Health Insurance for Children: Declines in Employment-Based Coverage Leave Millions Uninsured; State and Private Programs Offer New Approaches

Published by the Government Accountability Office on 1997-04-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Health, Committee on Ways
                          and Means, House of Representatives

For Release on Delivery
Expected at 10:00 a.m.
Tuesday, April 8, 1997
                          HEALTH INSURANCE FOR

                          Declines in Employment-
                          Based Coverage Leave
                          Millions Uninsured; State
                          and Private Programs Offer
                          New Approaches
                          Statement of William J. Scanlon, Director
                          Health Financing and Systems Issues
                          Health, Education, and Human Services Division

Health Insurance for Children: Declines in
Employment-Based Coverage Leave Millions
Uninsured; State and Private Programs Offer
New Approaches
               Mr. Chairman and Members of the Subcommittee:

               I am pleased to be here today to discuss recent changes in health
               insurance coverage and the effect of these changes on children. Without
               health insurance, many families face difficulties getting preventive and
               basic health care for their children. Children without health insurance are
               less likely to have routine medical and dental care, establish a relationship
               with a primary care physician, and receive immunizations or treatment for
               injuries and chronic illnesses. Recognizing the importance of health
               insurance for children, Members of the House and Senate and the
               administration have proposed expanding children’s health insurance
               coverage—either through grants to the states, refundable tax credits,
               vouchers, or other means.

               My remarks today will focus on three points: (1) recent trends in children’s
               health insurance coverage, particularly in employment-based coverage;
               (2) the increasing role of Medicaid in insuring children and possible
               interactions with private insurance; and (3) some small-scale but
               innovative state and private efforts to provide coverage for uninsured
               children. These remarks summarize findings from previous GAO work,
               based on our analysis of the Bureau of the Census March Current
               Population Surveys for health insurance coverage in 1989 and 1995 and
               information from the Census on trends in coverage from 1987 through
               1995; other public and private surveys, such as a survey conducted by
               KPMG Peat Marwick on employer health insurance; interviews with
               experts, insurance company executives, and benefits consultants; current
               research on health insurance issues; and case studies of state and private
               programs that insure children. (A list of GAO products related to this issue
               appears at the end of this statement.)

               In summary, we found that while most children have health insurance,
               almost 10 million children lack insurance. Between 1989 and 1995, the
               percentage of children with private coverage declined significantly—part
               of an overall decline in coverage of dependents through family health
               insurance policies. Increases in the cost of providing health insurance
               have prompted many employers to take steps that discourage or limit
               dependent coverage, such as raising premiums or providing incentive
               payments to employees who refuse family coverage. This erosion in
               employer support for health insurance has contributed to the increasing
               number of children in working families without private health insurance.

               Page 1                                                      GAO/T-HEHS-97-105
                         Health Insurance for Children: Declines in
                         Employment-Based Coverage Leave Millions
                         Uninsured; State and Private Programs Offer
                         New Approaches

                         As these reductions in private coverage were occurring, Medicaid
                         eligibility for children expanded. These expansions helped to cushion the
                         effect of the loss of private coverage, but they also may have contributed
                         to some further reductions in private coverage. Families respond to the
                         availability of public coverage differently. While some families may have
                         been induced to drop private coverage to gain Medicaid for their children,
                         others may not have taken advantage of the program. Indeed, almost
                         3 million Medicaid-eligible children remain uninsured.

                         A number of states, in conjunction with local governments, and private
                         entities have developed children’s insurance programs that differ
                         significantly from Medicaid. Some of these public/private efforts may
                         prove instructive in developing future strategies for insuring children. For
                         example, by targeting their outreach efforts, the programs have been able
                         to identify uninsured children—some of whom are eligible for Medicaid. In
                         addition, the programs have developed service packages based on
                         preventive care and required parents to assume some of the insurance cost
                         through premium contributions and copayments for specific services.
                         Such strategies have helped to stretch program dollars and provide needed
                         health care to more children.

