The recent enactment of the State Children's Health Insurance Program (CHIP), under Title XXI of the Social Security Act is providing $24 billion in funding to states over a five-year period to expand health insurance coverage to uninsured children. Under CHIP, states have the option of expanding their existing Medicaid programs, developing stand alone programs or some combination of the two. As states select their approaches, design of the benefit package including cost-sharing features is one of the critical considerations they are facing. While the legislation defines standards for benefit packages and limits the extent to which states can impose premiums or cost-sharing (i.e., deductibles and copayments), the states maintain a fair amount of flexibility in designing their programs.
This report is based upon an historical review of nine states that have already undertaken major children's health expansions and their experiences in developing benefit packages and cost-sharing arrangements. Qualitative data was collected from representatives of the following states: California, Colorado, Florida, Massachusetts, Minnesota, New York, Pennsylvania, Tennessee, and Washington. State representatives, including children's health program directors, Maternal and Child Health department directors, and Medicaid program staff from all nine states were interviewed on their experiences in determining benefit packages and implementing cost-sharing requirements.
The nine states interviewed for this study are divided into two broad categories: Medicaid expansion programs and stand-alone insurance programs. When designing benefit packages and cost-sharing arrangements, states that adopted Medicaid expansions faced specific issues regarding adherence to Medicaid and Medicaid waiver requirements. In contrast, states that opted for stand-alone programs (i.e., separate subsidized insurance programs) faced different issues regarding the choices in their program design.
Because the programs reviewed here were developed prior to the enactment of Title XXI, some of the issues and concerns described by these programs may not have the same relevance or implications for the future efforts of states. Given the paucity of research to inform state decisions in these areas, however, these prior experiences do help point out many issues and considerations in determining benefits and cost-sharing requirements for the new children's health insurance programs. As such it may provide guidance to states as they develop their programs under Title XXI.
Like states under Title XXI, the states in this review had the option of considering whether to expand coverage under a Medicaid expansion or by creating a separate health insurance program. As part of that decision, states identified the objectives they wished to achieve:
- Three states, Tennessee, Washington, and Minnesota, expanded coverage through the Medicaid program using its comprehensive benefit package. Of the three states, Minnesota began with a non-Medicaid state program.
- Four state programs (Colorado Children's Health Plan, CaliforniaKids, Massachusetts Children's Medical Security Plan and New York's Child Health Plus) decided to provide preventive health services to as many children as possible. By focusing on covering as large a population as possible, these states opted for more limited benefit packages that generally excluded such costly services as inpatient, dental, vision, and hearing. In some cases, the benefit packages were expanded over time, as states realized lower costs than anticipated.
The states also debated inclusion of specific benefits in their packages such as inpatient, vision, hearing and dental benefits, often from a concern with the costs of specific services. Three states in this review did not provide inpatient care through their programs (California, Colorado, and Massachusetts); three did not provide dental care or vision care (Colorado, Massachusetts and New York); and two did not provide hearing services (Colorado and New York). In Florida, where the counties had some flexibility, not all chose to provide dental benefits.
Proponents for more comprehensive benefits generally argued for a complete primary and preventive benefit package designed to assure children's well-being and functioning. For some, there was particular concern over benefits not likely to be available through other sources such as dental services. Others believed that limiting the scope or comprehensiveness of the benefit package served as a mechanism to deter families from opting out of employer coverage. Families with children with special health care needs (CSHCN), who often require access to specialty services, were viewed as being less inclined to drop private health coverage for a state program that offers fewer benefits.
The issue of inpatient care for children is a very different concern than that for adults. In general, inpatient utilization rates for children are very low with a few major exceptions: premature infants and children with special health care needs who are often covered by Medicaid. Experience has often shown that the costs of this benefit are not as high as anticipated. Even so, the debate over whether or not to include inpatient benefits in state programs has been hotly contested. Some states felt that the inclusion of inpatient benefits was essential to ease enrollees' peace of mind and to ensure a quality health insurance program. Other states believed that by adding the inpatient benefit, the children's health plan became competitive with private insurance programs. As a result, these states believed that substitution of private coverage for the "public" program might be more likely to occur.
States generally debated over whether to provide a more limited insurance product for more children or include inpatient benefits and therefore serve fewer children. CaliforniaKids did not offer inpatient benefits in order to provide a greater number of children with preventive care. Their experience has shown that enrolled children have infrequently needed hospitalization, and in the few instances when they have, they have been referred successfully to the MediCal (Medicaid) program. However, in states where parents bear a substantial portion of the program cost, such as Florida, the inclusion of hospitalization benefits was seen as essential to insure participation in the program. New York also added hospitalization benefits to the New York Child Health Plus package to increase its attractiveness to parents. However, inclusion of inpatient benefits resulted in a dramatic increase in cost for parents. Initially the state believed that children whose parents were paying the entire cost of the program were dropping coverage, but the most recent data reviewed by the state did not support this assumption.
Some states expanded their benefit packages as costs of their initial programs turned out to be lower than anticipated. Many of the programs have continued to focus on preventive care in order to avoid competition with employer-based plans and cover more children. When CaliforniaKids began in 1992, a primary and preventive care model was used so that the program could initially form a basic program of children's health insurance and then expand as funding became more available. Actuaries estimated that it would cost $33 per child per month to provide outpatient visits, emergency room visits and prescriptions. After the first year, the program was found to cost $22 per child per month so the program expanded the benefits to include vision care. In the following year, continuing low costs resulted in the addition of dental benefits and a 24-hour emergency hotline.
