Will Medicaid penalties result in better health, or more uninsured?

The state of Arizona has proposed a $50 annual fee on childless adults in Medicaid who are obese or smokers.

At this point, the fee is being limited only to smokers who are not actively trying to quit, according to Jennifer Carusetta, chief legislative liaison for the Arizona Health Care Cost Containment System, Arizona's Medicaid program.

"The intent of this fee is to incentivize our members to make better health care decisions, while also reducing the health care costs that are associated with smoking," says Ms. Carusetta. "CMS is currently evaluating this proposal."

If it's approved, however, the fee isn't likely to raise much revenue, according to Peter Cunningham, PhD, a senior fellow and director of quantitative research at the Center for Studying Health System Change in Washington, DC, because there probably won't be many Medicaid enrollees willing to pay it.

"States are pretty desperate right now to try to find ways of saving money, or in this case raising revenues, on their Medicaid programs," says Dr. Cunningham. Since states aren't able to reduce eligibility, he says, they're looking for other ways to reduce Medicaid costs at a time when budgets are severely strained.

If the fee is approved, Dr. Cunningham expects that some states with lack of political support for the Medicaid program will follow suit. "The administration is under a lot of pressure to allow states some flexibility, but whether they will go for this or not, I don't know," he add.

While the Centers for Medicare & Medicaid Services (CMS) has the authority to waive certain requirements related to eligibility and cost-sharing, there is no reason to believe CMS can or will waive the minimum eligibility or cost-sharing thresholds for Medicaid, according to Mark Trail, managing principal at Health Management Associates in Atlanta. "Additionally, they will not waive the maintenance of effort requirements currently imposed by the [American Recovery and Reinvestment Act of 2009] and the ACA [Affordable Care Act]," adds Mr. Trail.

Arizona extended Medicaid coverage for groups who wouldn't otherwise be eligible under a waiver, explains Mr. Trail, and with the renewal of that waiver, have the opportunity to renegotiate certain terms. "For most other states, adding a 'premium' for smokers or folks with obesity to obtain Medicaid would be considered a change in eligibility standards, and therefore not permissible," says Mr. Trail.

Could fees reduce enrollment?

There is a lot of current interest in promoting wellness in the Medicaid program, says Joan Alker, co-executive director at the Georgetown Center for Children and Families and a research associate professor at Georgetown University's Health Policy Institute.

"That's a good thing, but the way Arizona is going about it is not the right choice. It's a very bad idea," says Ms. Alker.

Even a $50 fee is simply not affordable to many Medicaid beneficiaries who are living month to month and using their resources on bare necessities, says Michael Perry, a partner at Lake Research Partners, a Washington, DC-based national public opinion and political strategy research firm. "These fees sound little, but they are very large for Medicaid families, many of whom are still reeling from the recession," he says.

Inability to pay the fee could ultimately drive someone out of the Medicaid program, says Mr. Perry, thus increasing the rolls of the state's uninsured.

"When you consider the fact that you are talking about a mostly poor population, that could be a disincentive to continue," says Dr. Cunningham. "One could question whether maybe that could be part of the intent."

Arizona is one of the few states that has eligibility for childless adults, notes Dr. Cunningham, but they are not able to reduce that eligibility. "The problems of escalating Medicaid costs and really tight state budgets are real," he says. "It's not surprising that a state would try to find ways within the law to try to decrease the cost."

There is a lot of discussion in the private sector on the best ways to encourage healthy behaviors, says Dr. Cunningham, but efforts generally focus on rewards instead of penalties. "Is the fee going to get obese people to lose weight and adopt a healthier lifestyle? I'm very skeptical that's going to work," he says.

It's unclear whether incentives are very effective in general, adds Dr. Cunningham, and Medicaid recipients in low-income neighborhoods lack healthy food options in grocery stores and restaurants. "You're not going to see a Whole Foods in the inner city, and even if there is, they're not going to be able to afford it," he says.

Instead of seeking to impose a fee for smokers, suggests Ms. Alker, the state should take the opposite approach. "A better way to cut Medicaid costs is to offer a $50 reward for quitting smoking," she says. "On the employer side, cash incentives have been shown to be effective in some time-limited situations."

The Affordable Care Act (ACA) offers incentives for Medicaid programs to prevent chronic diseases, adds Ms. Alker. "We have seen some guidance on this from [the U.S. Department of Health and Human Services]. In the context of the ACA, they did stress that grants are focused on positive incentives," she says. "This would not be one of those, clearly."

Many employers have imposed fees to encourage workers to quit smoking and other behaviors that could negatively affect their health, says Mr. Trail, adding that the state of Georgia has imposed additional premiums on state employees who smoke.

While Georgia's added premium did result in more employees taking advantage of cessation programs, adds Mr. Trail, it's not clear whether the participants actually stopped smoking. "The added premium would arguably reduce the cost to the state, but yet to be determined is whether it actually reduced health care costs."

Imposing fees for unhealthy behaviors can potentially cross the line of imposing a "pre-existing condition" impediment in front of someone, says Mr. Trail. "Where does it lead — to those who have high cholesterol and don't adjust their diet, or those who fail to wear sunscreen or get routine checkups?" he asks. "It seems we need to think about the carrots, and not so much the sticks."

The most promising models of care being implemented right now emphasize prevention and keeping patients out of hospitals, according to Mr. Perry. "Penalties on Medicaid beneficiaries are not the solution," he says. "Bringing some of these new models of care into Medicaid is a better approach."

Contact Ms. Alker at (202) 784-4075 or jca25@georgetown.edu, Dr. Cunningham at (202) 484-4242 or PCunningham@hschange.org, Mr. Perry at (202) 776-9066 or mperry@lakeresearch.com, and Mr. Trail at (404) 522-0442 or mtrail@healthmanagement.com.