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Children's Health Insurance Expansions: State Experiences in Developing Benefit Packages and Cost-Sharing Arrangements

Publication Date
Feb 16, 1998

Contract #100-96-0011

Delivery Order No. 2
Final Report

Submitted To:
The Office of the Assistant Secretary for Planning and Evaluation
Office of Health Policy
U.S. Department of Health and Human Services

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Introduction

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.

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.

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).

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.

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.

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:

Benefit Packages

  • 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?

Cost-sharing Arrangements

  • 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

Overview of Programs Reviewed

A brief overview is presented here to help understand the context for the nine programs whose benefit packages and cost-sharing arrangement are described. Short profiles of each program are also included as an attachment to this paper and other aspects of these programs are described in additional papers.

Medicaid Expansion Programs: Minnesota, Tennessee and Washington

Prior to the enactment of Title XXI, states expanding health insurance coverage for children used both expansions of their Medicaid programs beyond Federally mandated eligibility levels and private insurance programs. States that decided to expand Medicaid generally did so to take advantage of the existing administrative structure and to benefit from the ability to get federal support in sharing the costs of the expansion. While states could expand coverage in their programs under Section 1902(r)(2) of the Social Security Act, these expansions generally had to conform to existing Medicaid provisions and expansions were limited to those who met the programs categorical requirements. Those states wanting to expand eligibility more broadly (e.g., include all individuals below a given income threshold) and receive federal match for these expansions were required to apply for federal approval of demonstration waivers under Section 1115 of the Social Security Act. The 1115 waivers also were used by the states to expand the use of mandatory managed care in the Medicaid program in order to obtain cost savings that could be used to finance coverage expansions. 1115 waivers are granted for a five year period (they can be renewed for three years) and are subject to evaluation of cost neutrality.

Of the nine states examined for this paper, three have enacted Medicaid expansions to insure additional children: Minnesota, Tennessee and Washington. Eligibility requirements for these programs are detailed in Table 1. All three states currently are operating their programs under 1115 waivers although two of the programs did so after having implemented state only efforts.

Table 1: Eligibility for Children in Medicaid Expansion Programs
(as of August 1997)

  Minnesota Care TennCare Washington Basic Health Plus
Age <21 <18 <19
Income <275% FPL No Income Limits <200% FPL

Minnesota

MinnesotaCare began as a private program in 1992. It was created by the MinnesotaCare Act, legislation that included a variety of laws aimed at reducing costs and expanding access to health care for the uninsured. In 1995, MinnesotaCare was approved as an 1115 waiver demonstration. Because the MinnesotaCare benefit package for children was already very comprehensive, the waiver had little impact on benefits for this population. The implementation of the waiver did, however, change MinnesotaCare's funding stream by making it eligible for federal matching funds. The program moved all AFDC-related families and poverty-related pregnant women and children into mandatory managed care. Phase I extended Medicaid coverage to uninsured families with children under 275% FPL, adding 100,000 more children. Phase II extended Medicaid coverage to uninsured low-income adults without dependent children. Children and pregnant women in the demonstration receive all benefits available to traditional Medicaid enrollees. On May 19, 1996, legislation expanded the income threshold for families without children from 135% FPL to 175% FPL. Families with children will still remain covered up to 275% FPL. Current program enrollment for children up to 21 years of age was 54,428 as of August 1997.

Tennessee

TennCare is a Medicaid 1115 waiver program that began on January 1, 1994, when the existing Medicaid population was shifted into managed care, and the program was opened up to uninsured Tennesseans. Tennessee residents were eligible for TennCare under the uninsured category if they did not have insurance on March 1, 1993. If enrollees have income levels above 100% of the poverty level, they are charged premiums and copayments based on an income sliding scale. The impetus for TennCare was fiscal, as the Medicaid program could not afford to continue operating under a fee for service arrangement. The rapid changeover to managed care resulted in cost savings that allowed more than 400,000 uninsured Tennesseans to obtain coverage through the program. On January 1, 1995, the state closed enrollment to the uninsured population, but remained open to those who were eligible for Medicaid. Enrollment was reopened for children under age 18 who did not have access to insurance on April 1, 1997. Adding another relatively healthy population (uninsured children) to the patient mix has contributed to keeping TennCare's costs low.