                         Between 1989 and 1995, private family insurance coverage declined for
The Decline in Private   both children and working-age adults. Most of the decline was for the
Health Insurance         dependents of workers—most dramatically for children. During this
Coverage Hit Children    period, the percentage of children with private health insurance dropped
                         from 74 percent to 66 percent. Had this decrease not occurred, nearly
Harder as Employer       5 million more children would have had private health insurance.
Financial Support
                         Eroding employer financial support for providing health insurance to
Decreased                employees’ families has contributed to the overall decline in private
                         insurance coverage. The vast majority of privately insured children are
                         covered under their parents’ employment-based health care plans.1 But as
                         health insurance premiums reached 10 percent of employers’ payroll costs,
                         many employers began to reconsider the amount of employee
                         insurance—particularly family coverage—that they would support. The
                         health insurance cost to employers for a worker who does not elect family
                         coverage is less than half the cost of family coverage. As a result, firms are
                         considering a variety of ways to control the cost of coverage—particularly
                         family coverage.

                          For information on the structure of the private market for individual coverage, see Private Health
                         Insurance: Millions Relying on the Individual Market Face Cost and Coverage Trade-Offs
                         (GAO/HEHS-97-8, Nov. 25, 1996).

                         Page 2                                                                          GAO/T-HEHS-97-105
    Health Insurance for Children: Declines in
    Employment-Based Coverage Leave Millions
    Uninsured; State and Private Programs Offer
    New Approaches

    There was a slight decrease in the proportion of workers whose employers
    sponsored health insurance between 1988 and 1993. The decrease was
    more pronounced among those working in small firms—13 percent fewer
    people working for firms with fewer than 10 employees had employers
    who sponsored coverage. Even if an employer sponsors a plan, it may not
    cover family members. In 1993, almost one-quarter of the workforce could
    not get family coverage at work. Over 18 million workers were employed
    by firms that did not sponsor coverage at all, and more than 5 million
    workers worked for firms that sponsored coverage for workers, but not
    family members.

    Most employers that offered coverage raised employee premium
    contributions significantly—especially for family coverage. In large firms
    with 100 or more employees, average monthly premium contributions
    increased 79 percent for family coverage compared with 64 percent for
    single coverage between 1988 and 1993. A Hewitt Associates analysis of
    benefits offered by a group of major firms with 1,000 or more employees
    showed that median monthly premium contributions for family indemnity
    coverage increased 64 percent between 1990 and 1995, whereas median
    monthly premium contributions for employee-only indemnity coverage
    increased 47 percent.

    In addition to increasing premium contributions, employers are
    increasingly turning to other options in their benefit design to limit their
    costs. These options may discourage family coverage but may also result
    in employers of two-income families sharing in the cost of coverage and
    avoiding the cost of duplicate coverage. These options include

•   providing alternative benefits or incentives to workers who choose
    employee-only coverage,
•   providing financial incentives to employees who obtain family coverage
    through their spouse,
•   refusing to cover a spouse if the spouse has other health insurance,
•   imposing a surcharge for working spouses covered as dependents,
•   refusing to provide dependent coverage unless the employee is the family’s
    primary wage earner, and
•   changing premium structures so that larger families pay higher premiums.

    Page 3                                                      GAO/T-HEHS-97-105
                       Health Insurance for Children: Declines in
                       Employment-Based Coverage Leave Millions
                       Uninsured; State and Private Programs Offer
                       New Approaches

                       Between 1989 and 1995, the number of children in the United States
Expanded Medicaid      increased by almost 7 million, but the number of children with private
Coverage Offset Much   health insurance coverage remained virtually unchanged. During this same
of the Decline in      period, Medicaid eligibility for children expanded so that poor and
                       near-poor children under age 12 became eligible,2 and enrollment
Private Coverage for   increased by 6 million children. Despite the growth in Medicaid, the
Children               number of uninsured children grew by more than 1 million—reaching
                       almost 10 million uninsured children by 1995.

