Health Reform WK-EDGE Limited information available on substitution of CHIP for private health insurance
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Wednesday, November 27, 2019

Limited information available on substitution of CHIP for private health insurance

By Elena Eyber, J.D.

A review of Children’s Health Insurance Program (CHIP) crowd-out provided information on potential indicators of crowd-out reported by states.

The Government Accountability Office (GAO) examined CHIP’s substitution for private insurance (i.e., crowd-out) by providing 1) information on potential indicators of crowd-out reported by states and estimates of crowd-out; and (2) the procedures CMS and states use to address potential crowd-out. Policymakers have had concerns that some states’ inclusion of children from families with higher income levels could result in some families substituting CHIP for private insurance. Crowd-out may occur when, because of CHIP availability (1) employers make decisions about offering health insurance; or (2) employees make decisions about enrolling in employer-sponsored health insurance (GAO Report, GAO-20-12, October 11, 2019).

ACA effects on CHIP enrollment. Changes in federal law have affected the types of health insurance offered to families, as well as how families pay for or enroll in private and public health insurance, affecting CHIP enrollment. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) established a currently unenforced individual mandate which required most citizens and legal residents of the United States to maintain health insurance or pay a tax penalty. Further, the ACA established federal financial assistance for certain families to offset the cost of private health insurance purchased through a health insurance exchange in their state established under the ACA. Some state officials attribute recent increases in CHIP enrollment to other ACA provisions, such as those that required states to consolidate and automate their application systems for CHIP and other public insurance, because parents, in exploring health insurance options, learned about CHIP eligibility for their children.

Crowd-out indicators and estimates. CMS asked the 42 states that have separate CHIP programs to report on two crowd-out indicators for the 2017 annual reports: (1) the percentage of individuals who are enrolled in CHIP that have access to private health insurance; and (2) the percentage of CHIP applicants who cannot be enrolled because they have private health insurance. The 2017 reports showed that 4 states reported 0.5 percent to 7 percent of CHIP applicants had access to private health insurance; and 21 states reported denying CHIP enrollment to 0 percent to 18 percent of applicants because they had private insurance.

CMS officials acknowledged that not all states report on these indicators; however, they noted that states operating separate CHIPs have other processes in place to prevent children with other health insurance from enrolling in CHIP. Further, CMS noted that some states may have other processes for directly measuring CHIP crowd-out. States the GAO interviewed varied in the extent to which they estimate crowd-out. Among six selected states with separate CHIP programs, one state directly measures crowd-out. Officials from the other five selected states said they do not actively measure crowd-out, citing limited resources and difficulties developing estimates.

CHIP crowd-out prevention procedures. All 42 states with separate CHIP programs reported to CMS that they had implemented at least one of the following six types of procedures to prevent crowd-out: (1) asking about other health insurance and denying CHIP coverage if other sources of health insurance are identified; (2) implementing cost sharing for CHIP coverage; (3) conducting database checks for other health insurance; (4) implementing a waiting period for CHIP coverage; (5) measuring crowd-out and taking steps if certain thresholds are exceeded; and (6) offering premium assistance for private health insurance. 36 of the 42 states implemented at least three crowd-out procedures. Among six selected states with separate CHIP programs, there were differences in how crowd-out procedures were implemented and none planned to change procedures to prevent potential crowd-out.

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