Objective. To determine the percentage of children who had insurance coverage in the 12 months preceding enrollment in a state-subsidized program; the percentage of parents who had access to employer-based family coverage; and the cost of the families' share of the premium per month.
Methods. We randomly selected 930 families whose children were enrolled in the Florida Healthy Kids Program for a period of between 1 and 3 months and conducted telephone interviews with them in 1998 about their children's insurance coverage before program entry and their access to employer-based family coverage. There were 653 families in the final sample.
Results. Only 5% of the children had employer-based coverage before program enrollment. However, 26% had access to family coverage through their employers with the family share of the premiums representing on average 13% of their incomes. Access to employer-based coverage varied significantly by family income.
Conclusions. Throughout the development of the State Children's Health Insurance Program legislation, policy analysts expressed concern that families may crowd out or substitute a subsidized state plan for employer-based coverage. This substitution could result in fewer improvements in access to care and health status than were anticipated, because families are simply moving to a different form of health insurance. There is some degree of crowd out in the Healthy Kids Program. The economic burden to near-poor families to purchase employer-based coverage is significant. Some degree of substitution may need to be tolerated to ensure that children receive needed health insurance.
- SCHIP =
- State Children's Health Insurance Program •
- CPS =
- Current Population Survey •
- HKC =
- Healthy Kids Corporation •
- FPL =
- federal poverty level •
- HMO =
- health maintenance organization
Despite expansions in Medicaid eligibility, 14.2% or 10.5 million children were uninsured in 1994, representing the highest percentage of uninsured children since 1987.1 The percentage of uninsured children has remained high, in part, because of the continued erosion of employer-based health insurance.2Only 55% of all jobs, and 35% of low-wage jobs, include any health insurance benefits for either the employees or their families.3 Of the uninsured children, >60% have at least 1 parent working full-time. However, these parents earn lower than average incomes and are more likely to work in businesses that do not offer employee coverage or that do not provide dependent coverage. Other factors contributing to the high number of uninsured children include the increasing number of children entering into poverty, the families' lack of knowledge about Medicaid eligibility, and the failure of families to complete the Medicaid application process.4
To address the issue of uninsured children, Congress enacted legislation creating Title XXI of the Social Security Act, State Children's Health Insurance Program (SCHIP). Under SCHIP, states may use federal matching funds to reduce the number of uninsured children by expanding Medicaid eligibility and/or providing subsidized child health insurance through public–private partnerships.
Throughout the development of the legislation, many policy analysts expressed concern that SCHIP may provide incentives for employers who are currently providing dependent coverage to drop these benefits, resulting in a shift of children from private to public programs. Alternatively, employees may either opt out of or not take employer-based coverage if there are less expensive alternatives. All three scenarios result in a decrease in private sector coverage and an increase in public sector spending. Moreover, substitution of subsidized state plan for employer-based coverage may result in fewer improvements in access to care and health status than is anticipated, because families who are already covered are simply moving to a different form of health insurance. These phenomena have been termed crowd out.
The most compelling evidence offered about crowd out is from studies of the Medicaid expansions that took place in 1989 and 1990. These studies use the Current Population Survey (CPS), a large nationally representative survey that contains sufficient information about family income and insurance status to allow researchers to calculate Medicaid eligibility. Analyses of CPS data have shown that as Medicaid eligibility expands, there is a statistically significant decline in the number of children with employer-based coverage.5 ,6Although the models documenting the occurrence of crowd out are interesting, they are not based on the experiences of actual enrollees in children's health insurance programs.7 In a critique of crowd out estimates developed from national databases, Flint8 noted that policy options should be developed by looking at information from existing children's health insurance initiatives rather than by relying solely on national datasets that require numerous assumptions and inferences when making assessments of crowd out.
