V. ESTIMATING THE AMOUNT OF SUBSTITUTION
Currently, there are minimal data on the levels of substitution resulting from individual states' efforts in providing children's health insurance. A few states have some initial estimates of the effects on their programs, but important data gaps exist.
· MinnesotaCare determined that of the 7.1% substitution of public for private coverage, 2.8% was employment-based and 4.2% was self-insured, with the majority of respondents reporting that they could not afford the insurance to which they technically had access. Of those sampled in MinnesotaCare's evaluation, 86% applied due to cost, 67% due to benefits, and 61% reported that MinnesotaCare was their only way to acquire health coverage. Both of these surveys exclude small employers and are likely to under-represent employers in low wage service industries, such as food service.
· New York's Child Health Plus program determined that of their participants who had previous access to insurance, 10% dropped coverage because their income was too low to afford private insurance yet too high for Medicaid; and 12% dropped coverage because private insurance premiums were too high.
· Anecdotal information on substitution from CaliforniaKids found that most families which dropped employer coverage did so because it neither provided necessary services nor was affordable. In addition to considering cost and benefits, family decisions to "opt out" of private coverage are also impacted by secular trends in the job market, insurance industry, and general economy, which will be discussed in later sections.
Qualitative data derived from the September 9th meeting and interviews with state officials revealed limited evidence of employer-based substitution. Available data from employer surveys confirms states' experiences: 1,100 employer plans questioned by the Hay/Higgins survey in 1992 through 1996 indicated that they all provide coverage for dependents; and in the KPMG 1996 survey of employer health plans, all but 1% provide dependents coverage on an optional basis. One state representative commented that fears regarding employer substitution wrongly assume that employers are familiar with state policies and savvy enough to correlate their workers' salaries with eligibility levels of state programs. The Director of the Florida Healthy Kids Program noted that the majority of their participating families are self-employed, employed in service and tourist industries, or employed in small companies with no access to SSI or affordable private coverage. In addition, a recent Florida evaluation found that approximately 38% of parents whose children are enrolled in Healthy Kids are employed part time. Hence, there has been little concern about employers dropping coverage. Likewise, the MinnesotaCare representative theorized that the advent of MinnesotaCare did not cause employers already offering insurance to drop coverage. However, it was possible that MinnesotaCare may be providing new or existing companies who did not offer insurance prior to MinnesotaCare less of an incentive to now offer coverage. In addition, there is concern that although employers may not be dropping coverage altogether, they may be dropping the amount of their contributions toward individual and dependent coverage.
B. There is a disconnect between state experiences and research.
The discrepancy between state experiences and research findings may be attributed to an overall lack of data and inconsistencies in existing data. Information collected from the states reveals a disconnect between state experiences with substitution and research findings. While research has yielded varying estimates of crowding out private coverage, ranging from 0-50%, states providing coverage for low-income children indicate they have seen little evidence of these levels of substitution. Although the majority of these states have not collected sufficient data to determine an accurate estimate of crowd-out, states' anecdotal evidence pointed to minimal numbers of enrollees with access to affordable private coverage and did not seem to warrant further investigations. States queried about their experience with substitution noted that despite some researchers' predictions about employers strategically eliminating or reducing their contribution to employee health benefits, real or potential crowd out is primarily the result of families opting to discontinue private insurance for financial reasons.
States that have collected information on the number of program participants with previous insurance, revealed estimates that were lower than estimates derived from nationally-based research.
· Preliminary data from Colorado's Child Health Plan estimate that 0.007% dropped employer coverage to enroll in the plan. In addition 5% of their enrollees carry other insurance coverage.
· Florida's Healthy Kids program estimates that 94% of their children had been uninsured for 6-12 months before enrolling in Healthy Kids.
· New York found that more than 50% of all Child Health Plus enrollees had no insurance at all during their lifetimes; approximately one-sixth had Medicaid prior to Child Health Plus; and approximately one-sixth were underinsured or fully insured.
MinnesotaCare, which began as a state sponsored program in 1992 and switched to a Medicaid waiver program expansion in 1995, is one of the few programs that has evaluated their participants' access to private coverage. MinnesotaCare, offering coverage to families with children under 275% of the federal poverty level, noted that approximately 13% of their enrollees technically had access to other health coverage: 7.1% reported giving up private market insurance and 5.7% of the sample reported dropping coverage from another public program to enroll in MinnesotaCare. Of note, the majority of enrollees who had access to private insurance said they could not afford it.
