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Health Insurance Premium Payment (HIPP)

Section 1906 of the Social Security Act, enacted in the Omnibus Budget Reconciliation Act of 1990, requires that States use Medicaid funds to purchase employer-based group health insurance on behalf of Medicaid-eligible individuals if such insurance is available and it is cost-effective to do so. States must also purchase employer-based health insurance for non-Medicaid-eligible family members if this is necessary for Medicaid-eligible individuals to receive coverage and the insurance is still cost-effective.

The States pay the premiums, deductibles, and coinsurance for Medicaid eligible individuals. For non-Medicaid-eligible family members, the States pay the insurance premiums but not the deductibles and coinsurance.

Health Insurance Premium Payment (HIPP) program enrollees are entitled to all of the States’ Medicaid benefits, including those not included in the employer-based insurance plans. The State Medicaid programs provide "wrap-around" coverage for services that the insurance plans do not cover by paying claims submitted by providers.

As defined by Section 1906, an individual’s enrollment in an employer-based plan is cost-effective if paying the premiums, deductibles, and coinsurance is likely to be lower than a State’s expected cost of directly providing Medicaid-covered services. CMS, which oversees the Medicaid program, has provided the states with guidelines for calculating cost-effectiveness, including a suggested formula for determining expected deductible and coinsurance costs. States may use an alternative method for determining cost-effectiveness after obtaining CMS approval.

If an employer-based health plan is determined likely to be cost-effective, individuals are required to enroll as a condition of their Medicaid eligibility. However, a child cannot be denied Medicaid eligibility or services because a parent does not enroll in an employer’s plan.

Medicaid eligible people enrolled in employer-based health plans are entitled to receive full Medicaid benefits. The health plans become the primary payers for the services they cover. The States must provide coverage for those Medicaid services not included in the private plans. In addition, according to CMS, States are required to reimburse providers for enrollee deductibles and coinsurance according to the employer-based plans’ fee schedules rather than the State Medicaid fee schedules.

Federal Medicaid matching funds are available, at each State’s regular matching rate, for premium, deductible, and coinsurance payments made by the states for Medicaid eligible individuals. (The federal government pays a percentage of each state’s cost of Medicaid benefits. The federal matching rate for each state is determined by the state’s average per capita income and ranges from 50 to 83 percent.) Federal matching funds are also available for the premium payments made by states for non-eligible family members, but not for their deductibles, coinsurance, or other cost-sharing obligations.

Only a small number of States (six, as of early 2002) have implemented HIPP programs to enroll Medicaid eligible individuals and achieve budgetary savings. Currently, only small portions of the Medicaid populations in these States are signed up. And, as a result, the Medicaid budgetary savings achieved in these States have also been relatively small.

The U.S. General Accounting Office in 1997 identified several barriers to enrollment in HIPP plans. First, State Medicaid programs have difficulty identifying potential enrollees, i.e., Medicaid-eligibles with access to employer-sponsored health insurance. Second, employers may not cooperate with the State’s request for information on health insurance coverage. Third, health plans often only have limited time periods during which employees may enroll, making it difficult for them to obtain coverage at the time they become Medicaid-eligible.

Some states may be unlikely to start or expand HIPP programs as they focus their Medicaid programs on managed care. Such states may believe it is cheaper and administratively easier to include Medicaid eligible individuals in contracted managed care plans rather than operate a separate HIPP program at the same time.

Additionally, States have noted that when the cost of employer-based insurance is compared with that of paying a Medicaid managed care plan, it does not appear as cost-effective as it does when it is compared with Medicaid fee-for-service program costs. Other States may have simply ignored employer-based insurance because of their increased attention and emphasis on Medicaid managed care.

Contrary to what some other States may believe about the practicality of HIPP programs coexisting with managed care, certain States (notably Iowa and Texas) expect their HIPP programs to remain viable and cost-effective as managed care expands in those states. Those States believe that buying employer-based insurance in their HIPP programs can be less costly than paying monthly payments to Medicaid managed care plans. This is primarily because employer-based insurance plans sometimes can provide coverage for any size family for the same premium, while State payments to Medicaid managed care plans are made for each family member covered. They also noted that because employers typically contribute to the cost of the insurance premiums for HIPP enrollees, the State does not have to pay the entire amount.

Another barrier to use of HIPP was the belief of some State officials that, given the very low Medicaid income eligibility thresholds, most Medicaid recipients would not have access to employer-sponsored insurance. Under the Personal Responsibility and Work Opportunity Act of 1996, however, Congress unlinked Medicaid and welfare eligibility. States were allowed to raise the income and assets thresholds for Medicaid-only eligibility, thus increasing the likelihood that working families would qualify. While 30 states have extended eligibility (as of early 2002) in response to this legislation, they generally have not sought to use the HIPP plan option.

Some States (Iowa, Pennsylvania, and Texas) have attempted to include all Medicaid eligible individuals in their HIPP programs who have access to employer-based health insurance and whose expected Medicaid costs exceed the costs associated with purchasing the insurance. The programs do not focus on only those with high-cost medical conditions because program officials believe this would limit potential cost savings. Each of these States provides their HIPP enrollees with coverage for all Medicaid services not included in the employer-based insurance plans.

HIPP program enrollees are entitled to all of the States’ Medicaid benefits, including those not included in the employer-based insurance plans. The State Medicaid programs provide "wrap-around" coverage for services that the insurance plans do not cover by paying claims submitted by providers.

Additional Information

Passage of Title XXI of the Social Security Act establishing SCHIP renewed interest in premium assistance on the part of States. As part of the SCHIP legislation, States can seek Federal approval to use SCHIP dollars (and the enhanced Federal match rate) to subsidize employer-sponsored insurance premiums. See the State Children's Health Insurance Program (SCHIP) topic for more information.

Source

The full text of Section 1906 of the Social Security Act, "Enrollment Of Individuals Under Group Health Plans", is available at:
http://www.ssa.gov/OP_Home/ssact/title19/1906.htm

A study, done under contract for HCFA, discussed alternative approaches to insurance premium assistance. The study, titled "Using Medicaid/SCHIP to Insure Working Families: The Massachusetts Experience" is available (requires Adobe Acrobat) from the CMS website at:
http://www.cms.hhs.gov/HealthCareFinancingReview/Downloads/Spring_2002_Changing_Nature_of_Public_and_Private.zip

The GAO produced a Congressional Report on HIPP titled "MEDICAID - Three States’ Experiences in Buying Employer-Based Health Insurance" that includes substantial information about HIPP implementation. The report is available (requires Adobe Acrobat) from the GAO at:
http://www.gao.gov/archive/1997/he97159.pdf

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