Expanded Public Health Insurance Fuels Drop in Low-Income, Uninsured Children

But Decline in Private Coverage Offset Some of the Gain Between 1997 and 2001

News Releases
December 19, 2002

Alwyn Cassil: (202) 264-3484

ASHINGTON, D.C.—Expanded public health insurance eligibility, along with aggressive outreach to enroll eligible children, helped decrease the proportion of low-income, uninsured children in America from 20.1 percent in 1997 to 16.1 percent in 2001, according to a national study released today by the Center for Studying Health System Change (HSC).

The percentage of low-income children—those with family incomes below 200 percent of poverty, or about $36,000 for a family of four in 2001—enrolled in either Medicaid or the State Children’s Health Insurance Program (SCHIP) jumped from 28.4 percent in 1997 to 36 percent in 2001, an increase of nearly eight percentage points.

"Targeted public investment in health coverage and aggressive outreach paid real dividends by significantly reducing the number of low-income, uninsured children," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded exclusively by The Robert Wood Johnson Foundation.

Between 1997 and 2001, however, the proportion of low-income children with private health insurance dropped from 47 percent in 1997 to 42.3 percent in 2001, indicating some of the increase in public coverage was caused by substitution of public for private coverage—a phenomenon also known as crowd out. HSC researchers estimated that substitution of public for private coverage accounted for about a quarter of the increase in public coverage for low-income children between 1997 and 2001.

"While there’s been some substitution, the bottom line is that SCHIP has significantly reduced the number of low-income, uninsured children," said HSC Senior Researcher Peter J. Cunningham, Ph.D., who co-authored the study with HSC Senior Researcher James D. Reschovsky, Ph.D., and Jack Hadley, Ph.D., an HSC senior fellow and principal research associate at The Urban Institute.

The 1997 federal legislation creating SCHIP required states to adopt measures to discourage privately insured children from switching directly to SCHIP coverage. Many states adopted provisions to prevent this behavior by requiring SCHIP applicants to be uninsured for some time—usually three to six months—or requiring premium contributions for higher-income applicants. Along with direct switching from private to public coverage, substitution also can occur indirectly over time as public coverage expansions create new sources of coverage for children whose economic situation changes.

For example, some children might lose coverage or enroll in Medicaid when a parent loses a job. Without SCHIP, many of these children might eventually return to private coverage when their parents get new jobs, but instead they may now remain in SCHIP without coverage gaps.

"The fact that some substitution occurred doesn’t mean state efforts to prevent direct switching from private to public coverage were ineffective," Cunningham said, adding that research has shown that insurance coverage is dynamic, with people moving in and out of coverage and types of coverage for many different reasons.

Despite the progress between 1997 and 2001, the weak national economy, rising costs for private insurance and growing state budget deficits threaten to stall progress in decreasing the number of low-income, uninsured children, the study noted.

The study’s findings are detailed in an HSC Issue BriefSCHIP, Medicaid Expansions Lead to Shifts in Children’s Coverage. The study is based on results from HSC’s Community Tracking Study Household Survey, a nationally representative survey involving about 60,000 people in 33,000 families.

SCHIP coverage expansions varied from state to state. Because some states were already covering large numbers of low-income children through Medicaid and other state programs before SCHIP’s enactment, they did not have to expand eligibility as much as other states.

Increased outreach and reduced enrollment barriers likely played an important role in expanding children’s coverage, since both states that greatly increased Medicaid/SCHIP eligibility—defined as a 50 percentage point or higher increase in the proportion of eligible low-income children—and states with little or no eligibility expansions saw declines in the proportion of uninsured, low-income children. Key findings include:

Stakeholder Comments on the HSC Study

Joan Henneberry, director of health policy studies division, National Governors Association
"The study demonstrates how successful state and community efforts have been to find and enroll uninsured children in SCHIP and Medicaid. As more states attempt to coordinate public programs with employer-sponsored insurance, we could actually see less crowd out. Instead of families or employers dropping coverage for children, the state and employer can combine resources to provide insurance to children whose parents work but cannot afford insurance."

Don Young, M.D., president, Health Insurance Association of America
"This latest study, while demonstrating that SCHIP has had some welcome success in reaching uninsured children, clearly confirms the real dangers of crowd out, despite policy makers’ best efforts to prevent it. The substitution of public for private coverage by nearly 40 percent of the SCHIP target population, and even among families with incomes above 200 percent of poverty in the broader population, will almost certainly come as bad news for cash-strapped state governments. As we move forward, this study shows it will require a great deal of wisdom and care to design programs for the uninsured that promote the right mix of private and public sector responsibilities."

Gail Shearer, director of health policy analysis, Consumers Union
"Some crowd out is probably inevitable and not necessarily a bad thing. Many low-income children bounce in and out of coverage as their families’ financial situation changes. For these children, SCHIP provides a stable, ongoing source of coverage. And relieving low-income families of the burden of paying for private coverage can make a real difference in their lives. Given the success of SCHIP, it’s critical that Congress help states financially so they can continue to expand health coverage for low-income children."

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely insights on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded exclusively by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.