The Florida Healthy Kids Program provides an excellent opportunity to study to what degree a subsidized children's health insurance program contributes to crowd out. This program is one of the first major initiatives in the United States designed to provide subsidized health insurance premiums for families whose children do not qualify for Medicaid and cannot afford private insurance coverage. The Healthy Kids Program is a significant component of the Title XXI plan approved in Florida and is considered a model for other states to follow as they expand their children's health insurance programs.
As part of the Florida Healthy Kids Program evaluation, we conducted a study to assess the following: 1) the percentage of children who had insurance coverage in the 12 months preceding their enrollment in the Healthy Kids Program; 2) the percentage of parents who had access to family coverage through their employers and the cost of the families' share of the premium per month; and 3) the relationship between family sociodemographic characteristics and the availability of employer-based coverage.
Two important aspects of crowd out are addressed in this study. First, we provide information about the number of families who had employer-based coverage for their children but who then selected a state initiative. Second, we address the degree to which families had access to employer-based coverage but chose to substitute such coverage with a subsidized option. The economic impact to the family of purchasing employer-based coverage also is explored. To date, other research has not provided such detailed information about families' access to employer-based family coverage from those actually participating in a large scale, subsidized children's health insurance initiative.
In 1990, the Florida legislature established a nonprofit Healthy Kids Corporation (HKC) to administer a comprehensive health insurance program for uninsured children.9 The program began in 1992 in one Florida county and expanded to 17 other sites by 1997 with over 40 000 enrollees. Children 5 to 19 years of age and their siblings who were 3 to 5 years of age were eligible to participate. Children of any age who were enrolled in Medicaid were ineligible.
At the time of the study, families were offered subsidized premiums based on a sliding scale so that financial concerns were minimized. There were 3 subsidy levels known as subsidy plan 2, subsidy plan 3, and full-pay plan 4. Subsidy plan 1, which was a completely free premium, was discontinued in 1995, and no children in this study were in that plan level.
The amount of subsidy varied by program site. Those families with earnings at or below 130% of the federal poverty level (FPL) paid between $5.00 and $10.00 per child per month. Those between 131% and 185% of the FPL paid $15.00 to $25.00 per child per month. Those above 186% of the FPL paid the full amount of $55.00 to $65.00 per child per month. There were no state subsidies for those families above 186% of the FPL, and the premium amount of $55.00 to $65.00 per child per month reflects the actual cost of the premium.
Although families above 186% of the FPL did not receive any subsidies and therefore were not contributing to crowd out by choosing a subsidized coverage option over employer-based options, they are included in the analysis for two reasons. First, these families are part of the Healthy Kids Program. Including them in the analysis provides the opportunity to describe fully the program and all its participants. Second, with the Title XXI expansions in Florida, families currently in the full-pay category may be eligible for a premium subsidy. Understanding the insurance choices made by these families will be useful for future program-planning purposes.
The HKC negotiates contracts with health maintenance organizations (HMOs) to assume financial risk and to provide health care services. At the time of the study only 1 HMO provided services at each site, although several different HMOs participated in the project across sites. Care is delivered through private physicians' offices and clinics in the children's communities. The Healthy Kids benefit package includes well-child visits, immunizations, inpatient care, and maternity benefits with no copayment required. Other benefits with minimal copayments include outpatient care, mental health services, prescriptions, eyeglasses, physical therapy, and emergency services and transportation. A $3.00 copayment is required for acute care outpatient services, a $3.00 copayment for drugs, a $5.00 copayment for mental health visits, a $10.00 copayment for eyeglasses, and a $25.00 copayment for emergency department services.
In 1998, the Health Care Financing Administration and the Florida legislature approved a significant expansion of the Healthy Kids Program as part of the Title XXI initiative. By the end of 1998, the program will be available in all 67 Florida counties with a target of 130 000 enrollees. As part of the Title XXI expansion the eligibility requirements for the Healthy Kids Program have changed from those that were in effect at the time of this study.
