The recent enactment of the State Children's Health Insurance Program (CHIP), under Title XXI of the Social Security Act is providing $24 billion in funding to states over a five-year period to expand health insurance coverage to uninsured children. States have the option of expanding their existing Medicaid programs, developing stand alone programs or some combination of the two. As states select their approaches, design of the benefit package including cost-sharing features is one of the critical considerations they are facing. While the legislation defines standards for benefit packages and limits the extent to which states can impose premiums or cost-sharing (i.e., deductibles and copayments), the states maintain a fair amount of flexibility in designing their programs.

This report is based upon an historical review of nine states that have already undertaken major children's health expansions and their experiences in developing benefit packages and cost-sharing arrangements. Information provided by the state programs and review of available published materials provides the basic input for the descriptions and discussion that follow. Because the programs reviewed here were developed prior to the enactment of Title XXI, some of the issues and concerns described by these programs may not have the same relevance or implications for the future efforts of states. Given the paucity of research to inform state decisions in these areas, however, these prior experiences do help point out many issues and considerations in determining benefits and cost-sharing requirements for the new children's health insurance programs. As such it may provide guidance to states as they develop their programs under Title XXI.

1. Decisions Regarding the Design of State Benefit Packages and Cost-Sharing Arrangements under Title XXI

The programmatic options afforded to states through Title XXI will require states to examine their overall objectives in providing children's coverage. Some states may select Medicaid, while other states may select one of the benefit packages specified in the legislation as the most feasible and appropriate model for their population. Other states may decide they want to provide a more comprehensive benefit package than those specified in the legislation. The degree to which benefit packages exceed those standards outlined in the Federal legislation will be based on judgments by the states regarding the relative importance and affordability of particular health services. States must also determine cost-sharing within specific legislatively defined parameters. Based on the experiences of the state programs reviewed in this paper, these decisions are likely to reflect specific state program objectives. These objectives may include using cost-sharing as a means of offsetting cost, a method for instilling a sense of responsibility in participants, a way to modify participants' behavior (e.g., discourage emergency room use), and a method for limiting the potential for substitution.

1. Children's Benefit Packages Under Medicaid

States electing to expand children's health insurance through the Medicaid option will be required to offer the traditional comprehensive Medicaid benefit package which includes: inpatient and outpatient hospital services; physician services; medical and surgical dental services; family planning services and supplies; laboratory and x-ray services; and pharmaceuticals. There are specific requirements as to the duration and scope of these benefits.

States must also provide well-child visits; immunizations; sick care; outpatient care; inpatient care; emergency room use; prescriptions; and Early and Periodic Screening, Diagnosis and Treatment Program (EPSDT) services for individuals under age 21. This benefit requires that Medicaid beneficiaries under 21 are must receive screening, vision, hearing, and dental services at intervals which meet recognized standards of medical and dental practices, and at other intervals as necessary to determine the existence of physical or mental illnesses or conditions. Any service that is necessary to treat an illness or condition identified by a screen must be provided to EPSDT participants. In addition, states may add certain optional services such as: emergency hospital services; intermediate care facility/mentally retarded (ICF/MR services; optometrist services and eyeglasses; prescription drugs; TB-related services; prosthetic devices; and dental services (nonmedical or surgical).

2. Non-Medicaid Options for Benefit Packages Under Title XXI

For states not choosing to expand coverage through Medicaid, Title XXI provides four options for designing a benefit package: (1) coverage of benefits equivalent to those provided in a benchmark benefit package; (2) coverage of benefits actuarially equivalent to one of the benchmark benefit packages; (3) coverage of comprehensive benefits provided by an existing children's health program; and (4) other health plans that the Secretary deems appropriate for serving low-income children. There are three benchmark benefit packages on which states can model their programs: the standard Blue Cross/Blue Shield Preferred Provider option offered under the Federal Employees Health Benefits Program (FEHBP); a health benefits plan that is offered and is generally available to State employees; or the HMO with the largest non-Medicaid commercial enrollment in the state. If the state chooses not to utilize one of those benefit packages, the state can design a benefit that is actuarially equivalent to one of these plans.

Because states have the option to implement a separate program based on these four options, there will be variations in benefit packages across states. Consequently, the issues states face in assuring quality of services and in making decisions about optional benefits such as dental and vision care will vary based on the type of program option selected.

3. Cost-Sharing Requirements Under Title XXI

Title XXI establishes certain cost-sharing requirements on states, including: prohibiting cost-sharing policies that favor higher-income families over lower-income families; disallowing cost-sharing for well-baby and well-child care, including immunizations; and not permitting states to consider money raised through cost-sharing as state dollars for purposes of meeting matching requirements. Cost-sharing requirements for children under 150% of the federal poverty level (FPL) must be "nominal." Children in families below 150% FPL cannot be charged premiums higher than premiums established for "medically needy" Medicaid beneficiaries. For families above 150% of the FPL, cost-sharing cannot exceed 5% of family income. In light of these restrictions, states will need to determine how they will administratively handle cost-sharing arrangements, ensuring compliance while adhering to the Title XXI's 10% cap on state administrative costs.

2. Study Approach

This paper describes the experiences of nine states that developed health insurance programs to serve children without insurance coverage, prior to passage of Title XXI (See Table 1). It is based on qualitative data collected from representatives of the following states: California, Colorado, Florida, Massachusetts, Minnesota, New York, Pennsylvania, Tennessee, and Washington. Criteria used to select the programs examined for this report include: program type (e.g., Medicaid expansion, state-sponsored, or foundation-sponsored), geographic location, length of program existence, and scope of the program. State representatives, including children's health program directors, Maternal and Child Health department directors, and Medicaid program staff from all nine states were interviewed on their experiences in determining benefit packages and implementing cost-sharing requirements.

The collection of information on state benefit packages and cost-sharing arrangements was guided by the following questions:

• What services are included in the benefit package?
• How was the benefit package determined?
• Has the benefit package changed over time? Why?
• How does the benefit package compare to that offered by Medicaid or by private insurance?

• What was the basis for instituting cost-sharing arrangements?
• What are the cost-sharing arrangements in your program?
• Are copayments used for any services? Which services? Other cost-sharing arrangements?
• Are copayments set by income, or do all participants pay the same amount?
• What was the role of copayments in determining whether certain benefits would be?
• How did you set premiums for this program?

• Has the cost-sharing level (i.e., family contribution towards the premium) changed for any income group since the program began? Why?
• If cost-sharing has changed over time, how has this affected participation among the various income groups?
• Is any information available on the cost-sharing levels needed to reach certain participation levels within particular income groups?

The nine states interviewed for this study are divided into two broad categories: Medicaid expansion programs and stand-alone insurance programs. This section provides an overview of these programs followed by a more detailed discussion of the states experiences in designing benefits and cost sharing arrangements for their programs. The information collected through interviews and a review of written materials and data provided by the nine selected states is presented as follows. Section I provides a brief overview of the nine state programs. Section II examines the issues states considered in designing a benefit package, including: defining their objectives; benefits that were debated by the states; considerations related to narrowing the scope of the benefit package as a means of limiting substitution; and the impact of benefit package design on children with special health care needs. Section III examines state experiences with cost-sharing, including: the rationale for setting premiums and copayments; issues related to price sensitivity; decisions regarding use of flat or a sliding-scale premiums; other decisions related to premiums and copayments; and administrative concerns. Section IV summarizes the major issues the nine states faced when designing benefits and cost-sharing and identifies gaps in available data.