How do state Medicaid programs decide whether to charge premiums to expansion populations?

The decision is driven by revenue offset potential (even $10-$25/month premiums generate meaningful aggregate revenue at scale), personal responsibility philosophy, federal waiver opportunity (Section 1115 waivers provide the authority), and legislative mandate (some states require premiums as a condition of maintaining expansion). States must weigh premium revenue against the risk of coverage loss and the administrative cost of collection. The critical question is not whether to charge premiums but whether they can be collected cost-effectively enough to justify the program.

What is the administrative cost of collecting Medicaid premiums and how do states measure it?

Administrative cost is measured as a ratio: total cost of operating the billing program divided by total premiums collected. Costs include billing platform fees, payment processing fees, print and mail, staff time, and integration maintenance. States measure it three ways: cost as percentage of billed premiums (target under 10%), cost as percentage of collected premiums (target under 15%), and cost per member per month. Manual processes typically run 30-50% of collected premiums while fully automated platforms achieve under 10%.

What delinquency rates do state Medicaid premium programs typically experience?

Delinquency rates in Medicaid premium programs are significantly higher than commercial insurance. Published data shows: Arkansas (2017) had 80% delinquency with only 20% paying, Iowa (2016-2017) exceeded 75% delinquency, and Michigan (2017) was at 56% delinquency. Variation reflects differences in payment method availability, automation level, enforcement mechanisms, and premium amounts. States designing new programs should plan for 40-50% initial delinquency and build financial models accordingly.

What states charge premiums for Medicaid expansion populations?

States that have introduced Medicaid expansion premium programs (via 1115 waiver) included Montana, Indiana, Iowa, Michigan, and Arkansas. Many states also charge CHIP premiums for families above 150% FPL without a waiver, and several offer Medicaid buy-in programs with premium requirements. The landscape evolves as waivers are approved or modified. The Biden administration disallowed premiums for most Medicaid expansion programs and the OBBBA may prohibit expansion premiums after October 1, 2028.

What is the difference between Medicaid expansion premiums, CHIP premiums, and Medicaid buy-in premiums?

Medicaid expansion premiums cover adults 19-64 up to 138% FPL, require a 1115 waiver, are typically $5-$25/month, and face high delinquency challenges. CHIP premiums cover children in families above 150% FPL, need no waiver, are $15-$50/month per family, and are billed at the family level. Medicaid buy-in premiums cover individuals purchasing coverage (working disabled, medically needy), operate under various statutory authorities, are $50-$200/month, and serve smaller populations with more complex eligibility. All three require billing infrastructure but with different rules per population.

Is it worth charging premiums for Medicaid if administrative costs consume most of the revenue?

The answer depends entirely on the administrative cost ratio. If costs exceed 50% of collected premiums, the program is likely not worth operating on financial grounds. At 20-50%, the program is marginally viable but efficiency is poor. Under 15%, the program is clearly viable with the state retaining 85%+ as net revenue. The key insight: the billing infrastructure determines viability, not the premium amount. A $17/month premium is viable at 7% administrative cost. A $50/month premium is not viable at 60% administrative cost. The technology choice is the deciding factor.

Medicaid Premium Program Design and Feasibility: Which States Charge Premiums and Is It Worth It?

The decision to charge premiums to Medicaid expansion populations is driven by a combination of policy objectives, fiscal pressure, and federal waiver authority:

Revenue offset. Premiums generate revenue that partially offsets program costs. For states with large expansion populations, even small premiums ($10-$25/month) can generate meaningful aggregate revenue if collection rates are adequate.
Personal responsibility philosophy. Some states view premiums as a mechanism to encourage beneficiaries to value their coverage and engage with the healthcare system. This is a policy position that varies by state administration.
Federal waiver opportunity. Section 1115 waivers give states latitude to implement premium structures that would not be permitted under standard Medicaid rules.
Legislative mandate. In some states, the legislature requires premium collection as a condition of maintaining the expansion program. The billing infrastructure becomes a program requirement, not an option.

The decision is not purely financial. States must weigh premium revenue against the risk of coverage loss (members who cannot or will not pay) and the administrative cost of collection. A program that collects $5M in premiums but costs $4M to administer and causes 10,000 members to lose coverage may not achieve its objectives.

The viability threshold The critical question is not "should we charge premiums?" but "can we collect them cost-effectively enough to justify the program?" States that answer this question before selecting billing infrastructure make better procurement decisions.

Administrative cost is measured as a ratio: the total cost of operating the billing program divided by the total premiums collected. This ratio determines program viability.

What counts as administrative cost:

Billing platform fees (software, hosting, maintenance)
Payment processing fees (ACH, card networks, retail cash networks)
Print and mail (invoices, delinquency notices)
Staff time (program oversight, exception handling, reporting)
Integration maintenance (MMIS interfaces, data feeds)

How states measure it:

Cost as % of billed premiums: Total admin cost ÷ total premiums billed. Target: under 10%.
Cost as % of collected premiums: Total admin cost ÷ total premiums actually collected. This is the more conservative measure because it accounts for delinquency. Target: under 15%.
Cost per member per month: Total admin cost ÷ (members × months). Useful for comparing across programs of different sizes.

Delinquency rates in Medicaid premium programs are significantly higher than in commercial insurance billing. Published data from state programs shows:

Arkansas (2017): Only 20% of beneficiaries paid their premiums. 80% delinquency rate.
Iowa (2016-2017): Fewer than 25% of beneficiaries paid. 75%+ delinquency rate.
Michigan (2017): 44% of beneficiaries paid. 56% delinquency rate.

