Children's Health Insurance Program: Efforts to Measure and Address Potential Substitution for Private Health Insurance

CHIP is a public insurance program established in 1997 that finances health care for over 9 million low-income children whose household incomes do not qualify them for Medicaid. States have flexibility in structuring their CHIP programs under broad federal requirements, and their income eligibility limits vary. 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 (i.e., crowd-out). 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 was asked to examine CHIP crowd-out. This report describes (1) the 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.

GAO reviewed federal laws and guidance and state CHIP documentation, including their 2017 annual reports (the latest available at the time of GAO's review); conducted a literature review of studies published between 2013 and 2018; and interviewed CMS officials, stakeholders from national health policy organizations, and researchers. GAO also interviewed a non-generalizable selection of officials from nine states chosen to obtain variation in CHIP programs, such as income eligibility levels and geography.

HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate.

Limited information exists about Children's Health Insurance Program (CHIP) crowd-out—that is, substituting CHIP for private health insurance. The Centers for Medicare & Medicaid Services (CMS), within the Department of Health and Human Services (HHS), 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.

Not all of these 42 states reported on these indicators and GAO found that those that do may calculate them differently. 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, some states may have other processes for directly measuring CHIP crowd-out. GAO also identified three studies published between 2013 and 2018 that estimated CHIP crowd-out. However, these studies used different methods to calculate crowd-out, and as a result produced varied estimates. For example, one study attributed a portion of increased enrollment in CHIP and other public insurance to crowd-out, while another study found no evidence of crowd-out.

According to CMS's 2017 annual reports and other information, the 42 states with separate CHIP programs reported implementing at least one of six types of crowd-out prevention procedures.

Source: GAO analysis of information from the Centers for Medicare & Medicaid Services, state Children's Health Insurance Programs (CHIP), and a Kaiser Family Foundation and Georgetown Center for Children and Families survey on Medicaid and CHIP programs. │GA O-20-12

The Children’s Health Insurance Program (CHIP), a joint federal-state  program, was established in 1997 to initiate and expand the provision of  health assistance to certain uninsured, low-income children. The program  finances health care for over 9 million children whose household incomes  are too high for Medicaid eligibility, but may be too low to afford private  insurance. A state has three options for designing its CHIP program:   (1) Medicaid expansion CHIP, where CHIP operates as an extension of  the state’s Medicaid program; (2) separate CHIP, where CHIP operates  separately from its Medicaid program; or (3) combination CHIP, in which  a state operates both.

CHIP funding is available to states for targeted low-income children who  meet certain income eligibility standards. The minimum required income  eligibility level for CHIP is 133 percent of the federal poverty level (FPL)— an annual income of about $34,248 for a household of four persons in  2019; however, states have established upper income limits ranging from  170 percent to 400 percent of the FPL. Policymakers have had  longstanding concerns that some states’ inclusion of children in CHIP  from families with higher income levels—who may have a greater  likelihood of having private health insurance—could result in substituting  CHIP for private insurance: a phenomenon known as crowd-out. When  crowd-out occurs, public financing is used to insure children in low- income families when private financing is available. CHIP crowd-out may  occur when, because of CHIP availability, (1) employers modify or decide  not to offer health insurance to their employees or to their dependents; or  (2) employees drop or decide not to enroll themselves or their children in  insurance offered by their employers.

Medicaid expansion CHIP programs—including those in combination  states—are not required by law to prevent crowd-out, but may implement  procedures to do so to the extent consistent with Medicaid statute. States  with separate CHIP programs—that is, states with only separate CHIP  programs and combination CHIP states that operate separate CHIP  programs—are required to take steps to prevent crowd-out. These states  are required to submit CHIP plans that describe reasonable crowd-out  prevention procedures to the Centers for Medicare & Medicaid Services  (CMS), within the Department of Health and Human Services (HHS),  which oversees CHIP and provides guidance to states in how to  administer their CHIP programs. Additionally, these states must report  annually to CMS on the effectiveness of their policies for discouraging  crowd-out. For example, states report on several indicators of potential  crowd-out. Actions that states have used to prevent crowd-out include  denying CHIP coverage for applicants with private health insurance, and  charging premiums for CHIP coverage, which can make CHIP costs more  comparable to private health insurance costs.