                       There is considerable debate about the extent to which expanding
                       Medicaid eligibility contributed to the decline in the percentage of children
                       who had private coverage. For example, one study suggests that as much
                       as one-sixth of the overall decline in the proportion of people with private
                       coverage may have occurred because families dropped their insurance to
                       enroll children and pregnant women in Medicaid.3 However, other studies
                       found a lesser effect or no effect at all.4

                       Regardless, the studies indicate that, at most, one-sixth of the loss in
                       private coverage stems from families’ choosing to substitute Medicaid for
                       private coverage. Consequently, had Medicaid eligibility not been
                       expanded, the number of uninsured children would probably have been
                       even greater.

                       Moreover, Medicaid expansions could have reduced the number of
                       uninsured children even more, but many uninsured children who are
                       eligible for Medicaid do not enroll. In 1994, almost 3 million

                        Beginning in 1986, the Congress passed a series of laws that expanded Medicaid eligibility for
                       pregnant women on the basis of family income and eligibility for children on the basis of family
                       income and age. Before these eligibility expansions, most children received Medicaid because they
                       were enrolled in Aid to Families With Dependent Children. Starting in July 1989, states were required
                       to expand coverage for pregnant women and infants with family incomes at or below 75 percent of the
                       federal poverty level. Two subsequent federal laws further expanded mandated eligibility for pregnant
                       women and children. By July 1991, states were required to cover (1) pregnant women, infants, and
                       children up to age 6 with family income at or below 133 percent of the federal poverty level and
                       (2) children 6 years old and older born after September 30, 1983, with family income at or below 100
                       percent of the federal poverty level.
                       See David M. Cutler and Jonathan Gruber, Does Public Insurance Crowd Out Private Insurance?
                       Working Paper No. 5082 (Cambridge, Mass.: National Bureau of Economic Research, Apr. 1995).
                        See Lisa Dubay and Genevieve Kenney, Revisiting the Issues: The Effects of Medicaid Expansions on
                       Insurance Coverage of Children (Washington, D.C.: The Urban Institute, Oct. 1995); Lara D.
                       Shore-Sheppard, “Stemming the Tide? The Effect of Expanding Medicaid Eligibility on Health
                       Insurance Coverage,” unpublished draft, Nov. 1995; Lara D. Shore-Sheppard, “The Effect of Expanding
                       Medicaid Eligibility on the Distribution of Children’s Health Insurance Coverage,” paper presented at
                       the Cornell/Princeton Conference on Reforming Social Insurance Programs, May 1996; and Esel Y.
                       Yazici, “Medicaid Expansions and the Crowding Out of Private Health Insurance,” paper presented at
                       the 18th Annual Research Conference of the Association for Public Policy Analysis and Management,
                       Pittsburgh, Pa., Nov. 2, 1996.

                       Page 4                                                                         GAO/T-HEHS-97-105
                              Health Insurance for Children: Declines in
                              Employment-Based Coverage Leave Millions
                              Uninsured; State and Private Programs Offer
                              New Approaches

                              Medicaid-eligible children lacked health insurance. Our previous work and
                              that of other researchers points out several reasons families do not enroll
                              their eligible children in the Medicaid program. Some low-income families
                              are unaware that their children may be eligible for Medicaid, and some are
                              stymied by the complexity of the enrollment process. Moreover, some
                              families may not consider health coverage necessary until a child
                              experiences a medical crisis. The stigma associated with participation in a
                              publicly funded health insurance program can also deter some families.

                              While states have developed Medicaid outreach programs, their past
                              outreach efforts focused more on encouraging use of preventive care by
                              current participants than on encouraging new enrollment. The Health Care
                              Financing Administration and the Health Resources and Services
                              Administration are in the preliminary stages of developing a more
                              aggressive outreach program for potential Medicaid beneficiaries.

