Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. Mechanism 2: Using Periods of Uninsurance, Access to Employer-Sponsored Insurance, and Employer Contributions


Several states have established requirements based on access to employer-sponsored insurance, employer contributions, and/or specific periods of uninsurance as a means to limit substitution. MinnesotaCare has instituted relatively stringent time and cost requirements, described by some as "firewalls" in order to prevent the crowd out of employer-sponsored insurance. For example, MinnesotaCare requires that prior to enrollment in the program, families may not have access to employer-sponsored coverage in which an employer subsidizes 50% or more of the cost of the policy for at least eighteen months preceding application to the program. However, some exemptions apply. All children under 150% FPL are exempt from this requirement. Children in families over 150% FPL are exempt from this requirement if a parent becomes unemployed and loses access to employer sponsored coverage.

Additional states have instituted policies that base eligibility on an inability to access employer-sponsored insurance in accordance with minimum employer contribution levels; however, the minimum employer contribution and rates of access vary across programs and states. Overall, states have suggested that eligibility based on access to employer-sponsored insurance is an effective requirement that limits substitution. For example, Florida has found that most of their enrollees are either self-employed or employed in industries where insurance is not available, thus reducing the probability of individuals entering the program for the purpose of substituting for employer-based insurance.

Three states have established periods of uninsurance, whereby individuals enrolling in programs would by definition already be uninsured. Florida initially implemented a six-month period of uninsurance for children whose applications indicated that they had access to employer coverage. However, this restriction was eliminated after hearing testimony from families and identifying evidence that families who otherwise lost their insurance through no fault of their own would possibly postpone seeking services during the six month period. This might result in an increased pent up demand upon their initial enrollment and possibly a more costly health problem for health plan partners to treat. Colorado is evaluating what the "most appropriate" period of uninsurance to limit substitution would be without hampering timely access to coverage. Currently, Colorado requires a three-month period without insurance coverage. In addition, some states have identified underinsurance as an eligibility requirement. MinnesotaCare has liberally defined underinsurance as any child below 150% FPL who lacks both dental and vision benefits; therefore, such children meeting other eligibility criteria may be granted access to the program.

With respect to uninsurance periods, waiting lists have been found to inadvertently limit substitution. Few states have waiting lists, yet for those that do, individuals with employer-sponsored insurance will be deterred from dropping existing coverage in order to be placed on a waiting list. Although this has occurred naturally, states have not purposefully instituted waiting lists as a means to control substitution.

The process of verification of access to employer-sponsored insurance, employer contributions, and periods of uninsurance has been challenging for states. Most states verify eligibility based on self disclosure or the "honor system," as other means of verification are costly and increase the complexity of enrollment processes. Some states have chosen to piggy back on other existing state programs in order to efficiently evaluate eligibility status. The most commonly cited example has been the process used by the Florida Healthy Kids Corporation in which eligible children are required to qualify for the National School Lunch Program. Other states have chosen to utilize existing verification structures of state Medicaid programs to assist in the determination of eligible enrollees. MinnesotaCare has utilized an audit procedure by which enrollees are retrospectively surveyed to determine if they had access at the time of enrollment. In addition, if an individual applies for MinnesotaCare and the program believes that their employer provides insurance, the enrollment office sends an "employer report form" to the employer to verify that no coverage is offered. Anecdotal evidence provided by MinnesotaCare has suggested that most individuals are not purposefully substituting, but rather do not realize they have access to coverage with an employer contribution of at least 50%.