In the past, researchers and federal agencies have estimated the extent  to which crowd-out may occur, but these estimates have varied. For  example, in 2007, the Congressional Budget Office reviewed 10 studies  concerning crowd-out and estimated that for every 100 children who  enrolled in public insurance as a result of CHIP being established, 25 to  50 fewer children were covered by private insurance. However, other  studies have reported lower estimates of crowd-out. One 2014 study  estimated crowd-out to be as low as 4 percent nationally, while a 2013  study reported that state officials in Florida and Michigan estimated that  1.9 percent and 0.01 percent of applicants, respectively, dropped private  insurance because they qualified for CHIP.

Changes in federal law over the last decade have affected the types of  health insurance offered to families, as well as how some families pay for  or enroll in private and public health insurance—all of which could affect  CHIP enrollment. For example, the Children’s Health Insurance Program  Reauthorization Act of 2009 made bonus payments available to states to  simplify eligibility determinations in Medicaid and CHIP, and to increase  the enrollment and retention of children in Medicaid. Additionally, the  Patient Protection and Affordable Care Act (PPACA) required most  citizens and legal residents of the United States to maintain health  insurance or pay a tax penalty, a requirement known as the individual  mandate. Further, PPACA provisions established federal financial  assistance for certain families to offset the cost of health insurance  purchased through a health insurance exchange established under  PPACA. Specifically, refundable tax credits are available for certain  families—with incomes from 100 to 400 percent of the FPL who do not  have access to affordable minimum essential health insurance coverage  through an employer and do not qualify for Medicaid—to purchase private  health insurance from a health insurance exchange in their state. Some  state officials and researchers attribute recent increases in CHIP  enrollment to other PPACA 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  for themselves and their families, learned about CHIP eligibility for their  children.

To help Congress further understand CHIP crowd-out, you asked us to  describe factors that may affect crowd-out, and CMS’s and states’ current  crowd-out prevention procedures. This report describes  (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.

To describe information on potential indicators of crowd-out reported by  states and estimates of crowd-out, we reviewed relevant laws, CHIP  regulations, and CMS guidance, as well as states’ CHIP plan  amendments and 2017 CHIP annual reports. In addition, we interviewed  CMS officials to understand the agency’s requirements regarding the  collection and use of information on CHIP crowd-out from states and any  efforts to measure the extent to which crowd-out occurs. We conducted  semi-structured interviews with a non-generalizable sample of officials  from nine states, and reviewed the CHIP plans for these selected states  to understand how they collect and report information about crowd-out.  Because of the variation in CHIP programs across states, to obtain a mix  of perspectives regarding CHIP crowd-out and their procedures to  prevent it, we selected nine states based on their CHIP income eligibility  levels, type of CHIP program structure (Medicaid expansion CHIP,  separate CHIP, or combination CHIP), geographic region, use of a  waiting period as a crowd-out prevention procedure, and CHIP  enrollment. The states selected include three Medicaid expansion CHIP  states (Maryland, New Mexico, and Ohio); three combination CHIP states  (California, Florida, and New York); and three states (Kansas,  Pennsylvania, and Texas) that had identified themselves as separate  CHIP states, but are considered by CMS to be combination states.

To obtain a broad perspective on concerns about crowd-out, approaches  used to measure crowd-out, and crowd-out estimates, we reviewed  published literature from 2013 through 2018 that estimated crowd-out. To  identify this literature, we searched multiple research databases for  studies and, based on our review of the article abstracts, identified 30  articles that discussed CHIP crowd-out, among other things. We  reviewed each study to determine if it estimated CHIP crowd-out and  identified 18 articles with results related to crowd-out estimates. We  examined the methodologies of these 18 studies and identified three that  provided reliable crowd-out estimates related to CHIP specifically and  were not excluded for other reasons. We also interviewed stakeholders  and researchers from the Agency for Healthcare Research and Quality  (AHRQ); the Georgetown University Health Policy Institute Center for  Children & Families; Urban Institute; National Governors Association; the  National Association for States Health Policy; the University of Michigan  at Ann Arbor; and the Medicaid and CHIP Payment and Access  Commission (MACPAC).