As part of the overall Healthy Kids Program evaluation, the third party administrator for the program provides enrollment information every quarter for each enrollee. Using enrollment data for the quarter beginning October 1, 1997 and ending December 31, 1997, we identified all children who newly enrolled during that quarter. We then took a simple random sample of families of the newly enrolled children to participate in a telephone survey. The survey that we conduct during the children's initial enrollment in the program contains questions about the health status, the access to care, and the sociodemographic characteristics of the children. In addition, we ask questions about the children's insurance status before program entry and about the families' access to employer-based health insurance coverage. The questions about the children's insurance status and access to employer-based insurance were used in this study.
Families are told that the Institute for Child Health Policy at the University of Florida conducts the surveys for the HKC as part of an ongoing evaluation of families' health care experiences while in the program. Families are informed that all survey responses remain confidential, and they are not compensated for their participation.
The surveys used in this analysis were conducted from January 1998 through March 1998. We drew an initial sample of 930 new enrollees. We could not contact 21% of them after 6 attempts to do so, and 11% refused to participate. There are 653 completed surveys used in this analysis. We have data about the gender, age, and premium subsidy level for those children we could not contact and for those who refused. There were no significant differences between the respondents and the nonrespondents on any of these characteristics.
Data for this study are from two sources. First, we receive data tapes from the third party administrator that include the following information: the child's first date of enrollment, the child's monthly enrollment status, and the amount of premium subsidy the family receives. The second data source is from telephone surveys conducted with the parents or guardians of the enrollees identified through the random selection process.
The survey took ∼40 minutes to complete and addressed a variety of health care issues. One component of the interview addressed the children's insurance status during the 12 months preceding enrollment in the Florida Healthy Kids Program. We asked whether the child was insured at any time in those 12 months, and, if so, what type of insurance they had (Medicaid, Medicare, CHAMPUS, private insurance through employer, or private insurance purchased by the parent). We also asked if either parent or both parents were employed and if the employment was full- or part-time. Information was gathered about whether insurance coverage was offered through either parent's employment, and if so, whether the plan was single or family coverage. If family coverage was available, we asked how much the premium cost per month and why the family selected the Healthy Kids Program instead of the employer-based coverage.
We used descriptive statistics to describe the sample and the percentages of families who had access to different types of employer-based coverage (ie, single or family coverage). Bivariate analyses (χ2 tests) were used to assess the relationship between family income and access to employer-based coverage. The amount of premium subsidy that the family received through the Healthy Kids Program was used as a proxy variable for income. For those who had access to employer-based family coverage, we used ANOVA to assess differences in the family share of the premium expressed as a dollar amount and as a percent of income across different family income levels. Analyses were performed using the Statistical Analysis Software (SAS Institute Inc, Cary, NC).10
Description of the Sample
The survey respondent was chosen by asking to speak to the adult member of the household who was most knowledgeable about the Healthy Kids enrollee's health and health care needs. The child's mother was the respondent in 97% of the cases, and in 3% of the cases, the respondent was the child's father. The majority of children enrolled in the sample are white (79%) with an average age of 10 years (± 3.8 years; Table 1). Of the enrollees, 15% are black, 2% are Asian, and 3% indicate that they belong to some other category (Native American Indian, Pacific Islander, and others). Of the enrollees, 28% consider themselves to be of Hispanic background. The mean family income is $17 389 ± $7886 (median income: $16 200) with an average household size of 3.9 ± 1.2. The majority of families (71%) were enrolled in plan type 2, which provided the greatest amount of premium subsidy. There were no statistically significant differences among the new enrollees included in this analysis and the overall population of Healthy Kids enrollees.
Insurance Status of the Enrollees in the 12 Months Before Program Entry
Of the 653 children whose parents participated in the telephone survey, 89% (n = 581) indicated that their children were uninsured in the year before entering the Healthy Kids Program. Only 11% (n = 72) of the children had been insured at any time in the preceding 12 months. This coverage ranged from employer-based coverage to Medicaid. However, only 33 (5%) of the children (of the 653 families interviewed) had private, employer-based coverage at some time during the year before entering the Healthy Kids Program (Table 2).