Washington

Washington State created the Basic Health Plan for its uninsured population under 200% FPL in 1988. In 1993, in order to expand the state-only sponsored program to more participants, the state decided to seek a federal match for part of the population through a Medicaid expansion for children ages 0-19 under 200% FPL. This Medicaid expansion was called Basic Health Plus in order to avoid the stigma of Medicaid and to correlate it to the Basic Health Plan, the program with a more limited benefit package. The Basic Health plan is offered to both adults and children and had almost 8,000 children in this subsidized plan as of November 1997.

Stand-alone Insurance Programs: California, Colorado, Florida, Massachusetts, New York, and Pennsylvania

Many states have developed children's health insurance subsidy programs independent of Medicaid in order to have greater flexibility in program design. These states were not required to obtain federal approval, but also were not able to obtain federal matching funds that were available to the states using Medicaid waivers to achieve their coverage objectives. Out of the nine selected states, six have stand-alone programs: Colorado, California, Florida, Massachusetts, Pennsylvania, and New York. Eligibility requirements for these six programs are detailed in Table 2.

Table 2: Eligibility for Children in Standalone Programs (as of August 1997)

 

CaliforniaKids

Colorado Children's Basic Health Plan

Florida Healthy Kids

Massachusetts Children's Medical Security Plan

New York Child Health Plus

Pennsylvania CHIP

Age 2-18 <13 5-19 <19 1< 19 <16
Income 150-200% FPL <185% FPL No Income Limits No Income Limits <222% FPL <185% FPL
0-6 years: 185-235% FPL
Medicaid Ineligibility Required Yes Yes Yes No Yes Yes

The Three Caring Programs

Three of these state-sponsored programs were modeled after the Blue Cross Blue Shield Caring Programs: the Pennsylvania Children's Health Insurance Program (CHIP), which was implemented in 1993 and serves children up to age 16 under 185% FPL; the Colorado Children's Health Plan (CCHP), which was implemented in 1992 and serves children up to age 13 under 185% FPL; and the CaliforniaKids program, which was implemented in 1992 and serves children ages 2-18 under 200% FPL. All three programs were initially designed to provide coverage for a population of low-income uninsured children in a specific region of each state. While the CaliforniaKids program has remained somewhat localized, serving 33 counties in California, the programs in Colorado and Pennsylvania have expanded in order to serve children statewide. Among the stand-alone insurance programs examined in this paper, CaliforniaKids is unique in that it is entirely a privately funded initiative. CaliforniaKids is a corporate-sponsored, community-based program that was originally piloted in 1992 as part of Blue Cross of California's Partnerships Program. The Pennsylvania Children's Health Insurance Program is supported by a two cent per pack state cigarette tax, generating approximately $21.5 million annually. In 1996, the program's request for an additional one cent per pack did not pass but the state Legislature appropriated an additional $10 million for the program. Colorado's program receives support from a combination of state appropriations and private donations including the state general fund, a portion of the Medicaid teaching adjustment paid to the University Hospital, state cash reserves and interests paid on those reserves, private donations, and enrollment fees.

New York

New York's Child Health Plus program was originally implemented to provide a modest benefit package to as many children as possible within the state. The program initially served only children under age 13 and provided only outpatient benefits. A series of expansions have occurred in both the size and the scope of the program, and New York's Child Health Plus is currently the largest of the non-Medicaid children's insurance programs, serving 135,000 children as of August 1997. New York's Child Health Plus serves children up to age 19 under 222% of the poverty level.Inpatient benefits were added to the program in October 1997. Financing for Child Health Plus comes from the statewide bad debt and charity care pool established under the New York Prospective Hospital Reimbursement Methodology.

Massachusetts

The Massachusetts Children's Medical Security Plan (CMSP) was created in response to the national focus on health care reform. Another driving force behind the formation of the plan was an interest in reducing infant mortality in Massachusetts. Massachusetts was the first state to offer prenatal care up to 200% of the FPL, and CMSP evolved out of this initiative. The program initially began as a program for preschoolers age 0-6, but was subsequently expanded to include children up to age 13, and then up to age 18. Currently, the program is open to families up to 400% of the poverty level. CMSP provides premium-free services to children up to the age of 18 under 200% FPL, with families between 201-400% FPL charged a reduced premium rate based on income and family size. There are three sources of funding for the program: tobacco taxes; general funds; and family contributions.