To describe the procedures CMS and states use to address potential  CHIP crowd-out, we reviewed applicable laws, CHIP regulations, and  CMS guidance, as well as state CHIP plans, state CHIP plan  amendments, and states’ 2017 CHIP annual reports, the latest available  at the time of our review. We also interviewed officials from CMS, our  nine selected states, and the stakeholders and researchers identified  above. In addition, we reviewed the same 30 articles from our literature  review and identified two that also estimated the effectiveness of specific  prevention procedures on crowd-out. We also reviewed CHIP enrollment  applications to determine if states ask applicants about access to other  health insurance.

To provide information on children’s health insurance and employer  sponsored insurance in the appendixes of this report, we report data from  the American Community Survey (ACS) and the Medical Expenditure  Panel Survey (MEPS) Household Component. We assessed the  reliability of these national survey data by reviewing related  documentation, performing data reliability checks, and interviewing  relevant agency officials with knowledge of the survey data. On the basis  of these steps, we determined that the data were sufficiently reliable for  the purposes of our reporting objectives. To provide information on trends  in employer sponsored insurance, we also reviewed and summarized  reports from AHRQ that analyzed MEPS Insurance Component data.

We conducted this performance audit from July 2018 to October 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

States have three options for designing their CHIP programs: Medicaid  expansion CHIP, separate CHIP, and combination CHIP.

Medicaid expansion CHIP. States may operate CHIP as an  extension of their Medicaid programs. Under Medicaid expansion  CHIP, states expand income eligibility levels for children beyond those  of the state’s Medicaid program. Medicaid expansion CHIP programs  must follow Medicaid rules, including providing all Medicaid covered  benefits to enrolled children.

Separate CHIP. States may operate their CHIP programs separate  from their Medicaid programs. In so doing, the states are not required  to follow the same rules as Medicaid; thus, these states have some  additional flexibility in designing CHIP, such as determining which  benefits to offer and how, if at all, to charge premiums.

Combination CHIP. States may have a combination program, where  they operate a separate CHIP program, as well as a Medicaid  expansion CHIP program, each for a different population of children.  For example, some states that operate combination CHIP programs  apply different age or income eligibility requirements for their Medicaid  expansion CHIP and separate CHIP programs.

Similar to Medicaid, CHIP program expenditures are shared between the  states and the federal government, but federal matching rates for CHIP  are higher than for Medicaid and federal funding for CHIP is capped, with  states receiving annual CHIP allotments. The type of CHIP program a  state designs may affect the amount of federal funding available to that  state in the event the state exhausts available CHIP funding for the year.  A state with a Medicaid expansion CHIP program that exhausts available  CHIP funding may apply Medicaid funds at the Medicaid matching rate to  remaining expenses for enrolled children for that year. However, a state  with a separate CHIP program that exhausts available funding would not  have access to such funding.

In general, states administer CHIP under broad federal requirements that  permit flexibility in how they design their programs, including in the  services they cover, their upper income eligibility limits, and the fees they  charge to participate. In terms of income eligibility, as of January 2019, 19  states, including the District of Columbia, had CHIP upper income  eligibility limits of 300 percent of the FPL or higher compared with 32  states whose CHIP upper income eligibility limits were below 300 percent  of the FPL. (See fig. 1.)

In addition, states can charge beneficiaries fees for CHIP coverage.  These fees can vary depending on whether they are enrollment fees,  premiums, or other types of cost sharing. Among the states that charge  CHIP premiums, the premiums can vary based on family income and the  number of children in CHIP. (See table 1.) Although states may charge  premiums or have other cost sharing, according to CMS, CHIP provides  more affordable coverage than is generally available in the private health  insurance market.