Characteristics of the Children Whose Families Had Employer-based Coverage
Families whose children were enrolled in an employer-based plan in the 12 months preceding their Healthy Kids Program enrollment varied significantly on their premium subsidy level compared with those who had no coverage before program entry.
Children who had employer-based coverage (n = 33) were more likely to be in subsidy plan 3 or full-pay plan 4 on Healthy Kids enrollment and less likely to be in subsidy plan 2 than were those families whose children had no employer-based coverage before program entry (χ2 = 8.7; P = .013). There were no other differences in sociodemographic characteristics between children who had employer-based coverage in the preceding year compared with those who did not have such coverage. The results are summarized in Table 3.
Parents' Employment and Access to Employer-based Coverage
Employment data were gathered about the respondent and his or her spouse. In 97% of the cases, the respondent was the child's mother, and for the remaining 3%, the respondent was the child's father. Of the families, 90% had at least 1 parent who was employed, and 56% had 2 parents who were employed. Among the parents who were working, approximately one third worked part-time. Of those who were employed (either the respondent and/or the spouse), 49% did not have any health insurance coverage available through their work.
Of the total sample, 26% reported that they had access to family coverage through their employer. The 26% of families with access to employer-based family coverage included the 5% of children who actually had employer-based family coverage before enrollment in the Healthy Kids Program.
Of the 26% who had access to family coverage through their employers, 76% reported that such coverage had been available to them for 9 to 11 months of the preceding year. The remaining 24% reported varying lengths of coverage availability ranging from 1 to 8 months of the preceding year. Of the 170 (26%) families who had access to employer-based family coverage, only 33 actually had their children enrolled in these plans at some time during the 12 months preceding Healthy Kids Program entry.
When one analyzes the relationship between the Healthy Kids premium plan level and families' access to employer-based family coverage, some significant differences emerge. Families receiving the greatest subsidy (plan 2: below 130% of the FPL) were significantly less likely than were those in plan 3 and full-pay plan 4 to have access to such coverage (χ2 = 8.06; P = .018). There were no other statistically significant differences between those who had access to employer-based family coverage and those who did not in terms of other sociodemographic characteristics.
Cost of Employer-based Coverage
We asked those families who had access to employer-based family coverage to provide their best estimate of the cost of this coverage for the family share of the premium (Tables 4 and 5). We then asked families how confident they were in the costs they reported. Of these families, 72% said that they were confident to very confident; 23% said that they were somewhat confident; and 5% said that the estimate was a guess. The amount families reported they would pay per month in dollars varied significantly by subsidy level (F = 5.90; P <.05). Those receiving the greatest subsidies reported the lowest costs for the family share of the employer-based coverage compared with those receiving less subsidy for their children's Healthy Kids insurance premium. We did not ask families whether they knew what was covered in the employer benefit package.
Because the economic impact of the insurance premium varies depending on family income, we calculated the reported dollar costs of the family share of the employer-based coverage as a percent of family income. When the dollar amount for the family share of the premium was expressed as a percent of family income, there were differences across subsidy levels, but these were not significant (F = 1.35; P >.05). The cost of a family premium was striking representing on average 13% ± 8% of the family income. For example, a family of 4 at 133% of the FPL making $21 879 per year would have to spend $2844 annually on average for the family share of the employer-based insurance premium.
Reasons for Choosing the Healthy Kids Program
All of the 170 families who had access to employer-based family coverage were asked why they chose the Healthy Kids Program. None of the families indicated that they lost coverage because of job loss or change. The following reasons were given:
• 161 respondents stated that they could not afford employer-based coverage and that the Healthy Kids Program was affordable.
• Other reasons included: employer would not accept the child for a policy secondary to the preexisting condition (n = 2); must be married to qualify for family coverage through the employer (n = 3); no doctors in the town that are in the employer plan (n = 3); and employer keeps changing insurance plan and so there is no stability (n = 1).