                              While many states expanded Medicaid beyond federal requirements to
States, Localities, and       cover more uninsured children, a few developed innovative programs to
Private Organizations         offer subsidized coverage apart from Medicaid. By 1996, 9 states had state-
Have Created New              and locally funded programs, and 24 states had privately funded programs.
                              While most of these programs are small in scale, they do provide
Strategies to Insure          important lessons regarding program design characteristics.
                              In earlier work that we conducted on six of these state-funded or privately
                              funded programs in five states,5 we found that while the programs’
                              approaches varied significantly, they shared some common
                              characteristics. In some ways, they differed strikingly from Medicaid.

                          •   Unlike state Medicaid programs, which operate as open-ended
                              entitlements, all the programs capped enrollment to stay within their fixed
                              budgets. The state programs’ funding came from state general revenues;
                              dedicated shares of specialized taxes, such as tobacco taxes or health care
                              provider taxes; local tax revenue; and grants and donations from
                              foundations and other private-sector entities. The private programs raised
                              money through private donations, many with considerable support from
                              Blue Cross/Blue Shield organizations.

                               We visited the Alabama Caring Program for Children, the Western Pennsylvania Caring Program for
                              Children, Pennsylvania’s Children’s Health Insurance Program, New York’s Child Health Plus Program,
                              the Florida Healthy Kids Program, and MinnesotaCare. MinnesotaCare began as a state-funded
                              program, but Medicaid began to fund children participating in the program as of July 1995 through
                              Minnesota’s Medicaid 1115 waiver. The children’s portion of MinnesotaCare is still distinct from its
                              Medicaid program, however.

                              Page 5                                                                       GAO/T-HEHS-97-105
    Health Insurance for Children: Declines in
    Employment-Based Coverage Leave Millions
    Uninsured; State and Private Programs Offer
    New Approaches

•   All of the programs we visited were designed to augment the existing
    range of coverage options by covering uninsured children not eligible for
    Medicaid. Two of the programs allowed children of any income to join, but
    families with higher incomes were responsible for paying full premium
•   All six programs required at least some of the families to share in the costs
    of coverage through premiums and copayments—with the families’ share
    increasing as income increased. For example, Pennsylvania’s Children’s
    Health Insurance Program charged nothing for children in families with
    income below 185 percent of the federal poverty level and charged $29 to
    $34 per month per child for children in families with income between 185
    and 235 percent of the federal poverty level. All programs heavily
    subsidized premiums for the lowest-income children—ranging from
    charging families nothing to charging $10 per child per month for children
    with family income at or below 130 percent of the federal poverty level. In
    every program, most children received the maximum subsidy. (See app. I.)
•   While all six programs covered basic preventive and outpatient services,
    some limited other services, such as vision, hearing, dental, and mental
    health care. Some also limited inpatient care, particularly the privately
    funded programs. The programs that limited inpatient services sometimes
    did so anticipating that the children would qualify for Medicaid if they
    needed more extensive care.
•   The programs were developed to be easily administered. Most operated, at
    least partially, through nonprofit or private insurers, which enabled the
    programs to use existing provider payment systems and physician
    networks, guaranteeing patient access to providers.
•   Each of the six programs worked extensively to reach families of
    uninsured children and to promote their knowledge of the program. One
    program worked through the schools, which allowed it to most easily
    reach its target group: school-aged children. Other outreach efforts
    included dedicated hot lines, television and radio ads, bus billboards,
    posters in local discount stores, fast-food restaurant tray liners, and
    presentations provided at churches and other community locations. To
    encourage enrollment, three programs used sports and television
    personalities as program spokespersons. These outreach efforts served to
    identify not only children eligible for the six programs but also children
    eligible for Medicaid, who were then channeled into that program.
•   Each of the six programs developed simplified enrollment procedures and
    took specific steps to avoid the appearance of a welfare program.