CHIP crowd-out may occur when employers modify or decide not to offer  health insurance to their employees or to their dependents, because of  CHIP availability. For example, employers who are aware of CHIP may  decide not to offer health insurance to employees or their dependents due  to concerns about the costs of providing insurance, especially for smaller  sized firms, or as a result of changes in federal or state policies, such as  requirements resulting from PPACA.

Crowd-out may also occur when employees drop or decide not to enroll in  insurance offered by their employers and enroll their children in CHIP,  because of CHIP availability. As we have identified in prior work,  assessments of the potential for crowd-out must take into account an  understanding of the extent to which private health insurance is available  and affordable to low-income families who qualify for CHIP.

National survey results show that private health insurance is the most  prevalent source of insurance for children; however, there is substantial  variation across states in coverage rates. Additionally, the extent to which  employers offered individuals insurance varies by family income. For  additional information on factors that may affect crowd-out, see   appendix I. For information on sources of health insurance for children  under age 19, including CHIP and employer sponsored insurance, see  appendix II.

The type of CHIP program a state designs affects its responsibilities for  monitoring and mitigating the potential for CHIP crowd-out. The 42 states  with separate CHIP programs—including those in combination CHIP  states—are required to submit CHIP plans that describe reasonable  procedures to prevent crowd-out and to report annually to CMS on certain  crowd-out related indicators, such as the number of CHIP applicants with  access to private health insurance; however, CMS provides states  flexibility to decide which crowd-out prevention procedures to use. For  example, states can require CHIP applicants to undergo a period of  uninsurance prior to enrollment, known as a waiting period, to deter  families that have access to private health insurance from dropping that  insurance to enroll in CHIP. In contrast, states are not required to take  steps to prevent crowd-out for their Medicaid expansion CHIP programs  and may only do so if consistent with the Medicaid statute, or if under an  approved section 1115 demonstration, which allows states to implement  policies that waive certain Medicaid requirements.

For states with separate and combination CHIP programs, CMS provides  general guidance for minimizing crowd-out, which the agency has  modified over time. (See table 2 for a description of the crowd-out related  responsibilities.) For example, in 2013, CMS issued regulations to align  with a PPACA provision for health plans and health insurance issuers that  limited waiting periods to a maximum of 90 days, and established  mandatory waiting period exemptions. The regulations also eliminated  the application of a CHIP policy requiring that states with separate CHIP  programs have different crowd-out prevention procedures in place for  children at different income levels. In making this change, CMS noted  that available research called into question the prevalence of crowd-out.  CMS indicated that its policy still required states to monitor crowd-out  and, if a high rate of crowd-out were to occur, states should consider  implementing prevention procedures, such as public outreach about other  health care options available in the state.

In response to crowd-out related recommendations we made in 2009,  CMS modified its guidance to collect additional information from states in  their 2009 through 2013 annual reports on how they assess the  availability and affordability of private health insurance for CHIP  applicants. For example, from 2009 through 2013, states were required  to report to CMS if the state’s CHIP application asked if applicants had  access to private health insurance. Additionally, states that operated a  waiting period without affordability exceptions were asked if the state  collected data on the cost of health insurance for an individual or family.  However, CMS officials stated that the agency eliminated the questions  regarding affordability of private health insurance in 2013, as part of  efforts to update the electronic system states use to submit their CHIP  annual reports to reflect PPACA enrollment simplification and  coordination requirements. CMS officials said some of the questions were  duplicative of other state reporting requirements and other questions were  deemed irrelevant in light of the establishment of affordability exceptions  to waiting periods.

Limited Information Exists on the Extent of CHIP Crowd-Out

States reported indicators of potential crowd-out to CMS in their annual  reports, although some do not report on these indicators and those that  do may calculate them differently. The states also varied in the extent to  which they have processes for directly estimating crowd-out; however,  CMS officials and officials in selected states told us they understand the  occurrence of crowd-out to be low. Further, we identified few published  research studies that directly estimated crowd-out; each used different  methodologies, resulting in varied estimates.

