Skin in the Game: Governor Brown is Right and Secretary Sebelius Is Wrong About Medicaid Co-Pays

Key Points:

  • Governor Jerry Brown and California legislators have attempted to get Medi-Cal’s budget under control by charging reasonable co-pays for medical and hospital services, especially emergency rooms.
  • Secretary Sebelius has just quashed the state’s co-pay reform, relying on dubious legal interpretation.
  • This federal overreach cost California taxpayers half a billion dollars last year, and almost as much again this year.
  • Ironically, Governor Brown supports Obamacare, which increases the likelihood of similar abuses of federal power.
  • Governor Brown and all Californians should support alternative reforms that reduce the power of the federal government and give states and individuals more control of health spending.

It’s not often you see budgetary sense coming out of the California Capitol. So we should cheer the legislators and governor who have proposed a modest reform to Medi-Cal, California’s Medicaid program for low-income residents, that would have improved incentives for patients and reduced the budgetary bleeding by about half a billion dollars, if it had taken effect last year.

Under that budget, Medi-Cal dependents would have been charged co-pays amounting to:

  • A maximum of $200 for hospital stays;
  • $50 for an emergency department visit;
  • $5 for visiting a physician or dentist visit; and
  • $3 for certain prescription drugs

Since 1982, Medi-Cal has levied a $1 co-pay for a doctor’s consultation or prescription, or $5 for a visit to the ER in the absence of an emergency.1 However, it its generally understood that these payments are seldom collected. “Everybody has to have some skin in the game,” Brown said of his co-pay plan. “For some people, they’re so destitute that’s impossible. OK, I understand that. But … I think there’s a wiser path than the one we’re on.”2

California definitely needs to find savings. The governor’s latest budget proposes just under $60 billion for 2012-2013 for Medi-Cal, to cover an anticipated caseload of about 8.3 million dependents (up from 7.7 million in 2013).3 Despite claims of cutbacks to the safety net, this is a significant increase from $51 billion in 2011-12. Medi-Cal is funded 55 percent by the federal government, 25 percent by the state’s general fund, and the balance by various reimbursements, rebates, and earmarked taxes.4

Had the co-pays gone into effect, the governor’s budget estimates that they would have reduced costs by just over $1 billion (evenly split between the state’s general fund and other sources, primarily federal funding) in 2011-2012 and just over $600 million (also approximately evenly split between funding sources) in 2012-2013.5

Although not huge in scale relative to Medi-Cal’s total costs, these savings would nevertheless have been significant, and certainly have been much greater than another cost-saving opportunity currently held back by a decision in federal court: The ten percent cut to physicians’ fees. Currently under appeal by the state, this cut would have saved less than $100 million in 2011-2012 and $41 million in 2012-2013.6 And it would increase physicians’ unwillingness to see Medi-Cal patients, which is already a problem.

Despite rapidly increasing spending, Medi-Cal dependents are having difficulty getting the care they need. Only 68 percent of physicians surveyed in 2008 reported that they had any Medi-Cal patients in their practice; only 57 percent reported that they would take new Medi-Cal patients; and 80 percent of Medi-Cal patients were treated by only one quarter of physicians.7

California’s proposal to levy marginally significant co-pays for Medi-Cal beneficiaries was put forward as an amendment to the promising “Bridge to Reform” waiver that the federal government granted the state towards the end of the Schwarzenegger administration.

This “bridge” is built on the recognition that most medical costs are incurred by a small proportion of patients with expensive, complicated conditions. Only seven percent of Medi-Cal dependents account for 74 percent of the program’s 2008 fee-for-service claims.8

Worse, many of these costly patients are so-called “dual eligible”, which means that are covered by Medicare and Medi-Cal, as well as county funding. This is because they are elderly or disabled as well as poor – and perhaps even housebound. This fragmented funding contributes to fragmented care for the most vulnerable patients. The “bridge” waiver pools the funding and engages managed-care plans that will be held accountable for these patients’ outcomes.