The wide variation in outcomes reflects differences in:

Payment method availability. States offering only checks and online payments see lower collection rates than those offering retail cash and multiple electronic options.
Automation level. States with automated reminders, electronic invoicing, and recurring payment enrollment outperform those relying on manual processes.
Enforcement mechanisms. States that transfer delinquent balances to revenue departments for tax assessment recover significantly more than those that simply write off unpaid premiums.
Premium amounts. Lower premiums ($5-$10) tend to have slightly higher collection rates than higher premiums ($25-$50), though the relationship is not linear.

Planning assumption States designing new premium programs should plan for 40-50% initial delinquency and build their financial models accordingly. Programs that assume 80%+ collection from day one will be disappointed. Collection rates improve over time as members enroll in recurring payments and the program matures.

Multiple states have implemented or are implementing premium programs for Medicaid expansion and related populations. The landscape includes:

States that have had active Medicaid expansion premium programs (via 1115 waiver):

Montana — HELP Program. Premiums for beneficiaries above 50% FPL. Average premium ~$17/month.
Indiana — Healthy Indiana Plan (HIP). Tiered premiums based on income. POWER account structure.
Iowa — Iowa Health and Wellness Plan. Premiums for beneficiaries above 50% FPL.
Michigan — Healthy Michigan Plan. Premiums (called "contributions") for beneficiaries above 100% FPL after 6 months of enrollment.
Arkansas — Arkansas Works. Premium requirements for beneficiaries above 100% FPL.

States with CHIP premium programs (no waiver required above 150% FPL):

Many states with CHIP programs charge premiums for families above 150% FPL. This is a long-established practice predating Medicaid expansion.

States with Medicaid buy-in programs:

Several states offer buy-in programs allowing individuals who do not qualify for free Medicaid to purchase coverage at subsidized rates. These require premium billing infrastructure.

Evolving landscape The list of states charging Medicaid premiums changes as waivers are approved, renewed, or modified. New state administrations may add or remove premium requirements. States considering premium programs should review current CMS waiver approvals and pending applications for the most current landscape. Note that the OBBBA appears to prohibit the use of premiums after Oct. 1, 2028.

These three program types share the need for premium billing infrastructure but differ in their legal authority, population characteristics, and program rules:

Medicaid expansion premiums:

Population: Adults 19-64 with income up to 138% FPL
Authority: Requires Section 1115 waiver (not permitted under standard Medicaid rules for this population)
Premium amounts: Typically $5-$25/month, income-based
Enforcement: Varies by waiver. Some allow disenrollment; others use benefit lockouts or other consequences.
Key challenge: High delinquency rates, unbanked population, very small premium amounts

CHIP premiums:

Population: Children in families above 150% FPL (varies by state)
Authority: Permitted under CHIP statute without a waiver for families above 150% FPL
Premium amounts: Typically $15-$50/month per family, income-tiered
Enforcement: States can disenroll for non-payment after a grace period
Key challenge: Family-level billing (not individual), coordination with other household coverage

Medicaid buy-in premiums:

Population: Individuals who do not qualify for free Medicaid but can purchase coverage (e.g., working disabled, medically needy)
Authority: Various statutory authorities depending on the specific buy-in program
Premium amounts: Higher than expansion premiums, often $50-$200/month
Enforcement: Standard disenrollment for non-payment
Key challenge: Smaller populations, higher premiums, more complex eligibility determination

How Certifi addresses this Certifi supports all three program types within a single platform. The rules-based configuration allows different premium amounts, billing frequencies, delinquency rules, and enforcement mechanisms per population type. A state can manage expansion adults, CHIP families, and buy-in members in one system with distinct rules for each.

This is the fundamental viability question. The answer depends entirely on the administrative cost ratio:

If administrative costs exceed 50% of collected premiums: The program is likely not worth operating on financial grounds alone. The state is spending more than half of every dollar collected just to collect it. Unless there are strong non-financial policy objectives (personal responsibility, engagement), the program should be reconsidered or the billing infrastructure should be replaced.

If administrative costs are 20-50% of collected premiums: The program is marginally viable. It generates some net revenue but the efficiency is poor. This is typically where states land with partially manual processes or poorly configured systems. Investment in better infrastructure would improve the ratio significantly.

If administrative costs are under 15% of collected premiums: The program is clearly viable. The state retains 85%+ of collected premiums as net revenue. This is achievable with a fully automated, purpose-built billing platform.

The key insight: the billing infrastructure determines whether the program is viable, not the premium amount. A $17/month premium is viable at 7% administrative cost. A $50/month premium is not viable at 60% administrative cost. The technology choice is the deciding factor.

The abandonment risk States that conclude "premiums aren't worth collecting" are often making a statement about their billing infrastructure, not about the program concept. Before abandoning a premium program, states should evaluate whether a purpose-built platform could bring administrative costs below the viability threshold. The answer is almost always yes.

How Certifi addresses this Certifi exists specifically to make Medicaid premium programs viable. The platform's combination of full automation, payment method flexibility (including retail cash for unbanked populations), and configurable delinquency management achieves administrative cost ratios under 10% of collected premiums. Even $17/month premiums generate meaningful net revenue at scale when the billing infrastructure is purpose-built for the challenge.

Knowledge Center

Medicaid Premium Program Design: Which States Charge Premiums and Is It Worth It?

Program Design & Feasibility

Evaluating whether a premium program is viable for your state?