state can implement is five percent.

In a letter released on May 7, 2008, CMS clarified that these measures "need not be applied to enrollees with effective family incomes at or below 250 percent of the FPL" or unborn children.

Issues to Consider

CMS officials stated that these requirements are meant to deter crowd out. (See Strategy Center for a brief on crowd out.) The SCHIP law requires states to describe in their state plans the procedures that they will use to ensure that SCHIP coverage does not substitute for group-based coverage. (Section 2101(b)(3)(C) of the Social Security Act) It, however, does not specify exactly which procedures a state must use, instead providing states with the flexibility to decide which strategies are most effective given their particular economic conditions, health insurance system, and demographics.

The Congressional Budget Office also raised questions about the effectiveness of the directive’s waiting period and cost sharing requirements as tools to curb crowd out. Citing work by MIT economist, Jonathan Gruber, CBO Director Peter Orszag recently testified that it is not clear that the 12-month waiting period and higher cost sharing mandated by the August 17th directive will help to reduce crowd out. To the contrary, these two measures may have as much of a negative effect on the enrollment of uninsured children as they do on children who otherwise might have had private coverage.

The following provides additional information and resources on current state practices regarding waiting periods and cost sharing.

Waiting Periods

With the goal of minimizing substitution, many states with a separate SCHIP program require that children be uninsured for a specified period of time (usually three to six months) before they can be enrolled in coverage (waiting periods are not allowed in SCHIP-financed Medicaid expansions except with a waiver or in Medicaid). However, when designing waiting periods, states also consider the impact they can have on children, who must go without needed care during the length of the waiting period.

Currently, only three states, Alaska, Louisiana, and West Virginia have waiting periods of 12 months for SCHIP-funded coverage, and for only certain populations within their programs. (Illinois has a 12-month waiting period for state-funded coverage of some children.) In fact, 14 states do not have a waiting period for their separate SCHIP programs and 34 states have waiting periods of six months or less.

•     Waiting Periods in Medicaid & SCHIP for Children, as of January 2008

States have also implemented exceptions to the waiting period, such as a parent’s loss of a job. In a May 7, 2008 letter, CMS stated that it will review alternative proposals and consider exceptions to the 12-month waiting period requirement, if the state provides "justifications and data demonstrating a low substitution risk."

Cost Sharing

Federal law sets maximum cost sharing requirements for states. Under federal SCHIP rules, states may not impose cost sharing for preventive services, and aggregate cost sharing may not exceed five percent of a family’s income (with even stronger protection for children with family income below 150 percent of the FPL). All but one state with coverage at more moderate-income levels (i.e., 250 percent of the federal poverty level) charge premiums well below the maximum level allowed under federal law.

When determining cost sharing, affordability is a key issue. A large and consistent body of research indicates that premiums in Medicaid and SCHIP that are too high for families will cause enrollment to decline.

• Increasing Premiums and Cost Sharing in Medicaid and SCHIP: Recent State Experiences, Kaiser Commission on Medicaid and the Uninsured, May 2005.

• Effects of Premium Increases on Enrollment in SCHIP: Findings from Three States, Inquiry, Winter 2006/2007.