Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. Implications For Future Expansions Under Title XXI of the Social Security Act


Current research coupled with past experiences of states provides some information for states to consider as they plan and implement programs funded by Title XXI. Four major program design issues were identified as important areas in addressing substitution: the overall design of the program; determining whether to use Medicaid expansions or separate state programs; the development of specific provisions related to employer coverage; and the oversight and evaluation of the expanded program.

One of the most difficult issues facing states is how to design a program that neither limits access to new coverage, nor replaces existing insurance coverage. Among the many programmatic areas that need to be addressed are: the determination of an appropriate benefit package; the implementation of suitable cost-sharing measures; the development of an administratively simple, yet stringent enrollment process; the identification of appropriate eligibility criteria that will encourage enrollment, while limiting substitution; and strategies focused on collaboration with the private market.

It is essential for children's health insurance programs to adequately design programs that target children not eligible for Medicaid, affordable employer-sponsored, or other health insurance programs. Implementation of well-defined state programs that conduct outreach to enroll targeted children while controlling for substitution, may be a vehicle through which states can actually increase participation in all forms of available insurance.

As state programs to insure children have evolved, such expansions have raised a new set of concerns about the effectiveness of these state programs in enrolling only their targeted populations. As programs have expanded into higher income ranges, policy makers, program administrators, and researchers have expressed a concern about the potential that these programs have begun to substitute for employer-sponsored insurance. In an era of limited public resources, the erosion of employer-sponsored insurance coverage has taken center stage in the debate over new or expanded state health insurance programs at the federal level and in some states.

States' strategic choices to be evaluated in the light of federal program goals include: (a) reducing the number of uninsured children over time; (b) increasing the participation of children in public programs for which they are eligible; (c) minimizing the potential to cover children who would have otherwise had private insurance coverage; and (d) creating a private/public partnership which increases coverage for children in the private market. Given the goals of the federal program, states need to determine not only how they will develop strategies to limit substitution, but also how they will evaluate the cost of enforcing enrollment barriers of potential eligibles and the overall impact on administrative complexity.