    Page 6                                                      GAO/T-HEHS-97-105
               Health Insurance for Children: Declines in
               Employment-Based Coverage Leave Millions
               Uninsured; State and Private Programs Offer
               New Approaches

               Although most children are still covered by private employment-based
Conclusions    insurance, recent erosion of private coverage has left many children
               without coverage. The Medicaid expansion has cushioned the effect of this
               erosion on children. However, efforts to expand coverage for children
               need to be developed in ways that do not supplant existing private
               coverage. Despite the Medicaid expansion, many uninsured children who
               are eligible for Medicaid do not enroll. Outreach strategies developed by
               state and private programs could guide state efforts to reach uninsured
               children who are eligible for Medicaid but not enrolled. Other innovative
               state and private strategies, such as sliding-scale premiums and cost
               sharing for program enrollees, could provide a model for enrolling more
               uninsured children while controlling costs. However, adopting other
               strategies, such as limiting services like inpatient care on the premise that
               other funding may be available, may not provide the range of coverage that
               children need.

               Mr. Chairman, this concludes my statement. I would be happy to answer
               any questions you or Members of the Subcommittee may have.

               For more information on this testimony, please call Michael Gutowski,
Contributors   Assistant Director, on (202) 512-7128. Other major contributors included
               Sheila K. Avruch and Karen M. Sloan.

               Page 7                                                     GAO/T-HEHS-97-105
Appendix I

Comparison of Family Cost-Sharing
Provisions, October 1996

                       Income range, as    Family premium
                         a percentage of   contribution per                Percentage
                         federal poverty    month per child                enrolled by                             Service and amount of
Program                            level   by income range               income range              Copayments      copayment
Alabama Caring                $0-12,000a                       $0                     100          Yesb            Outpatient services-$5
Program for Children
Florida Healthy Kids              0-130                      5-10c                        68       Yes             Prescription drugs-$3,
Program                        131-185                      13-30c                        15                       eyeglass lenses-$10,
                               over 185                     45-60c                        17                       refractions-$3,
                                                                                                                   nonauthorized emergency
                                                                                                                   room visits-$25
MinnesotaCare                     0-150                         4                         66d      No              None for children or
                                151-275                      4-98e                        34d                      pregnant women; for other
                                                                                                                   adults, prescription
                                                                                                                   drugs-$3, eyeglasses-$25,
                                                                                                                   inpatient hospital
New York’s Child                  0-159                        0                          86       Yes             Prescription drugs-$1-3,
Health Plus Program            160-222                      2.08                          13                       inappropriate emergency
                               over 222                 35-66.50c                          1                       room use-$35
Pennsylvania’s                    0-184                       0                           95f      Yes             Prescription drugs-$5
Children’s Health               185-235             28.74-34.39c                           5f
Insurance Program
Western Pennsylvania              0-184                        0                          96       Yes             Prescription drugs-$5
Caring Program for              185-235                20/up to                            4
Children                                           50 per family
                                           Note: This appendix corresponds with enclosure IV in GAO/HEHS-97-40R and updates table 2 in
                                               Alabama uses absolute dollar amounts for income eligibility determination.
                                            Preferred doctors may require a $5 copayment for some services; however, most doctors waive
                                           the copayment.
                                               Premium contribution varies by locale or insurer.
                                               Estimated by program officials for 1995.
                                               Premium contribution varies by income level within specified range and family size.
                                           Estimated by program officials for 1996.

                                           Page 8                                                                           GAO/T-HEHS-97-105
Appendix II