Some States Report Information on Two Indicators of Potential CHIP Crowd-Out; One Selected State Directly Measures Crowd-Out

States with separate CHIP programs—including those in combination  states—are required to annually report indicators of potential crowd-out;  states must also describe in their CHIP plans other indicators of potential  crowd-out they collect. CMS’s 2017 CHIP annual report asks these states  to report on crowd-out related questions, including two indicators of  crowd-out: (1) the percentage of individuals who 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—an indicator of potential crowd-out averted. However, not all  states with separate CHIP programs track and report information related  to these two indicators of potential crowd-out, and those that do may  calculate these indicators differently. For example, of the 42 states with  separate CHIP programs, the 2017 annual reports showed the following:

Four of the 42 states reported that they tracked the number of  individuals who have access to private health insurance; the  remaining 38 states either did not report tracking this information or  did not respond to this question. Of the four states tracking this  information, the percentages reported ranged between 0.5 percent  and 7 percent of CHIP applicants who have access to private health  insurance.

Twenty-one of the 42 states reported that they tracked the percentage  of applicants who could not be enrolled in CHIP because they were  enrolled in private health insurance; the remaining 21 states did not  report this percentage to CMS. This is a measure of crowd-out  averted due to state oversight of its enrollment process. The  percentages reported by the 21 states tracking this information ranged  from 0 percent in several states to 18 percent in one state.

Among the states that reported they do not track individuals with access  to private insurance and did not provide a percentage of applicants not  enrolled in CHIP because of enrollment in private health insurance, five  states indicated that either their electronic eligibility systems did not allow  them to capture this information or the data to report this information were  not available. 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, some states that operate separate CHIP programs describe  approaches for directly estimating crowd-out in their CHIP plan  amendments. The results of these estimates are not reported to CMS  unless they reach a threshold defined by each state. In 2013, CMS  required separate CHIP states to submit state plan amendments to CMS  to update their eligibility-related policies, including their crowd-out  prevention procedures. In response, 17 of the 42 states submitted these  amendments and described approaches they would use to directly  measure crowd-out. For example:

Colorado reported conducting a biennial survey to estimate the  percentage of enrollees who dropped group health insurance without  good cause to gain eligibility for CHIP, according to its CHIP plan.

Connecticut reported comparing the number of children denied CHIP  enrollment because they were enrolled in private health insurance to  those same applicants who reapplied for CHIP 6 months later, but did  not have private health insurance.

The crowd-out threshold defined by Colorado and Connecticut is 10  percent; therefore, if these states’ crowd-out estimates were to exceed 10  percent, each state would collaborate with CMS to identify other  procedures to reduce crowd-out. According to CMS officials, no state  using this approach to estimate crowd-out has exceeded the percentages  established or expressed concerns with crowd-out.

States we interviewed varied in the extent to which they estimate crowd- out; however, most states did not view crowd-out to be of concern.  Among our six selected states with separate CHIP programs, one state— New York—directly measures crowd-out. New York asks applicants that  dropped their private insurance in the last three months the reasons why  they dropped this coverage, which includes responses such as the  family’s preference for the child to have CHIP benefits over their  previously held private health insurance. New York state officials told us  they consider instances of crowd-out to include when individuals drop  private insurance because CHIP costs and benefits are more favorable.  For the last 9 months of 2014, the officials estimated crowd-out in New  York to be about 1.9 percent. If New York estimates crowd-out to be  higher than 8 percent, state officials told us they will report this to CMS  and work with CMS on implementing additional crowd-out prevention  procedures. Officials from the other five selected states said they do not  actively measure crowd-out, some of them citing limited resources and  difficulties developing estimates, and noted that crowd-out was not a high  priority for them, because they did not think crowd-out was prevalent in  their states. For example, officials from two states said they had not heard  any concerns regarding crowd-out from their state legislature, state  insurance agencies, or others. CMS officials also told us that no state had  reported concerns about crowd-out.