Three major components of crowd out are identified in the literature. First, crowd out can occur when employers drop family health insurance coverage because public alternatives are available. This study does not assess the degree to which employers in Florida are planning to alter or have altered their employees' health insurance coverage options and whether the availability of the Healthy Kids Program influenced their plans. None of the 33 respondents whose children had employer-based coverage in the 12 months preceding program entry reported that they chose the Healthy Kids Program because their employer dropped coverage. Instead, they indicated that the Healthy Kids premium was more affordable.
Employer decisions resulting in crowd out may take time to evolve. The Healthy Kids Program began in 1 county in 1992 and expanded to 17 different sites within 6 years. As part of the Title XXI initiative, enrollment in the Healthy Kids Program will grow markedly. It is possible that there has been minimal influence on the employer health insurance market because of the relatively small program size. As the program expands, it will be important to assess changes in the availability of employer-based family health insurance coverage. It will be even more important to examine factors that influence erosion in employer-based family coverage, including the availability of government-sponsored programs and other changes such as fluctuations in the economy and market influences in the business sector.
Second, crowd out can occur when families drop employer-based family coverage in favor of more affordable alternatives. In the present study, only 33 families or 5% of the total sample reported that their children had employer-based coverage in the year preceding enrollment in the Healthy Kids Program. These families were more likely to have higher incomes, 131% of the FPL and above. The average cost of their employer-based family coverage premiums was $245 ± $129 per month, which represented 13% of their total family income. In contrast, the Healthy Kids Premium, which was for the child only, represented <1% of the total family income for those in plan 2, 1% for those in plan 3, and 3% for those in full-pay plan 4. Given the high cost of employer-based family premiums and the marked effect on their incomes, it is not surprising that families would seek a more reasonable alternative.
The third dimension of crowd out occurs when families do not take up employer-based family coverage and elect a public alternative instead. Among the Healthy Kids' enrollees, 26% of the total sample had access to employer-based family coverage. There are two major points worth noting about this finding. First, access to employer-based coverage varied significantly by income, with lower-income families reporting markedly reduced access compared with those with higher incomes. This trend is consistent with findings from studies about crowd out using CPS data. Studies using CPS data demonstrate that as family income increases, the availability of employer-based family coverage also increases, thereby increasing the likelihood of crowd out.
Second, although 26% of the sample had access to employer-based family coverage, the majority of them reported that their children were uninsured for 12 months before program entry. The average reported family share for employer-based family coverage across all income levels was $212.00 per month (or 13% of the total family income). The families' reports of their share for employer-based family coverage were based on recall. Although the majority of families stated they were very confident to confident in the reported costs, we did not verify these amounts with their employers. Additionally, we did not ask about differences in benefit package options that may have contributed to the differing premium costs that families reported. However, reported costs for employer-based family coverage in our study were comparable with other reported costs of the family share of the premium.3
As expected, the poorest families in the program would have borne the greatest burden if they had elected employer-based family coverage, which represented, on average, 14% of their family income. However, all families, regardless of income level, would have borne a significant burden, in excess of 10% of their incomes, if they had chosen an available employer-based option. The Title XXI legislation protects families from such a financial hardship by including a provision limiting cost sharing for premiums and copayments to a maximum of 5% of family income for program participants.
These findings lead to the question, “What is crowd out?” If low-income families choose not to take costly premiums that far exceed the recommended Title XXI maximum for the percentage of out-of-pocket spending, is this truly crowd out? The majority of families in our study who had access to employer-based family coverage simply elected not to insure their children, because it was not affordable for them. The subsidized insurance premium offered families an option to insure children who otherwise might have remained uninsured.
There is crowd out related to the Healthy Kids Program. But how much crowd out is too much? The vast majority of children entering the program were uninsured (89%), only 5% were covered by an employer-based plan at some time in the 12 months preceding program entry. Notably, 74% of families in the study did not have access to any employer-based family coverage.
