Interim Evaluation Report: Congressionally Mandated Evaluation of the State Children’s Health Insurance Program. A. Background and Policy Development


When designing their SCHIP programs, policymakers were concerned that government-sponsored health insurance would be substituted for existing employer-based coverage--a phenomenon known as "crowd-out." The key strategy that states considered for limiting such substitution was to impose a waiting period during which children had to be uninsured before they could be eligible for SCHIP. While many policymakers viewed this strategy as necessary to discourage parents from dropping their children's private insurance and joining SCHIP, others feared that it might erect a barrier for families who could not afford the premiums they paid for private insurance, or for children who need more comprehensive health coverage, or that it could lead to temporary spells of uninsurance. This conflict generated considerable debate in five of the six study states and ultimately led to a variety of policies to prevent crowd-out. In Missouri, the program's high income threshold generated concerns about crowd-out that resulted in inclusion of a waiting period for the Medicaid expansion program. 62 In Texas, too, a 3-month waiting period was established. Legislators and officials in California, Colorado, and Louisiana, after debate, also eventually included waiting periods in their children's health insurance programs to limit crowd-out.

Only in New York were legislators less concerned about crowd-out. Substitution had not surfaced as a problem during the previous six years the state was running its state-funded Child Health Plus program. Nevertheless, CMS officials were concerned that crowd-out might occur, especially among families with incomes above 200 percent of poverty. Therefore, CMS required the state to monitor crowd-out and implement a waiting period should crowd-out exceed a threshold of eight percent over any nine-month period. Louisiana, on the other hand, dropped its waiting period in January 2001, after CMS issued a new SCHIP rule that clarified the Medicaid rule that precludes states with Medicaid expansion SCHIP programs from imposing waiting periods.

62. Waiting periods are not allowed in Medicaid, but Missouri received a waiver of this provision in its Section 1115 demonstration.

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