Examining Substitution: State Strategies to Limit "Crowd Out" in the Era of Children's Health Insurance Expansions. VII. Discussion


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.

Substitution is a complex issue and is further complicated by the lack of state-specific data collected on both individual- and employer-based substitution. Actual estimations of substitution are dependent upon the definition itself, i.e., employer- versus individual-based substitution. In lieu of actual data, states have made policy decisions based upon anecdotal information provided by individuals and employers regarding substitution. States have also identified the complex factors affecting consumer choice, acknowledging that families make difficult decisions regarding health insurance coverage for their children, based upon many factors including affordability of the coverage, the types of policies and cost sharing requirements provided by employers, and the availability and accessibility of public programs. The new infusion of federal funding for state programs and the potential impact such funds may have on substitution needs to be considered both in light of past state experiences as well as future program decisions. The sheer volume of children entering the market via state programs may change the type of health plans offered in the market. Health plans may begin to offer employee-only coverage or children-only policies as a result of the availability of new public money targeted to insure low income children. There may also be cost implications for current employer-based coverage as children move to public programs. As children are relatively inexpensive in terms of health care expenditures, displacing them from the risk pool may cause an increase in costs, directly impacting individuals in small employer plans with existing dependent coverage.

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.

The purpose of this paper was to report state experiences with substitution and the strategies states employed to limit the effects of that substitution on the market. Title XXI requires states to take responsibility for the effect of substitution on their new programs. States must recognize that individual state strategies may be uniquely effective within the structure and confines of that market and state. Although some strategies may not be effective in some environments, states can learn from and develop alternatives based on other states' experiences. This will require states to consider the full range of alternatives when deciding to implement strategies that are meaningful to their own political and market climate.