Of the families, 26% could have selected employer-based coverage, albeit at a high price, for the family share consuming a significant proportion of their family income. Is 26% too great a percentage when one considers the price of such premiums and the fact that the majority of children whose families had access to employer-based coverage remained uninsured for ≥1 year until they entered the Healthy Kids Program?
This study does not provide an answer to the question of how much crowd out is too much. However, it does provide a context within which to view the question. Most families in the Healthy Kids Program are near-poor (below 200% of the FPL). The cost of employer-based coverage for those who had it available to them was high both in dollars and as a percentage of family income.
It has been suggested that crowd out redistributes the financial burden of health insurance from the lowest income families to the general population. This redistribution provides health insurance for poor and near poor children and relieves the financial burden for their parents, which is then shared by the larger society.7 Some degree of crowd out may have to be tolerated, so that families who have no access to or cannot afford employer-based coverage are able to obtain health insurance for their children.
Although some crowd out may be unavoidable, government-sponsored health insurance programs are not without costs and should be targeted carefully. Researchers exploring possible crowd out of the employer-based insurance market have made recommendations about ways to limit its occurrence. One option is to target insurance premium subsidies carefully to those families who are most likely to be uninsured. The Florida Healthy Kids Program currently phases subsidies out at 186% of the FPL. With the new Title XXI requirements, phase-out will occur at 200% of the FPL. Our study indicates that families with incomes above 185% of the FPL have the greatest access to employer-based family coverage. However, these families report high premiums representing 11% of their income. Policy makers will need to consider carefully the issue of providing affordable coverage for low-income families and perhaps accept that employer-based coverage may not be an option for some families given the high premium costs.
A second recommended option to control crowd out is to impose a 3- to 12-month period in which the child must be uninsured. This approach leaves children with a significant gap in time in which they may face financial barriers to obtaining health care. Moreover, such an approach might be effective in preventing families from dropping employer-based coverage but would have no effect on those who have access to it but choose not to take it. Imposing a waiting period is possibly punitive and might have little effect on crowd out (depending on one's definition of it). Only 5% of families entering the Healthy Kids Program had employer-based coverage at some time in the preceding year and would have been affected by a waiting period.
Some have suggested that crowd out can be controlled by offering families subsidies to purchase employer-based options. However, there are barriers to this approach. First, employees may not disclose that they have access to employer-based coverage, if they believe such disclosure will prevent them from obtaining more affordable insurance. Second, seeking verification from employers can be costly and time-consuming. Third, employer benefit packages vary widely, and employers may not be forthcoming about their benefit and premium charge structure. States attempting to enroll Medicaid beneficiaries in employer-based plans have encountered problems obtaining any information from employers.11 Thus, it might be difficult to determine whether the employer benefit packages meet the minimum standards required by the Title XXI legislation.
There is no doubt that Title XXI funds should be targeted carefully to ensure that uninsured children receive needed coverage. It is yet to be seen which strategy or strategies will have the greatest effect on minimizing crowd out while providing affordable health insurance options for low-income families and their children.
This study will be repeated after the implementation of the Title XXI initiative in Florida. It is important to note that federal requirements for this initiative expand Healthy Kids Program eligibility by allowing premium subsidies for families at up to 200% of the FPL. At the time of this study, families above 185% of the FPL were not offered any subsidies. In addition, families will receive a more generous benefit package. These federal requirements may lead to a greater degree of crowd out in the future than has been seen with the current Healthy Kids Program. Policymakers and others will most likely continue to face the difficult question of how much crowd out is reasonable to ensure that low-income children receive desperately needed health insurance.
- Received November 23, 1998.
- Accepted March 30, 1999.
Reprint requests to (E.S.) the Department of Pediatrics, University of Florida, 5700 SW 34th St, Suite 323, Gainesville, FL 32608. E-mail:
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- Copyright © 1999 American Academy of Pediatrics