The co-pay reform would manage the demand of the rest of Medi-Cal’s dependents – the majority who use few health services. Unfortunately, Governor Brown’s entirely responsible co-pay reform was quashed last month by the U.S. Secretary of Health & Human Services, Kathleen Sebelius, on questionable legal grounds. Secretary Sebelius’ office claims that California’s reform violates the Social Security Act.9

However, section 1916A(b) of the SSA gives states some ability to levy co-pays. For dependents whose family income is between 100 and 150 percent of the poverty line, a state’s Medicaid program can levy a co-pay of up to 10 percent of the cost of a service. For beneficiaries with household incomes over 150 percent of the poverty line, the share can be no greater than 20 percent. Furthermore, all co-pays for the family cannot add up to more than 5 percent of a family’s income, on either a quarterly or monthly basis. Certain preventive care or care for categories such as children, disabled, or terminally ill can have no co-pay.

Secretary Sebelius’ rejection of California’s co-pay reform is unwarranted. First, the proposed co-pays do not remotely approach ten percent of the cost of providing the service in question. (A patient burns through $200 in the hospital almost before the door shuts behind the gurney.)

More importantly, almost all Medi-Cal dependents would not hit the limit of 5 percent of household income. 93 percent (about 6.8 million) of MediCal beneficiaries in 2008 accounted for 24 percent ($6 billion) of Medi-Cal’s fee-for-service claims.10 This means that, on average, each had claims of about $73 per month. But even within this 93 percent, there would be a skewed distribution of claims. Surely, most of them would have incurred medical claims costing less than twenty or so dollars per month.

This is reflected in data for the Medi-Cal’s beneficiaries who are already required to pay a “share of cost” because of incomes that are too high. Only 75,594 of these patients’ claims were being partially paid by Medi-Cal in October 2007, one sixth of the total number of patients (443,396) who had medical claims.11 The rest incurred small claims that were within their share of cost, and imposing no burden on taxpayers.

So, we can expect that the vast majority of Medi-Cal dependents will have very small medical claims, and not hit the 5 percent cap. For example, a family of four at 133 percent of the poverty level makes $2,555 monthly.12 The federally dictated limit on the family’s total co-pays for the month would be $128 – a figure higher than almost all such families would spend.

Governor Brown signed into law a very responsible co-pay reform, which would save California taxpayers hundreds of millions of dollars a year if the federal government had not unjustly quashed it. Ironically, the governor supports Obamacare, the federal law that increases the federal government’s power over choices like these. Perhaps it’s time for him to reconsider, and embrace an alternative reform that would give states and individuals more control over the delivery of health care.


1 Provider Regulations (Sacramento, CA: Department of Health Care Services, April 2011), p. 9.
2 Anthony York, “Brown gets no promise of federal help for Medi-Cal,” Los Angeles Times (February 26, 2012). Available at
3 Edmund G. Brown, Jr., Governor’s Budget Summary 2012-13 (Sacramento, CA: Office of the Governor, January 5, 2012), p. 102.
4 Edmund G. Brown, Jr., Entire Department of Health Care Services Budget (Sacramento, CA: Office of the Governor, January 5, 2012), p. 1. Available at.
5 Edmund G. Brown, Jr., Entire Department of Health Care Services Budget (Sacramento, CA: Office of the Governor, January 5, 2012), p. 3. Available at.
6 Edmund G. Brown, Jr., Entire Department of Health Care Services Budget (Sacramento, CA: Office of the Governor, January 5, 2012), p. 3. Available at.
7 Andrew B. Bindman, et al., Physician Participation in Medi-Cal, 2008 (Oakland, CA: California Healthcare Foundation, July 2010), p. 2.
8 Where the Money Goes: Understanding Medi-Cal’s High-Cost Beneficiaries, Snapshot (Oakland, CA: California Healthcare Foundation, July 2010), p. 4.
9 Marilyn Tavenner, letter to Toby Douglas, Chief Deputy Director, Health Care Programs, Department of Health Care Services, 1501 Capitol Avenue, MA 0000, P.O. Box 997413, Sacramento , CA 99859 (Washington, DC: U.S. Department of Health & Human Services, Centers for Medicare & Medicaid Services, February 6, 2012).
10 Where the Money Goes: Understanding Medi-Cal’s High-Cost Beneficiaries, Snapshot (Oakland, CA: California Healthcare Foundation, July 2010), p. 4.
11 Share of Cost Medi-Cal, Issue Brief (Oakland, CA: California Healthcare Foundation, September 2010), pp. 4-5.
12 René Mollow, Letter no. 12-08 to All County Welfare Directors, et cetera (Sacramento, CA: Department of Health Care Services, March 1, 2012).

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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