Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. Mechanism 3: Use of Subsidies


Some states are designing their programs to work in tandem with employer-sponsored coverage as a means of limiting substitution. Assisting families to purchase private coverage with public funds may deter families from dropping, or not pursuing employer-sponsored insurance beyond their economic reach. While subsidies support families in purchasing insurance in the private market, they may also contribute to substitution. Oregon's 1997-1999 budget proposed the creation of the Family Health Insurance Assistance Program (FHIAP), an insurance subsidy program for families with incomes between 100% and 185% of poverty. Essentially, FHIAP will establish a voucher system for families with access to employer-sponsored insurance, assisting eligible families in buying into employer-sponsored programs. In an attempt to maintain administrative simplicity while limiting crowd out, FHIAP will use an automated billing system to limit administrative costs. Colorado has also considered subsidizing families’ insurance as a viable means of limiting substitution and is considering the implementation of a voucher program. Colorado has identified this strategy as an approach that will prompt the public and private sector to cooperate in the process to insure children. Florida is also considering a type of voucher mechanism that will assist families in purchasing coverage as a supplement to Healthy Kids and other efforts.