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Why Are Children Uninsured?

nder the CHIP Title XXI option, state officials have considerable flexibility in designing new insurance programs. With waivers, states also have considerable flexibility in design of Medicaid expansions. As such, it makes sense to tailor programs in a manner that is sensitive to the reasons children lack health insurance.

Most health insurance coverage in the U.S. is obtained through employer-sponsored plans. Public insurance is available to some, but not all of those who remain uncovered, and not all uninsured persons eligible for public benefits enroll. Consequently, the reasons children go without insurance can be categorized as follows:

  • Parents lack access to employer-sponsored health insurance

  • Parents choose not to provide offered private insurance coverage to their children.

  • Gaps in eligibility for public insurance

  • Failure to enroll eligible children in public insurance programs.

Why parents lack employer-sponsored health insurance?

The crucial role of employer sponsored health insurance in providing coverage to children is demonstrated by the fact that about three in four uninsured children have parents who lack access to employer sponsored coverage. There are several factors that contribute to this, shown in the first three rows of the "Parents’ work/insurance status" variable in Table 2. 4

The single most important reason children lack access to employer sponsored coverage is that that their parents work at firms that don’t offer health benefits. As shown in Table 2, this is the case for two in five uninsured children. In contrast, among all children, only 13% have parents who work at jobs without offers of health insurance.

In addition, unstable employment situations of parents contribute to lower access to employer sponsored coverage. Nearly 21% of uninsured children have parents who are not working. Moreover, another 15% of uninsured children have parents who work for firms that offer health benefits, but are ineligible for their employer’s health benefits.5,6 Among these ineligible parents, the most commonly cited reason for being ineligible, given by 2 in 3, is that they hadn’t worked for the firm long enough (Table 3). Another one in four is ineligible because they don’t work enough hours. Moreover, the number of children who are uninsured for part of the year is indicative of their parents’ unstable employment situations. A quarter of currently uninsured children had been insured at some point during the previous year (Table 2).

States are able to design Title XXI programs that reduce the likelihood of a gap in insurance coverage resulting from a spell of uninsurance or a job transition. One approach is to direct outreach activities to unemployment offices. Second, states should refrain from imposing waiting periods on the receipt of CHIP coverage for children who become uninsured because their parents lose or change jobs. Waiting periods have been suggested as one way to limit crowd-out, the substitution of public for private coverage.7 Several states have enacted requirements that children not be covered by private insurance for several months, generally three or six months, prior to application to Title XXI programs. Among children meeting age and income eligibility criteria for state Title XXI programs enacted as of June, 1998 or likely to be enacted in the coming months, four percent have been privately insured in the past three months and 10 percent have been insured in the past six months.

There is also an option under CHIP that allows states to automatically cover children for 12 months, even if the children no longer meet eligibility criteria due to changes in family income and other factors. In addition to providing greater continuity of care for the children, this provision may be effective in providing coverage to children when their parents’ employment situations are unstable.

While not directly related to the implementation of CHIP, state policies to induce firms to offer health insurance may be particularly effective in reducing uninsurance among children. These policies might include premium subsidies to small firms, or small market reforms, such as purchasing cooperatives, that serve to reduce the cost of insurance to small firms. States might also consider insurance market reforms that limit or eliminate waiting periods for new employees beyond those minimum requirements specified in HIPAA and limit the ability of firms to deny coverage to part-time workers and those with pre-existing conditions. State legislatures are constrained in their ability to enact such laws by ERISA, however.

Why Parents Refuse Employer-Sponsored Health Insurance for Their Children.

The cost of health insurance premiums is a major factor explaining why firms fail to provide health insurance benefits to their workers.8 The cost of premiums, deductibles, copays, and uncovered services is also a major reason why parents decline to enroll their children under their employer’s health plan offerings.

The remaining two categories under "Parents’ work/insurance status" in Table 2 represent children whose parents refuse offered coverage and those with at least one parent with employer-sponsored health insurance coverage for themselves, but the coverage does not extend to their children. These represent 9% and 15% of all uninsured children, respectively. We don’t know if the parents in the latter category work for firms that offer only single coverage, or whether the parents failed to select family coverage. Since nearly all firms that offer health insurance benefits provide both individual and family coverage, it is likely most in this group had parents who declined family coverage.9

Among the 9% of uninsured children whose parents refused offered health coverage, the overwhelming reason for refusing benefits was cost, cited by 84% of this group (Table 4). Only 12% of this group indicated they didn’t need or want the insurance. We have no equivalent information that will allow us to understand why 15% of uninsured children have at least one parent covered by employer-sponsored health benefits without the extending coverage to the child. As indicated, these are most likely cases in which parents declined family coverage, most likely due to the extra cost. Recent studies provide support to this speculation.10 Firms are shifting an increasing portion of the cost of family coverage to their workers. Employees on average pay 28% of the premium for family coverage, up from 22% in 1991.11

Surprisingly, the percentage of uninsured children whose parents decline coverage appears to increase with income (as indicated in Table 2 by the 3 subgroups of uninsured children). This reflects both the reduced opportunities for public insurance and greater offer rates among higher income groups.