Florida

The Florida Healthy Kids program requires local counties to participate in the finance and benefit package design of their individual county health insurance program. Local counties contribute 40% and state government contributes 25% of the total medical costs. In addition, the state appropriated $13 million from general revenue funds in 1996 to 1997. Children are grouped together for insurance purposes according to their school districts, and counties determine if they would like to provide benefits for the children in their school districts beyond the standard Healthy Kids package (e.g., add dental benefits or allow children who are younger than school age to enroll). The school lunch program determines eligibility for subsidized health insurance under Healthy Kids. There are three tiers of premiums: children on the free lunch program (less than 133% FPL); children on the reduced lunch program (less than 185% FPL); and all other children, who are required to pay the full premium.

Benefit Design

Designing a Benefit Package

There are a series of complex decisions that states must make when designing a children's health insurance benefit package. The states included in this review of programs developed prior to the enactment of Title XXI faced decisions that differ in part from those now facing states who must respond to the specific requirements of Title XXI. In particular, the stand alone programs did not have to address any requirements for specific federally defined benefits.

Like states under Title XXI, however, the states in this review had the option of considering whether to expand coverage under a Medicaid expansion or by creating a separate health insurance program. As part of that decision, states identified the objectives they wished to achieve, such as: provision of a comprehensive benefit package (generally through a Medicaid expansion); provision of primary and preventive services to as many uninsured children as possible; and provision of coverage for a specific population of uninsured children (i.e., filling a gap).

The benefits offered by the states presented in this report as of August 1997 are described in Table 3 below.

Table 3: State Benefit Packages

      California-Kids Colorado Children's Basic Health Plan Florida Healthy Kids1 MA Children's Medical Security Plan Minnesota-Care New York Child Health Plus2 Pennsylvania CHIP TennCare Washington Basic Health Plus
    Well Child Visits

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Immunizations

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Sick Care

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Outpatient Care

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Inpatient Care    

    x

     

    x

    x

    x

    x

    x

    Emergency Room Use

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Prescriptions

    x

    x

    x

    x

    x

    x

    x

    x

    x

    Dental Care

    x

     

    x

     

    x

     

    x

    x

    x

    Eyeglasses

    x

     

    x

     

    x

     

    x

    x

    x

    Hearing Aids

    x

     

    x

    x

    x

     

    x

    x

    x

    1 Not all Florida counties offer dental benefits.
    2 New York benefits were expanded to include inpatient care effective 10/1/97.

    Objective 1: Providing a comprehensive Medicaid benefit package
    Minnesota, Tennessee, and Washington opted to provide a comprehensive array of benefits under a Medicaid expansion. Due to the comprehensiveness of the coverage requirements, these states provide inpatient care and dental, vision and hearing services, in addition to preventive care. For example, MinnesotaCare provides a rich benefit package modeled on the state Medicaid program for children up to 275% of the poverty level. Comprehensive health care services are offered, including dental care, eyeglasses, mental health and substance abuse treatment, chiropractic care, home care, hospice care, and durable medical equipment.

    Objective 2: Providing preventive services to as many children as possible
    The Colorado Children's Health Plan, CaliforniaKids, Massachusetts Children's Medical Security Plan and New York's Child Health Plus programs decided to provide preventive health services to as many children as possible. By focusing on covering as large a population as possible, these states opted for a more limited benefit package. Their benefit packages excluded such costly services as inpatient, dental, vision, and hearing. For example, New York's Child Health Plus Program, the largest of the 13 non-Medicaid, taxpayer-funded child health insurance programs, provided a modest benefit package which covered preventive care, ambulatory surgery, emergency care, and prescription drugs. As of July 1, 1997, the program was providing coverage to over 135,000 children. This program expanded its benefits to include inpatient care as of October 1, 1997, but has raised premiums to offset the costs of adding this benefit. Similarly, the CaliforniaKids program was designed to limit inappropriate emergency room use by providing preventive care to as many children as possible. By excluding inpatient care, the program was fiscally capable of reaching a broader population of children.