Average Cost Per Child Per Month for
Services Covered by Programs, October

                           Alabama                                                         Pennsylvania’s             Western
                             Caring                                      New York’s       Children’s Health     Pennsylvania
                        Program for Florida Healthy                     Child Health             Insurance    Caring Program
Costs/services             Children Kids Program       MinnesotaCare   Plus Program                Program        for Children
Average cost per                                                                                    $52.00c
child per montha             $20.00         $49.00            $60.00         $56.45   b
                                                                                                    $63.00              $70.62
Primary and
preventive cared                  •               •               •               •                      •                    •
Emergency and
accident care                     •               •               •               •                      •                    •
Speech therapy                                    •               •                                      •                    •
Physical and
occupational therapy                              •e              •               •                      •                    •
Prescription drugs                                •               •               •                      •                    •
Hospitalization and
inpatient physician
services                                          •               •                                      •e                   •e
                                                   e                                                      e
Mental health care                                •               •                                      •                    •e
Substance abuse
care                                              •e              •               •e
Vision care                                       •e              •                                      •e                   •e
Hearing care                                      •               •                                      •                    •
Dental care                                                       •                                      •                    •
Home health care                                  •               •                                      •                    •
Ambulance services                                •               •                                                           •
Durable medical
equipment and
prosthetic devices                                •               •                                                           •
Podiatry                                          •               •
Chiropractic services                             •e              •                                                           •f
Family planning                                   •               •
Other services                    •               •g              •               •                      •                    •

                                                                                                      (Table notes on next page)

                                         Page 9                                                           GAO/T-HEHS-97-105
Appendix II
Average Cost Per Child Per Month for
Services Covered by Programs, October

Note: This appendix corresponds with enclosure III in HEHS-97-40R and updates figure 3 in
  Average cost reflects the total premium cost, regardless of the funding source, but excludes
program administrative costs.
 New York planned to add inpatient services and reset premiums to cover these additional
services in 1997.
  Average cost for fully subsidized children aged 1 through 17 is $52 per child per month and for
partially subsidized children birth through age 5 is $63 per month.
 Primary and preventive care services include well-child visits, immunizations, diagnostic testing,
outpatient physician services, and outpatient surgery.
    These services have specific limitations.
Chiropractic services are covered if ordered by the primary care physician.
    Preventive dental care is offered in some counties.

Page 10                                                                        GAO/T-HEHS-97-105
Appendix II
Average Cost Per Child Per Month for
Services Covered by Programs, October

Page 11                                 GAO/T-HEHS-97-105
Related GAO Products

              Employment-Based Health Insurance: Costs Increase and Family Coverage
              Decreases (GAO/HEHS-97-35, Feb. 24, 1997).

              Children’s Health Insurance Programs, 1996 (GAO/HEHS-97-40R, Dec. 3, 1996).

              Private Health Insurance: Millions Relying on Individual Market Face Cost
              and Coverage Trade-Offs (GAO/HEHS-97-8, Nov. 25, 1996).

              Medicaid and Uninsured Children, 1994 (GAO/HEHS-96-174R, July 9, 1996).

              Health Insurance for Children: Private Insurance Coverage Continues to
              Deteriorate (GAO/HEHS-96-129, June 17, 1996).

              Medicaid: Spending Pressures Spur States Toward Program Restructuring
              (GAO/T-HEHS-96-75, Jan. 18, 1996).

              Health Insurance for Children: State and Private Programs Create New
              Strategies to Insure Children (GAO/HEHS-96-35, Jan. 18, 1996).

              Medicaid and Children’s Insurance (GAO/HEHS-96-50R, Oct. 20, 1995).

              Health Insurance for Children: Many Remain Uninsured Despite Medicaid
              Expansion (GAO/HEHS-95-175, July 19, 1995).

              Medicaid: Spending Pressures Drive States Toward Program Reinvention
              (GAO/HEHS-95-122, Apr. 4, 1995).

              Medicaid: Experience With State Waivers to Promote Cost Control and
              Access Care (GAO/HEHS-95-115, Mar. 23, 1995).

              Uninsured and Children on Medicaid (GAO/HEHS-95-83R, Feb. 14, 1995).

              Tax Policy: Health Insurance Tax Credit Participation Rate Was Low
              (GAO/GGD-94-99, May 2, 1994).

              Employer-Based Health Insurance: High Costs, Wide Variation Threaten
              System (GAO/HRD-92-125, Sept. 22, 1992).

              Access to Health Insurance: State Efforts to Assist Small Businesses
              (GAO/HRD-92-90, May 14, 1992).

(101556)      Page 12                                                    GAO/T-HEHS-97-105
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