The fact that employer-sponsored health benefits remain unaffordable to many lower income families suggests that states should be careful in requiring participants’ families to pay premiums, deductibles and co-payments. Under the new law, states can impose cost sharing that does not exceed 5% of family income when family incomes exceed 150% of poverty. Below this income level, cost sharing must conform to Medicaid rules.

One quarter of uninsured children potentially eligible for CHIP, that is children who would be eligible if every state expanded eligibility to maximum levels permitted by the new law, have parents with offers of private health insurance. Therefore, states might consider coordinating coverage with private employers or subsidizing premiums for employer-sponsored health insurance. Several states have adopted this approach. Surprisingly, this would be easier to accomplish under Medicaid than under Title XXI programs. Under the health insurance purchasing program (HIPP), states are able to pay premiums, deductibles, and copays for Medicaid beneficiaries with private insurance coverage when it is cost-effective to do so. Although this has the advantage of leveraging public dollars with private dollars, administrative issues are considerable and few states have taken advantage of this option in their Medicaid programs. States have found it difficult to identify beneficiaries with private coverage options, gain cooperation of employers, and design customized wrap-around coverage. With eligibility extended to higher income children whose parents are more likely to have offers of health insurance from their employers, states might contemplate whether they can overcome the administrative barriers associated with this approach. This might be a particularly attractive option for the children whose parents already accept offers of health insurance from their employers.

Unlike Medicaid, children must be without private health insurance coverage in order to qualify for Title XXI coverage. This does not preclude states from subsidizing family coverage under private sponsored plans to children whose parents declined such coverage. States would require a waiver from HCFA in order to do so, however, and the employer’s plan must meet benefit standards outlined in the law. Otherwise similar children with identical private coverage would be precluded from receiving these subsidies if their parents already accepted the coverage.

Gaps in the Coverage of Public Insurance.

Public health insurance is intended to cover persons who otherwise lack access to coverage. Yet, as evidenced by the passage of CHIP and continued efforts to expand public insurance coverage, this part of the "social safety net" has large holes in it

Table 2 also provides descriptive statistics for three groups of uninsured children: those eligible for Medicaid, those potentially eligible for CHIP benefits if every state extended eligibility to maximum levels allowed by the law, and those who would remain ineligible for CHIP even if every state extended coverage to maximum levels. The target population for CHIP includes children under age 19 in families with incomes under 200% of the federal poverty level (FPL), or 50 percentage points above the state’s income eligibility levels as of that date of enactment (Aug. 22, 1997). Children who would be eligible for Medicaid as of June 1, 1997 are not eligible for coverage under Title XXI, but must be covered under Medicaid.

We applied state rules, based on the age of the child and annual family income, to classify children as eligible for Medicaid or potentially for CHIP. Although income and age are the primary criteria used for determining eligibility, estimates of the number of children in these groups should be regarded as approximate since we lack data to precisely apply state eligibility criteria.13

In general, these three groups represent uninsured children from different income levels, with the Medicaid eligible group the poorest and the ineligible group the richest. In light of these differences, racial, family composition, and parents’ work status all follow predictable patterns. For instance, 38% of the Medicaid eligible group are White, as compared with 55% in the CHIP eligible group and 65% of the ineligible group. Medicaid eligible uninsured children are least likely to come from two parent families and have a working parent, while the ineligible group are most likely to have these characteristics. Surprisingly, CHIP eligible children are most likely to have been uninsured for at least one full year, with 4 in 5 in this situation.

The last two columns in Table 2 represent the population of uninsured children who were not eligible for Medicaid at the time Congress enacted CHIP. These add up to about 5.7 million children, or 65% of all uninsured children.14 The fourth numerical column of Table 2 describes the population of children, not currently eligible for Medicaid, but potentially eligible for benefits under CHIP. We estimate that this group comprises 3.6 million children, or 41% of all uninsured children. In other words, if every state extended eligibility (through either Medicaid expansions or Title XXI programs) to the maximum levels allowable by the new legislation, only 63% of uninsured children not presently eligible for Medicaid would become eligible under CHIP. Moreover, if every state extended coverage to maximum levels allowable under CHIP, 24% of all uninsured children, some 2.1 million, would remain ineligible for federally supported health insurance (Table 2, last column). Although not shown in Table 2, we also aplied eligibility criteria (based on age and income alone) of state programs in response to CHIP. These include both those enacted or prevailing in state legislatures as of June, 1998. The percentage of uninsured children who will remain ineligible for any federally supported public insurance plan grows from 24% to 31%.15 It is expected that many states will revisit the issue of uninsured children in coming legislative sessions, and that this number may decline over time.