Research on CHIP Crowd- Out Is Limited, Used Different Methods, and Resulted in Varied Estimates; Researchers and Others Identified Challenges in Making Such Estimates

Our review identified few research studies that directly estimated CHIP  crowd-out. Specifically, we identified three research studies published  from 2013 to 2018; each used different methods and arrived at varying  estimates of crowd out.

One study estimated crowd-out across 15 states that expanded their  CHIP income eligibility requirements between 2008 and 2012 by  examining health insurance enrollment changes in a sample of  children after they became newly eligible for CHIP. This study  estimated that public insurance among children under age 19  increased about 2.9 percentage points during this period, and private  insurance decreased by 1.8 percentage points. The study reported  that 63 percent of the 2.9 percentage point increase in public  insurance was due to crowd-out. The researchers also produced  state-level estimates for the effects of CHIP income eligibility  expansions on insurance coverage in newly eligible children. These  estimates varied by state, suggesting that crowd-out also varies by  state. In particular, three states had an increase in public insurance  ranging from about 4 to 12 percentage points, and three states had a  decrease in private insurance that ranged from about 7 to 14  percentage points. The researchers noted they did not account for  factors that may have caused privately insured individuals to increase  their use of public insurance, such as changes in the affordability of  private health insurance.

Another study estimated the effect of CHIP income eligibility  expansions on crowd-out in Illinois. This study examined the  differences in public and private health insurance between children in  Illinois, where CHIP income eligibility was expanded, and children  from a combination of other states that did not expand CHIP—and  were chosen to resemble the demographic characteristics and health  insurance profile of Illinois. This study found a 6.5 percentage point  increase in CHIP enrollment in 2010 among families between 200  percent and 300 percent of the FPL, and estimated that 35 percent of  this increase in CHIP enrollment was due to crowd-out. At other  income levels higher than 300 percent of the FPL, the study found  either no net effect on private health insurance, or an increase.

The third study estimated public and private insurance under different  CHIP income eligibility thresholds and different premium schedules.  While the study estimated that a CHIP expansion from 200 to 400  percent of the FPL with no premium contribution and a 4 month  waiting period increased CHIP enrollment by about 4.5 percentage  points and decreased private coverage by about 2.2 percentage  points, these estimates do not provide evidence of crowd-out,  because the differences in these percentage point estimates were not  statistically significant.

Although not reporting direct estimates of CHIP crowd-out, we identified  other studies that provide related information. For example:  In one study, researchers surveyed the parents of current and former  CHIP enrollees in 10 states to examine access to private coverage for  children enrolled in CHIP. This study found that about 13 percent of  new CHIP enrollees had private health insurance in the year before  enrolling in CHIP. Among the 13 percent, about 18 percent reported  that they dropped their private health insurance, because CHIP was  more affordable, and about 5 percent dropped their private health  insurance, due to a preference for CHIP. The authors noted that  access to private coverage among CHIP enrollees is low and when  access is available, affordability is a serious concern for parents. The  authors concluded that this suggests limited potential for crowd-out.

A study published in 2015 that surveyed the parents of about 4,100  new CHIP enrollees to understand why children enrolled in CHIP,  among other things, found that 35 percent of these parents reported  applying for CHIP, because it was more affordable than the other  health insurance options they could obtain for their children.

Representatives from national organizations, researchers, and CMS  officials we interviewed noted some of the challenges measuring the  extent of CHIP crowd-out, including the limitations of available data  sources; however, they did not consider crowd-out to be prevalent. For  example:

Some data sources do not separately collect or categorize CHIP  information. For example, the ACS does not specifically ask  respondents if their children have health insurance through CHIP;  thus, researchers have to manipulate the data to separate CHIP  coverage from other forms of public health insurance, such as  Medicaid.