While research has shown varying estimates of substitution, few investigations have examined the motivating factors behind employer- and individual-based decisions regarding health insurance. At least some of the apparent substitution of public coverage may be linked to secular trends in the job market, insurance industry and the general economy. These secular trends may affect employer and individual decisions which, in turn, may affect rates of substitution. This section will focus on the impact of economic and political factors, managed care, types of employment, and employee contributions on substitution.
1. Economic and Political Factors
As the marketplace varies by region throughout the United States, it is plausible that substitution also varies based on the unique economic and political environment within each state. For example, wage and cost-of-living differences in the North and South translate into different earning power for families at 200% of poverty. States with a proclivity to more service-oriented industries are likely to have a greater percentage of workers without access to health insurance. The Healthy Kids program, situated in Florida where tourism and farming drive the marketplace, found that the majority of their participants were from families employed in service-related jobs that do not typically offer employee coverage, i.e., waitressing, landscaping, the fast food business, hotel maintenance staff, and small businesses geared toward tourism. Similarly, the RIteCare representative theorized that many of their participants come from Rhode Island's textile, jewelry, and fishing industries, which are not likely to offer coverage.
Other market conditions such as the nature of unemployment may also affect insurance levels. For example, the economy in Oregon is relatively strong which has tightened the competition for employees. This has resulted in increased benefits and improved incentives being offered by employers. In other cases, where there is less competition for labor, employers may attempt to limit costs, including benefit costs, resulting in better product pricing. Such conditions are likely to affect the nature of insurance offered by employers, and the costs to employees, especially for dependent coverage.
The increased use of managed care may potentially reduce substitution effects. Managed care penetration, which impacts the affordability of insurance, varies by region and also may impact substitution. Oregon, which has actually witnessed an increase in employer-sponsored insurance, has a relatively high-managed care penetration rate of approximately 60% or higher within the state's insured population. Managed care options such as health maintenance organizations (HMOs), preferred provider organizations (PPO), and point-of-service plans (POS)
are appealing insurance options for employers. A strong state economy and a competitive labor market that requires employers to provide insurance coverage as a means of attracting workers affect Oregon's high rates of employer-sponsored insurance. Costs to small employers for health insurance are also relatively low in Oregon: the average premium for a 2-50 person business is approximately $425-450 per month for family coverage, which is 15-25% less than the national average.
3. Types of Employment, Firm Size, and Employee Status
Another major factor underlying the declining rates of employer coverage is the shift of employment from high coverage industries such as manufacturing to lower coverage industries such as service industries. Job market trends toward small business employment, part-time work, and lower-wage industries contribute to the increasing numbers of employees without health insurance. For example, a Minnesota study reported that although most employers contributed to the cost of employee insurance, over 50% stated that they either had not worked long enough or did not work enough hours to be eligible. Nationally, the percentage of workers employed in firms with fewer than 25 employees has increased from 28.5% in 1989 to 30.3% percent in 1994 (29.3% in 1996). In addition, the percentage of workers employed part-time increased from 17.7 % in 1989 to 19.3% in 1994. There has also been an increase in lower wage employees, with the percentage of workers earning less than $250 per week increasing from 22.3 % in 1989 to 25.3% in 1994.
The affordability of insurance influences families' decisions to maintain or opt out of employer-sponsored insurance. The increasing amount of employee premium contributions may be encouraging families to substitute public coverage. From 1992 to 1996, the average percentage of the premium paid by workers for individual coverage increased from 17.5% to 21.7%. The percentage of the premium paid by workers for family coverage increased from 23.7% in 1992 to 32% in 1995, but dropped to 29.5% in 1996. Similarly, increases in patient cost sharing requirements may influence individual-based substitution. Although patient cost sharing has remained relatively stable for managed care plans, there have been significant increases in indemnity plans: the median maximum out-of-pocket amount for individuals increased from about $1,200 in 1994 to $1,300 in just one year and the percentage of indemnity plans with an individual out-of-pocket maximum for individuals in excess of $1,500 per year increased from 35% in 1993 to 48% in 1995.
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