This section reviews the nine mechanisms states identified as strategies to address substitution. Exhibit 1 exemplifies the range of state mechanisms used to limit substitution. States investigated various mechanisms that either purposefully or inadvertently limited substitution. States have also emphasized the importance of distinguishing between two types of substitution: individual-based and employer-based. Because different dynamics drive employee and employer substitution, states have implemented specific mechanisms to address these two types of substitution. For the most part, state officials agreed that the primary concern is whether, and to what extent, previously insured workers are dropping their employer-sponsored coverage. Substitution of coverage seems to be primarily driven by individual choices rather than employers strategically eliminating coverage. Although states have distinguished between individual- and employer-based substitution and have established mechanisms focused on limiting both types of crowd out, states and researchers also have identified the overlap between the two. Substitution is a result of the dynamic relationship between the types of benefits employers want to provide to employees and the willingness of employees to participate in the programs offered. Both employers, in offering coverage, and employees, in taking up coverage, are forced to make complex decisions which are driven by complicated issues such as secular trends in the economy and family dynamics.
The extent to which states deliberately institute mechanisms limiting substitution varies by program and state. In some cases, substitution appears to be restricted indirectly through mechanisms established in program designs for other purposes. For example, many states require copayments for services rendered which mirror cost-sharing in the private market. Although required copayments are customarily included in program design for financial purposes, when comparable to private market copayments they limit the number of individuals who drop private insurance to enroll in state-subsidized programs.
The information represented in this document is focused on the experiences of nine states that were either interviewed and/or attended the roundtable discussion. Most states represented in this paper identified the issue of individual-based substitution as a major concern. Other states, either in their current initiatives or future initiatives under Title XXI, may be even more concerned about substitution in its various forms as they cover higher income children under Title XXI.
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A. States have developed a variety of strategies to limit individual-based substitution.
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State mechanisms to limit individual-based substitution primarily target those dynamics that prompt family decisions to opt out of private coverage such as: the cost comparisons of copayments and premiums; the affordability of private coverage; and the comprehensiveness of benefits. The majority of states’ efforts to curb substitution has focused on the dynamics that drive families to opt out since individual-based substitution is a greater concern than employer-based substitution. The primary mechanisms utilized by states include the following: (1) evaluating affordability of private coverage; (2) requiring periods of uninsurance; (3) providing subsidies; and (4) limiting the scope of benefit packages. These mechanisms are effective ways to curb substitution by making state-sponsored children’s health insurance comparable to employer-sponsored coverage.
Exhibit 1: Mechanisms to Limit Individuals from Substituting Private Coverage STATE PROGRAM MECHANISMS TO LIMIT INDIVIDUALS FROM SUBSTITUTING PRIVATE COVERAGE
Evaluating Affordability of Private Coverage
Periods of Uninsurance
Providing Subsidies
Limiting Scope of Benefit Package
Increasing Premiums
Redefining Copayments
CaliforniaKids X
Children’s Medical Security Plan (MA) X
Under considerationg
X
Colorado Child Health Plan To be implementede
Under considerationf
Florida Healthy Kids Corporation X
Xa
Under consideration
MinnesotaCare
X
Xj
NY Child Health Plus Xb
Xc
Xd
Oregon Health Plan To be implementedh
To be implementedi
RiteCare X
Washington Basic Health Plan Plus
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B. Three types of mechanisms are being used by states to enhance the affordability of employer-sponsored insurance.
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While there is no evidence to suggest that employers are strategically eliminating health coverage so that their workers may receive public insurance, several states have been proactive in designing mechanisms to encourage the availability of affordable employer-sponsored insurance. Exhibit 2 exemplifies state mechanisms to limit employers from dropping insurance coverage. Because small businesses, usually defined as less than 50 employees, have difficulty purchasing health insurance at reasonable rates, state efforts to encourage employer-sponsored insurance have specifically targeted small businesses. Oregon, Rhode Island, Washington, Colorado and Massachusetts are examples of states that have either already implemented, or are currently considering, mechanisms to enhance the affordability of employer-sponsored insurance.
Exhibit 2: Mechanisms to Limit Employers from Dropping Insurance Coverage STATE PROGRAMS MECHANISMS TO LIMIT EMPLOYERS FROM DROPPING INSURANCE
Purchasing Cooperatives
Buy-Ins
Reimbursements
CaliforniaKids Children’s Medical Security Plan (MA) Under consideration
Colorado Child Health Plan Under consideration
Florida Healthy Kids Corporation Xa
MinnesotaCare
NY Child Health Plus Oregon Health Plan X
RiteCare X
Washington Basic Health Plan X
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