These estimates are static and do not take into account behavioral adaptations in response to CHIP that may cause the substitution of public for private coverage and consequently increase the size of the target population. These adaptations, commonly referred to as "crowd-out" may take various forms (i.e., employers may drop coverage, workers may select jobs that don’t offer health benefits over those that do, and workers may drop offered private health benefits). Estimates of the magnitude of crowd-out arising from the Medicaid expansions for pregnant women and children during the late 1980s and early 1990s vary.16 Most think that the potential for crowd-out will be greater in CHIP’s target population because a greater portion have parents who are covered by employer-sponsored health insurance. However, states that already provide coverage for children in the same income groups covered by CHIP do not report that crowd-out is a serious problem.17

Failure to Enroll in Public Insurance Programs.

During the Congressional debate last year about expanding health insurance coverage to children, there was consensus that greater efforts were needed to enroll those children currently eligible for Medicaid. This is why the Balanced Budget Act of 1997 encourages states to undertake outreach for all public health insurance programs, allows use of part of the block grants for these purposes, and requires that states have an outreach plan.

Of the 8.8 million children uninsured at the time of our survey, we estimate that 35% or about 3.1 million children were eligible for Medicaid (Table 2). This is similar to other estimates of the size of this population. These children constitute about 16% of all Medicaid eligible children.

Reasons why parents fail to enroll children in Medicaid and other public insurance programs are not well understood. Parents may be unaware of their children’s eligibility, particularly when Medicaid is not tied to the receipt of cash assistance. In addition, parents may not perceive the need for insurance or choose not to enroll their children. Parents may knowingly forgo benefits for their children because of the stigma associated with these programs, the hassles involved with enrolling and maintaining eligibility, language barriers, their immigration status, or other obstacles.

Many states have either taken or are considering measures to reduce the stigma associated with receipt of public health insurance by making Medicaid and the new CHIP programs look as much like private insurance as possible. Many are also attempting to streamline eligibility determinations. Provisions in the new law allow states to make presumptive determinations of eligibility based on limited information. Apart from these types of measures, states recognize that they will need to seek out families with eligible children. Characteristics of uninsured children who are Medicaid eligible or potentially eligible for CHIP shown in Table 2 can provide some clues as to where to find these families for outreach efforts.

Minimum federal Medicaid eligibility standards for children require coverage of all children under age 6 who come from families with incomes below 133% of poverty and children age 14 and younger who live in poverty. Although many states extend coverage to older children and beyond these income levels, it is not surprising that Medicaid eligible children are younger and poorer than CHIP-eligible.18 Nevertheless, the degree to which this is the case is surprising. About 44% of Medicaid eligible uninsured children are under age 6, and 80% live in poverty. Although using the schools as vehicles to engage in outreach activities, as many have suggested, may be effective for reaching most Medicaid and CHIP-eligible children, the large number of pre-school aged children who remain unenrolled in Medicaid suggests that school-based outreach efforts will miss a sizable portion of this population. The high rate of poverty among the Medicaid-eligible group suggests that outreach efforts should not be limited to those children from families with incomes between 1 and 2 times poverty who are eligible under the Medicaid expansions or CHIP. States should also target areas with large impoverished populations or institutions where impoverished persons can be found.

The racial composition of Medicaid and potentially CHIP-eligible children clearly indicates that outreach efforts should be directed to Hispanic families. Forty percent of uninsured Medicaid-eligible children are Hispanic. These 1.2 million children comprise about half of all Hispanic children eligible for Medicaid. Children potentially eligible for CHIP are twice as likely to be Hispanic as the general population of children. This suggests that outreach efforts should be directed towards neighborhoods with large Hispanic populations and Hispanic social, religious, and cultural institutions. Sensitivity to language barriers is also extremely important. Although not shown here, Hispanic Medicaid-eligible children of persons not fluent in English (as indicated by having the interview to be conducted in Spanish) are far more likely than those with parents fluent in English to remain uninsured. While this suggests that language is a major barrier to enrollment, the lack of fluency in English may also indic te the family’s acculturation into our society, which is likely related to both knowledge and acceptance of public insurance. It may also indicate the family’s immigration status, an important legal barrier to gaining coverage.