    Objective 3: Providing coverage for a specific population of uninsured children
    Some children's health insurance programs were established to provide insurance for a specific population. The Caring Programs were initially the only programs that had experience developing health insurance products for a "gap" population. The first Caring Program was established in Western Pennsylvania in 1989 after the steel industry lay-offs, and its tremendous public appeal led to replication efforts in twenty-six other sites. The Caring Program generally serves children within 100-150% of the poverty level. The Caring Program model was designed to provide transitional care for children without insurance coverage and as such did not include a comprehensive benefit package. The limited benefits of the Caring Program led many states to significantly expand their benefits over time. For example, when the state of Pennsylvania established its state-sponsored Children's Health Insurance Program (CHIP), the state modeled its state program on the original Caring program but added additional benefits such as dental, vision, hearing, prescription drugs, and hospitalization to meet state legislative requirements. The following year, 1994, both the CHIP and Caring Programs added mental health benefits.

    The Colorado Children's Health Plan, also initially modeled on the Caring Program, is now being significantly expanded to include inpatient services and mental health care when it is incorporated into the new Children's Basic Health Plan in July 1998. The Colorado Children's Health Plan (CCHP) initially targeted families in rural counties in northeast Colorado, since those families had limited access to health care and few safety net providers were available to fill the gaps. The program gradually expanded throughout the state. Benefits included most primary and preventive services, but did not include inpatient hospital care, eyeglasses, hearing aids or dental care. Benefits were also capped at annual maximum of $10,000 per child.

    The Debates Over Inpatient, Vision, Dental, and Hearing Benefits

    The broad flexibility that states, particularly those with stand-alone programs, had in determining the benefit packages for their programs led to debates regarding inclusion of specific benefits such as inpatient, vision, hearing and dental services. Inclusion of dental, vision, and hearing services was strongly espoused by proponents of the need for a complete primary and preventive benefit package designed to assure children's well-being and functioning. They believed that while there was specific concern with hospital care, it was likely to be available whether or not a child had insurance coverage. On the other hand, children were very unlikely to have a source of care for dental services unless they had insurance coverage for it.

    Some states also believed that limiting the scope or comprehensiveness of the benefit package served as a mechanism to deter families from opting out of employer coverage. Families with children with special health care needs (CSHCN), who often require access to specialty services, were viewed as being less inclined to drop private health coverage for a state program that offers fewer benefits.

    Those opposing the inclusion of certain benefits often argued based on cost of services rather than on the significance of such health services for children. Three states in this review did not provide inpatient care through their programs (California, Colorado, and Massachusetts); three did not provide dental care or vision care (Colorado, Massachusetts and New York); and two did not provide hearing services (Colorado and New York). In Florida, where the counties had some flexibility, not all chose to provide dental benefits.

    Coverage of inpatient care was also a major concern for the stand-alone programs. Those supporting its inclusion felt that inpatient care was an important service to provide in even the most basic benefit package, as it might prevent families from having to spend-down to enroll in Medicaid. Proponents also argued that a benefit package must include coverage for catastrophic illness in order to convince parents to enroll and to ensure continuity of care.

    The issue of inpatient care for children is a very different concern than that for adults. In general, inpatient utilization rates for children are very low with a few major exceptions: premature infants and children with special health care needs who are often covered by Medicaid. Experience has often shown that the costs of this benefit for children are not as high as anticipated. Even so, the debate over whether or not to include inpatient benefits in state programs has been hotly contested. Some states felt that the inclusion of inpatient benefits was essential to ease enrollees' peace of mind and to ensure a quality health insurance program. Other states believed that by adding the inpatient benefit, the children's health plan became competitive with private insurance programs. As a result, these states believed that substitution of private coverage for the "public" program might occur.

    The costs of hospitalization benefits particularly in contrast to other benefits, whereas viewed as expensive. States generally debated over whether to provide a more limited insurance product for more children or include inpatient benefits and therefore serve fewer children. CaliforniaKids did not offer inpatient benefits in order to provide a greater number of children with preventive care. The experience of this program has shown that CaliforniaKids enrollees have very infrequently needed hospitalization, and in the few instances when they have, they have been referred successfully to the MediCal (Medicaid) program.

    In states where parents bear a substantial portion of the program cost, such as Florida, the inclusion of hospitalization benefits was seen as essential to insure participation in the program. New York also to added hospitalization benefits to the New York Child Health Plus package to increase its attractiveness to parents. Consumer and anti-poverty groups advocated unsuccessfully for other alternatives to a hospitalization benefit including: expanding the benefits to include dental care instead of inpatient care,; and offering families the option of buying a cheaper, basic plan without hospitalization. The inclusion of inpatient benefits resulted in a dramatic increase in cost for parents. Initially the state believed that children whose parents pay the entire cost of the program were dropping coverage, but the most recent data reviewed by the State no longer did not supports this assumption.

