In the context of children's health insurance, cost-sharing is defined as mechanisms, such as premiums and copayments, that require beneficiaries to share in the cost of providing their health coverage. Cost-sharing requirements, which often deter families from enrolling and utilizing services for children's coverage, may conflict with a program's overarching objective to provide services to low-income children, and therefore must be carefully designed. In addition to the impact that premiums and copayments may have on reducing participation, states must also consider the benefits of instituting "price sensitive" cost-sharing. For example, moderately priced cost-sharing mechanisms are often instituted by state programs as a means of instilling a sense of responsibility in participants, and deterring the welfare stigma that is often associated with public programs. Moreover, as copayments and premiums for subsidized insurance mimic the cost-sharing requirements of employer-sponsored coverage, they serve as a bridge between public and private insurance and a deterrent to substitution.
The types of cost-sharing implemented by the nine programs are summarized in Table 4 and include: monthly premiums, annual enrollment fees and copayments. In addition, states may use family caps that define the maximum cost-sharing required by families and sliding scales that are based on family size and income.
Table 4: Cost-Sharing Mechanisms
| CaliforniaKids | Colorado Children's Basic Health Plan | Florida Healthy Kids1 | MA Children's Medical Security Plan | MinnesotaCare | New York Child Health Plus | Pennsylvania CHIP | TennCare | Washington Basic Health Plus | |
| Monthly Premiums | X | X | X | X | X | X | |||
| Annual Enrollment Fee | X | ||||||||
| Copayments | X | X | X | X | X | X | |||
| Family Cap | X | X | X | ||||||
| Sliding Scales | X | X | X | X | X | X |
States have attempted to carefully set copayments at levels that would not deter utilization for some services such as preventive services but would assist in controlling the improper use of other services such as emergency room utilization. Table 5 illustrates copayment levels by service in the various programs.
Table 5: Co-Payment Levels
| CaliforniaKids | Colorado Children's Basic Health Plan | Florida Healthy Kids | MA Children's Medical Security Plan1 | MinnesotaCare | New York Child Health Plus | Pennsylvania CHIP | TennCare | Washington Basic Health Plus | |
| Office Visits | $5 | $2 | $3 | $1-5 | No copayments for children. | $2 | No copayments. | No copayments. | |
| Health Screenings | $2 | $1-5 | $2 | ||||||
| Outpatient Surgery | $5 | ||||||||
| Outpatient Mental Health | $5 | $5 | |||||||
| Emergency Room2 | $25 | $25 | $35 | $5 | |||||
| Ambulance Transport | |||||||||
| Hospital Admission | |||||||||
| Vision Care | $10 | ||||||||
| Eyeglasses | $10 | $5 | |||||||
| Hearing Screenings and Aids | $5 | ||||||||
| Prescriptions | $2 | $3 | $5 | ||||||
| Non-generic prescriptions | $10 | $2 | |||||||
| Dental | $10 | $5 |
When designing cost-sharing mechanisms, there were a number of complex issues that programs considered to address their primary objectives. Cost-sharing mechanisms were implemented for a variety of reasons including: 1) to reduce the total health spending which is paid for by the plan; 2) to deter enrollment and utilization, thereby reducing program expenditures; 3) to instill a sense of ownership in participants for their health care; and 4) to minimize the welfare stigma associated with public or "free" programs. The majority of the states interviewed for this study instituted cost-sharing mechanisms to address the third and fourth objectives.
Program directors believed that by instituting moderately priced premiums and copayments, families were more willing to participate (enroll) and did not view the program as welfare. For example, the CaliforniaKids program talked to families prior to establishing copayment levels and learned that participants attached a welfare stigma to a free program. CaliforniaKids used a moderate $5 copayment for most services to instill a sense of responsibility in participants without creating a barrier to enrollment. Similarly, the Colorado Children's Health Insurance Plan established low $2 copayments for doctor visits, health screenings and prescriptions, and an annual enrollment fee of $25 per family. The Pennsylvania CHIP program also believed that most families respected the idea of cost-sharing and liked the idea that they were paying for their children's health care through a monthly premium. In addition to countering welfare stigma, cost-sharing mechanisms were viewed as a way of helping acclimate participants to the requirements of employer-sponsored insurance, thus building a bridge between conditions of uninsurance and private insurance.
Several states identified the affordability of employer-sponsored insurance as an important consideration in the implementation of mechanisms to limit crowd out. In the context of cost-sharing, "price sensitivity" refers to levels of premiums and copayments that families perceive to be affordable. It is important to note that price sensitive requirements may not be what families can afford, but rather what they are willing to pay for health care services. States' consideration of cost-sharing levels is critical to assuring the success of a children's health insurance program, as it influences family decisions to enroll in a program and utilize services.
Although states were interested in the affordability of private coverage, there is a lack of research that has identified the affordability and price sensitivity of private insurance coverage. One of the programs, MinnesotaCare, found that in a 1995 survey conducted as part of their program evaluation, approximately 73% of those questioned who were uninsured stated that they could not afford to purchase insurance. The overall lack of data on affordability has led states to experiment with specific strategies to determine effective cost-sharing levels in their children's health insurance programs. States have tried to balance how best to use premiums and copayments to encourage participation yet limit families from substituting public for private health coverage.