Medical settings are important locations where uninsured persons can be identified and outreach efforts can take place. As shown in Table 2, only 1 uninsured child in 5 does not have a usual source of care. Although it is probably reasonable to assume that emergency rooms, hospital outpatient clinics, and public clinics regularly inform uninsured patients of their public insurance options, it is not clear that physicians in private practice actively do so. About a third of uninsured children who are Medicaid eligible use a doctor’s office as their usual source of care. Among children potentially eligible for CHIP, the proportion grows to 41%. This suggests that states might encourage physicians to participate in outreach efforts.

The Balanced Budget Act of 1997 restricted states to spend no more than 10% of CHIP block grant funds on non-coverage items. These include program administration, direct child health services, and outreach. This constraint may have the unfortunate effect of restricting the states’ ability to provide the much needed outreach.

4 Because many children have two parents in the workforce, the categorization of parents’ work/insurance status follows a hierarchy. Parents employed take precedence over unemployed parents, parents working for an employer that offers health benefits take precedence over parents who work for a firm that does not. In cases where both parents worked for employers that offered health benefits, the order of precedence was parent accepting coverage, parent refusing coverage, and parent ineligible for coverage.

5 By comparison, 14% of all children lack a working parent and 4% have parents who are ineligible for their employer’s health benefits.

6 Although COBRA provisions extend health insurance coverage to persons who are unemployed, most low income families will not benefit because their previous employer did not offer health insurance benefits or because the family is unable to afford the insurance premiums.

7 D. Chollet, M. Birnbaum, and M. Sherman, "Deterring Crowd-Out in Public Insurance Programs: State Policies and Experience’" (Washington, DC: Alpha Center, Oct., 1997)

8 Feldman, et. al., 1997

9 R. Feldman, B. Dowd, S. Leitz, and L. Blewett, "The Effect of Premiums on the Small Firm’s Decision to Offer Health Insurance," Journal of Human Resources (1997) 32:635-658.

10 U.S. General Accounting Office, Employment-Based Health Insurance, Costs Increase and Family Coverage Decreases (GAO/HEHS-97-35), (Washington, D.C: Government Printing Office, 1997); J. Gabel, P. Ginsburg, and K. Hunt, "Small Employers and Their Health Benefits, 1988-1996: An Awkward Adolescence," Health Affairs 16 (September/October,1997): 103-110..

11 P. Ginsburg and J. Gabel, "Tracking Health Care Costs: What’s New in 1998? Health Affairs Sept./Oct., 1998, (in press)

12 J. Hearne, Coordinating Children’s Coverage Expansions With Employer-Sponsored Coverage, (Washington, D.C.: Institute for Health Policy Solutions, December 1997)

13 For instance, eligibility for Medicaid is based on monthly, not annual, income. Moreover, in classifying children as Medicaid eligible, we choose to include only those children covered under traditional, entitlement-based Medicaid. This excludes some children in states with 1115 waivers where, above certain income levels, cost sharing is imposed and benefits need not be structured as entitlements. Because Medicaid eligibility was extended to children in families living in poverty who were born after September, 33, 1983 by Medicaid expansions enacted in the late 1980’s, additional children are covered by Medicaid now than at the time of the survey. Consequently, the number of uninsured children is likely to be slightly overstated and the number of uninsured Medicaid eligible children is likely to be slightly understated.

14 This may overstate the number who are ineligible for any public insurance because we do not include children eligible for state programs. However, most state programs are not structured as entitlements, usually cover small numbers of children, and often do not provide comprehensive benefits. A. Gauthier and S. Schrodel, "Expanding Children’s Coverage: Lessons From State Initiatives in Health Care Reform," (Washington, DC: Alpha Center, May 1997).

15 By restricting eligibility criteria to age and income alone, we likely understate the number of children who will remain ineligible for public insurance. This is because some states have imposed additional eligiblility criteria, such as waiting periods after being covered by private insurance.

16 L. Dubay and G. Kenney, "Did Medicaid Expansions for Pregnant Women Crowd Out Private Coverage? Health Affairs (January/February, 1997):185-193, ; D. Cutler and J. Gruber, Medicaid and Private Insurance: Evidence and Implications," Health Affairs (January/February, 1997):194-200.

17 Chollet, Birnbaum, and Sherman, 1997.

18 Under pre-CHIP federal law, Medicaid will covers all children born after September 30, 1983 with in families incomes below poverty. This will extend coverage to all children under age 19 living in poverty by the year 2002. States also have the option to expand coverage to older children and those living in families with incomes up to 185% of poverty. Several states have also extended eligibility further through Medicaid 1115 waivers or under Section 1902 (r) (2) of the Social Security Act, at times beyond the 185% of poverty income limits. In all, 26 states have exercised options to expand coverage beyond the minimum levels specified by law. A. Gauthier and S. Schrodel, Expanding Children’s Coverage: Lessons from State Initiatives in Health Care Reform, (Washington, D.C.: Alpha Center, May 1997).

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