    Some states expanded their benefit packages as costs of their initial programs turned out to be lower than anticipated. Many of the programs have continued to focus on preventive care in order to avoid competition with employer-based plans and to cover more children. When CaliforniaKids began in 1992, a primary and preventive care model was used so that as many children as possible could be enrolled and then the program expanded as more funding became available. Actuaries estimated that it would cost $33 per child per month to provide outpatient visits, emergency room visits and prescriptions. After the first year, the program was found to cost $22 per child per month. The decision was made to expand the benefits to include vision care. In the following year, continuing low costs resulted in the addition of dental benefits and a 24-hour emergency hotline.

    In the Florida Healthy Kids program, all counties are required to include inpatient care in their benefits packages, but counties are not required to offer a dental benefit. Out of the 19 counties participating in the Healthy Kids program, however, nine have opted to provide dental benefits. Massachusetts, New York and Colorado do not offer dental benefits in order to contain program costs.

    State Approaches to Cost-sharing

    A. Cost-sharing Mechanisms Used by the States

    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  

    1Florida Healthy Kids has a family cap on premiums in some locations. However, it only applies to families who pay the full amount each month for multiple kids and who are not subsidized.

    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

    1 Massachusetts has sliding scale copayments based on family income guidelines of $1, $3 or $5.
    2 Both the New York Child Health Plus program and the Florida Healthy Kids program do not assess a copayment when the use of the emergency room is appropriate.

    B. Reasons for Imposing Cost-sharing

    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.

    C. Addressing Price Sensitivity

    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. 

    • Florida experimented with raising premiums beyond ten dollars in Volusia county, but found these amounts resulted in decreased enrollment. State program representatives felt that premiums at a lower level (between $5-10) were a viable means of evoking a sense of responsibility in participants by making public insurance comparable to employer-sponsored coverage.
    • CaliforniaKids also experimented with cost-sharing levels. The program is currently experimenting with serving families over 200% FPL in San Diego and has implemented sliding scale premiums: Families between 200-250% of the poverty level pay a premium of $25/member/month, and families between 250-300% of the poverty level pay $35/member/month. CaliforniaKids is monitoring enrollment rates to determine whether premium levels are discouraging families from participating.
    • The New York Child Health Plus program found that recent premium increases have resulted in decreased enrollment. Families between 120% and 222%, previously receiving full premium subsidies, are paying between $9-13 per member/month, effective October 1, 1997. Although participants received a letter informing them that these premiums will again be adjusted to lower rates, pursuant to Title XXI, the program is still seeing families disenroll.

    D. 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.

    The Florida Healthy Kids program has a sliding scale based on three levels and premiums vary by county. Levels are based on the eligibility criteria the state uses for enrollment in the school lunch program: Free Lunch, Reduced Lunch, and Not on Lunch Program. This results in premiums in Volusia County of $10 per member/month for students on the free lunch program, $25 for students on the reduced lunch program, and $48 per month for those not participating in the lunch program. Florida Healthy Kids chose sliding scales based on the lunch program rather than income because it was easier for families to understand. The program staff indicated that many families do not know what percentage of poverty they are, whereas they know if they are receiving free or reduced lunch.

    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.

    E. 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.

    F. 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.

    G. 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

      Conclusion

      This paper has reviewed the experiences of nine states that used either Medicaid expansions or developed stand alone programs to expand health insurance for children prior to the enactment of Title XXI. Their decisions regarding benefits and cost-sharing arrangements reflected the overall program objectives they were trying to achieve and the cost implications of their choices. The objectives the states considered included: assuring a comprehensive benefit package through a Medicaid expansion; provision of primary and preventive services to as many uninsured children as possible; and/or addressing coverage for a specific population of uninsured children such as transitional care to children without health benefits. As states consider their options under Title XXI, these same factors are likely to affect their decision-making.

      States' decisions regarding cost-sharing arrangements reflected their overall philosophy regarding premiums and copayments and trial and error approaches. States considered cost-sharing mechanisms such as premiums, fees for enrolling in the program, and copayments for specific services as a means of offsetting cost, a way to instill a sense of responsibility in participants for their health care, and/or a way to minimize the welfare stigma associated with public programs. For the majority of states, the cost recovery features were not a major driving force. Cost-sharing was viewed by some states as a way to limit potential substitution effects of the public programs and provide a bridge between public and private programs.

