Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. A. The comparison of benefit packages and program costs drive parental decisions to substitute public programs for private insurance.


  • 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.