In the Florida Healthy Kids program, inpatient care is required of all counties, but counties are not required to offer a dental benefit. However, counties are given the flexibility to add a dental benefit if they so desire. Out of the 19 counties participating in the Healthy Kids program, nine have opted to provide dental benefits. Massachusetts, New York and Colorado do not offer dental benefits in order to contain program costs.
State Approaches to Cost-sharing
In the context of children's health insurance, cost-sharing is defined as mechanisms, such as premiums and copayments, that require beneficiaries to share in the cost of providing their health coverage. Cost-sharing requirements, which often deter families from enrolling and utilizing services for children's coverage, may conflict with a program's overarching objective to provide services to low-income children. States considered cost-sharing mechanisms as approaches to address: reducing the total spending; deterring enrollment and utilization; instilling a sense of ownership in participants for their health care; and minimizing the welfare stigma associated with public or "free" programs. The majority of the study states indicated that a primary reason for incorporating cost-sharing mechanisms were the latter two.
Cost-sharing mechanisms implemented by the nine programs include: monthly premiums (6 states), annual enrollment fees (1 state) and copayments (6 states). In addition, states may use family caps (3 states) that define the maximum cost-sharing required by families and sliding scales (6 states) that are based on family size and income. States attempted to carefully set copayments at levels that would not deter utilization for services such as preventive services but would assist in controlling the improper use of services such as emergency room utilization.
Program directors believed that by instituting moderately priced premiums and copayments, families were more willing to participate (enroll) and did not view the program as welfare. For example, the CaliforniaKids program talked to families prior to establishing copayment levels and learned that participants attached a welfare stigma to a free program. CaliforniaKids used a moderate $5 copayment for most services to instill a sense of responsibility in participants without creating a barrier to enrollment. Similarly, the Colorado Children's Health Insurance Plan established low $2 copayments for doctor visits, health screenings and prescriptions, and an annual enrollment fee of $25 per family. The Pennsylvania CHIP program also believed that most families respected the idea of cost-sharing and liked the idea that they were paying for their children's health care through a monthly premium. In addition to countering welfare stigma, cost-sharing mechanisms were viewed as a way to help acclimate participants to the requirements of employer-sponsored insurance, thus building a bridge between conditions of uninsurance and private insurance.
Several states identified the affordability of employer-sponsored insurance as an important consideration in the implementation of mechanisms to limit crowd out. In the context of cost-sharing, "price sensitivity" refers to levels of premiums and copayments that families perceive to be affordable. It is important to note that price sensitive requirements may not be what families can afford, but rather what they are willing to pay for health care services. States' consideration of cost-sharing levels is critical to assuring the success of a children's health insurance program, as it influences family decisions to enroll in a program and utilize services. Although states were interested in the affordability of private coverage, there is a lack of research addressing the affordability and price sensitivity of private insurance coverage. The overall lack of data on affordability has led states to experiment with specific strategies to determine effective cost-sharing levels in their children's health insurance programs. States have tried to balance how best to use premiums and copayments to encourage participation yet limit families from substituting public for private health coverage.
Related to issues of price sensitivity is the decision of whether to implement a flat fee premium for all participants or one that is based on a sliding-scale. While a flat-fee may be administratively appealing because it is simpler to administer, designing premiums on an income-based sliding scale may encourage greater participation. Of the nine states examined in this study, the Colorado Children's Health Plan is the only program that has a flat enrollment fee. Of the other eight states, Florida, Massachusetts, Minnesota, New York, Pennsylvania, and Tennessee all have monthly premiums based on a sliding scale that is based on family size and income and two, the California Kids and Washington Basic Health Plan Plus programs, have no premiums.
Other factors states considered were: raising premium levels to offset costs of adding services to their benefit packages (New York Child Health Plus); examining how copayments would affect the utilization of health services (CaliforniaKids, Healthy Kids); consideration of the impact of premiums and copayments on substitution by generally mirroring private market requirements (New York Child Health Plus, Florida Healthy Kids) and the administrative burdens of cost-sharing.
This paper has reviewed the experiences of nine states that used either Medicaid expansions or developed stand alone programs to expand health insurance for children prior to the enactment of Title XXI. States' decisions regarding cost-sharing arrangements reflected their overall philosophy regarding premiums and copayments and trial and error approaches. For the majority of states, the cost recovery features were not a major driving force. Cost-sharing was viewed by some states as a way to address and limit potential substitution effects of the public programs and provide a bridge between public and private programs.
A major issue underlying the states consideration of cost-sharing approaches was price sensitivity. However, decisions related to cost-sharing were generally based on anticipated effects and limited experience. There is presently little evidence or data on the appropriate levels of cost-sharing and the use of sliding scales and family caps to maintain affordability. As all states move toward implementation of these new efforts, evaluation and research related to price sensitivity may provide important information for further decisions.
Under Title XXI, states are provided with options and parameters in both selecting their benefit packages and in establishing cost-sharing arrangements. With regard to benefit packages, states can select to use their Medicaid program or select one of four other options. There are also certain cost-sharing requirements states may use as well as limits on the level of cost-sharing.