      A major issue underlying the states considerations of cost-sharing approaches was price sensitivity. States emphasized concerns that programs be affordable and not deter enrollment of targeted populations and their appropriate utilization of services. However, decisions related to cost-sharing were generally based on anticipated effects and limited experience. There is presently little evidence or data on the appropriate levels of cost-sharing and the use of sliding scales and family caps to maintain affordability. As all states move toward implementation of Title XXI, evaluation and research related to price sensitivity may provide important information for further decisions.

      Attachment A: Sliding Scale Examples

      Table 6: TennCare Premium Sliding Scale

      Family Monthly Premium $0 $24.50 $32.25 $47.50 $70.50 $183.50 $200.75
      Percentage of Poverty 0-100% 101-119% 120-139% 140-169% 170-199% 200-209% 210-219%

      Source: http://170.142.16.205/health/tenncare/premiums.htm

      Table 7: NY Child Health Plus Premium Sliding Scale

      Monthly Premium $0 $9 per child up to family maximum of $36 $13 per child up to family maximum of $52 Full premium:
      $58-99 per member
      Percentage of Poverty 0-120% 120-159% 160-222% +222%

      Table 8: MA Children's Medical Security Plan Premium Sliding Scale

      Monthly Premium $0 $10.50 per child up to family maximum of $31.50 Full premium
      $52.50 per child
      Percentage of Poverty 0-200% 201-400% +400%

      Table 9: FL Healthy Kids Corporation Premium Sliding Scale

      County Volusia Dade Santa Rosa Hardee
      Free Lunch $10 $10 $5 $5
      Reduced Lunch $25 $20 $15 $13
      Not on Lunch Program $48 $51 $53 $49

      Table 10: PA BlueCHIP Premium Sliding Scale

      Grantee and Region Free Subsidized State Share Subsidized
      Central
      CBC/KHPC
      CBC/KHPC
      KHPC & USHC

      $63
      46.44
      52.23

      $81.90
      60.37
      67.90

      $40.95
      30.19
      33.95
      Northeast
      BCNEPA
      First Priority Health

      $59.14
      59.14

      $76.88
      76.88

      $38.44
      38.44
      Southeast
      USHC & KHPE

      $52.23

      $67.90

      $33.95
      Western
      KHPW
      USHC & KHPW
      BCWPA

      $64.25
      51.77
      62.50

      $83.53
      67.30
      81.25

      $41.77
      33.65
      40.63

      Abbreviations: BCNEPA, Blue Cross Northeast PA (Caring Foundation of Northeastern PA); BCWPA, Blue Cross Western PA (Western PA Caring Foundation); CBC, Capital Blue Cross (Caring Foundation of Central PA); First Priority Health, Caring Foundation of Northeastern PA; KHPC, Keystone Health Plan Central (Caring Foundation of Central PA); KHPE, Keystone Health Plan East (Independence Blue Cross & PA Blue Shield); KHPW, Keystone Health Plan West (Western PA Caring Foundation); USHC, U.S. Healthcare.

      Table 11: MinnesotaCare Premium Sliding Scale

      Percentage of Poverty Premium Contribution by Number Covered
      1 2 3
      0-62% $4 $8 $12
      62-89 5-7 10-14 15-21
      89-115 9-12 18-23 28-35
      115-142 16-19 32-39 48-58
      142-168 24-28 49-57 73-85
      168-195 36-41 73-83 109-124
      195-221 52-58 103-116 155-174
      221-248 74-82 147-163 221-245
      248-275 98-128 196-255 294-383

      Table 12: Oregon Health Plan Premium Sliding Scale

      Percentage of Poverty

      Number of Non-Exempt HPNs in the Benefit Group

      0 1 2 3 4 or More
      0-50% 0 $6 $6.50 $7 $7.50
      50-65% 0 15 18 20 22
      65-85% 0 18 21 24 26
      85-100% 0 20 23 26 28

      Attachment B: Overview of State Programs

      Populations
      Children
      Location- & Geography-Based Data
      State Data
      Program
      Children's Health Insurance Program (CHIP)