Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. Mechanism 1: Identifying the Affordability of Private Coverage: Setting Premiums and Copayments That Do Not Deter Utilization or Enrollment


Several states have identified the affordability of employer-sponsored insurance as an important consideration in the implementation of mechanisms to limit crowd out. Affordability is usually defined as the percentage of family income that is believed families could or are willing to use to purchase health care. In developing strategies, states have considered the tradeoffs between encouraging participation and limiting substitution. Specifically, states have identified the importance of establishing cost sharing (e.g., premiums and copayments) that is low enough to encourage participation, yet high enough to limit substitution.

Setting Premiums. While there are no data that directly link the establishment of premiums as a deterrent to families opting out of employer-based coverage, several states anticipate that this is the case. New York specifically identified that while increases in monthly premiums were not established as a mechanism to discourage substitution, it is anticipated that newly established increases will ultimately result in reducing individual-based crowd out. The state has identified that a $9 to $13 monthly premium per child should discourage families from dropping employer coverage to enroll in the New York Child Health Plus Program. Florida’s Healthy Kids program has set premiums that range from $5-10 per child per month for families below 130% FPL and $13-27 per child per month for families from 131-185% FPL. Families pay 100% of premium above 185% FPL. Florida experimented with raising premiums beyond ten dollars, but found these amounts directly resulted in decreased enrollment. Nevertheless, 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.

Defining Copayments. Many existing children’s health insurance programs have established copayments for physician visits, prescriptions, and emergency room use as mechanisms to mirror the requirements of private coverage. The initial intent behind establishing copayments varied by program. The primary rationales state officials expressed were to offset costs and to instill a sense of responsibility in participants. Some states believe that price sensitivity was a critical aspect of determining copayments and cost-sharing policies. Florida and Rhode Island program officials identified the importance of establishing copayments that do not deter eligible families from enrolling in state programs and utilizing necessary services, yet do not encourage the inappropriate use of services.