Several states have identified the importance of establishing cost-sharing levels that do not deter eligible families from enrolling in state programs and utilizing necessary services.
- Selection of Sliding Scales or Flat Rates
Related to issues of price sensitivity is the decision of whether to implement a flat fee premium for all participants or one that is based on a sliding-scale. While a flat-fee may be administratively appealing because it is simpler to administer, designing premiums on an income-based sliding scale may encourage greater participation. Of the nine states examined in this study, the Colorado Children's Health Plan is the only program that has a flat enrollment fee. The Colorado program has a $25 enrollment fee per participating child per year up to a total of $125 per family. Of the other eight states, Florida, Massachusetts, Minnesota, New York, Pennsylvania, and Tennessee all have monthly premiums based on a sliding scale that is based on family size and income. The California Kids and Washington Basic Health Plan Plus programs have no premiums.Other programs have opted to base their monthly premiums on income. For example, TennCare participants who are below 100% FPL receive fully subsidized services, and those above 400% of the poverty level pay the full cost of the premium. Families that are between 100% and 400% of the poverty level pay premiums based on a sliding scale. States with premiums based on a sliding scale are illustrated in Attachment A.
- Other Factors Determining Premiums and Cost-Sharing
Additional issues raised by the states in determining premium and cost-sharing features of their programs included raising revenues through premiums to offset costs and the use of copayments to affect utilization of services.
States looked at raising premium levels to offset costs of adding services to their benefit packages. For example, to finance the addition of inpatient care, New York's Child Health Plus raised premium levels for all but the poorest families. Families with incomes between 120% and 160% of the federal poverty level went from paying no premium to a maximum of $36/member/month. Those with incomes above 160% of poverty saw their premiums rise 400% or more. Children in families earning less than 120% of the poverty level continue to receive coverage for free.
States also considered how copayments would affect the utilization of health services. For example, some states have implemented higher copayments for emergency room services, which are generally viewed as costly and often inappropriately utilized, to encourage families to seek preventive and primary care services for their children. In order to encourage families to seek preventive care, the CaliforniaKids Program implemented a $25 copayment for emergency room use. Since the co-pay for doctor visits is only $5, the incentive is for parents to take their children to the physician's office and not the emergency room. Vision and dental copayments are set at $10 each, as well as $10 for non-generic prescriptions. This is to encourage parents to only purchase these items when they are absolutely needed. The Florida Healthy Kids program adopted a similar approach, requiring a $25 copayment for emergency room use, compared to a $5 co-pay for a physician visit.
- The Impact of Premiums and Copayments on Substitution
The majority of states' efforts to limit substitution have been focused on the dynamics that drive families to "opt out" of purchasing insurance coverage for their children. State strategies to limit individual-based substitution have included the use of premiums and copayments that mirror requirements in the private market. For example, New York State believed that a $9-$13 monthly premium per child up to a family of three would discourage most families from dropping private insurance to enroll in the New York Child Health Plus Program. Data, however, did not support this belief. As a result, the state program continues to experiment with cost-sharing.
States have also established copayments for physician visits, prescription, and emergency room use to mirror the requirements of private coverage. The Florida Healthy Kids program also believes that setting copayments at a comparable rate to private health coverage discourages families from substituting private coverage for the Healthy Kids program.
- The Role of Administrative Costs in Developing Approaches to Cost-sharing
The administrative burdens on the program or its providers to collect premiums or copayments is another issue considered by the states. Many programs have shifted the burden of collecting copayments to providers in order to reduce the administrative costs to the program. However, it has been suggested by some states that, in many cases, providers have either been unable or unwilling to collect copayments from beneficiaries who were incapable or unwilling to pay for services rendered. This becomes a concern for providers who collect copayments from patients as a portion of their reimbursement under the program. For these providers, the inability to collect copayments may result in an overall decrease in their total reimbursement by the program.
In addition to copayments, to the extent that premium arrangements are complex, administrative burdens may be increased. While all programs need to verify income to establish program eligibility, if premiums are set on a sliding scale, there are concerns with the need for more frequent verification procedures. States also identified concerns with administrative burdens required to communicate the complexities of the payment arrangements to both participants and providers. Costs associated with these issues were not identified.
With the enactment of Title XXI, states will also be determining how best to handle the 5% limit on cost-sharing as a percent of income for families above 150% of the poverty level. For example as Colorado moves into its Title XXI program, The Colorado Children's Health Insurance Plan, they have decided that asking plans to monitor levels of family income for those above 150% of the poverty level would be too burdensome. Consequently, Colorado will allow families to monitor their own income. When a family's income changes so that the cost-sharing would exceed 5% of their income, families must submit documentation of their income to the state. At that point the state will reevaluate the family's cost-sharing. Colorado has also set the cost-sharing limits low enough so that there will be very few instances where the 5% is exceeded. Decisions regarding the details of the verification process were still being made at the time of this review.
Individual child per month Family with two or more children, per month Copayments Under 100% FPL No premium No premium $0-2 depending on service 101-150% FPL $9 $15 $0-2 depending on service 151-169% $15 $25 $0-5 depending on service 170-185% $20 $30 $0-5 depending on service