The methodologies available to separate CHIP from Medicaid  respondents have many limitations, according to researchers and  U.S. Census Bureau officials we contacted. Accurate crowd-out  estimates require researchers to account for the reasons why  someone dropped his or her health insurance and enrolled in CHIP,  and this information is not captured by national surveys. Researchers  may also vary in what they consider to be crowd-out; for example,  some may not consider dropping private health insurance and  enrolling a child in CHIP because of a job loss or change in  employment to constitute crowd-out. Others do not consider it to be  CHIP crowd-out when parents drop their private health insurance and  enroll in CHIP, because CHIP is more affordable.

CMS officials also noted complexities in measuring crowd-out—such  as variation in definitions of crowd-out and methodologies for  measuring it—and they said that the agency has not conducted or  commissioned its own evaluation. However, CMS officials reiterated  that no state has reported concerns with crowd-out and based on their  review of studies conducted by researchers understand that its  prevalence is likely low.

CMS Tracks States’ Procedures to Address Potential CHIP Crowd-Out; States Ask Applicants about Other Sources of Coverage and Use Cost-Sharing Provisions

CMS monitors states’ CHIP crowd-out prevention procedures and offers  technical assistance, while states ask CHIP applicants about other  sources of health care coverage, and use waiting periods and cost- sharing procedures, such as enrollment fees and premiums. Several state  officials we interviewed told us that their crowd-out prevention procedures  are effective; however, they could not speak to the effectiveness of any  particular procedure and few studies have examined the issue.

CMS Tracks States’ CHIP Crowd-Out Procedures Primarily to Identify Inconsistencies in States’ Reporting and Provide Technical Assistance upon Request

CMS officials told us that they track the information states submit about  their CHIP crowd-out prevention procedures as part of their annual report  review process to identify any inconsistencies between the information  contained in their state plans and the information submitted in states’  annual reports, among other reasons. When CMS officials identify any  noticeable differences in the information reported by states from year-to- year in the annual reports—such as the percentage of CHIP applicants  with access to private insurance—they told us they follow-up with the  state to obtain additional information about these differences, and, if  needed, advise states on ways they can prevent crowd-out. CMS  officials also told us they provide technical assistance, when requested, to  assist states in developing crowd-out prevention procedures. For  example, CMS officials said they provided states with technical  assistance after issuing regulations in 2013 on the use of waiting periods  that also required states to update their state plan amendments. CMS  officials said they have no plans to develop additional strategies for  collecting states’ crowd-out information, because states have not reported  crowd-out to be a concern, and there is no need to re-examine states’  oversight if prevalence as measured in research is likely low.

All States with Separate CHIP Programs Reported Implementing at Least One CHIP Crowd-Out Prevention Procedure, Such as Cost Sharing

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. The majority of these states (36 of the 42 states with  separate CHIP programs) implemented at least three crowd-out  procedures. All 42 states with separate CHIP programs asked applicants  about other insurance coverage on their CHIP applications to deny  applicants CHIP coverage if private insurance coverage was found, and  CMS officials told us that 35 of those states required CHIP enrollees to  pay premiums or make other financial contributions to the cost of the  coverage. (See table 3.) Among our six selected states with separate  CHIP programs, there were differences in how some crowd-out  procedures were implemented. For example, three states conducted  database checks to see if applicants had other sources of health  insurance; however, one state checked prior to enrollment, another  checked at enrollment and during application renewal, and one state ran  weekly checks. Among our six selected states with separate CHIP  programs, none planned to change procedures to prevent potential  crowd-out.

Among the 42 states with separate CHIP programs, some crowd-out  prevention procedures vary or have changed over time. For example,  while many states use a private company to collect state and national  health insurance coverage information to conduct database checks,  another state developed a database that contains information on  insurance coverage available through over 40,000 employers in the state.  Additionally, prior to 2014, 36 states imposed waiting periods, during  which applicants could not have health insurance for a specified time  before CHIP enrollment, to prevent crowd-out. In 2017, 14 states used  waiting periods. Prior to PPACA and the implementation of CMS  regulations that limited waiting periods to 90 days, waiting periods could  range from 1 to 12 months. After CMS updated its regulation, 21 states  eliminated their waiting periods and five states shortened them.

Among our four selected states with separate CHIP programs that  shortened or eliminated their waiting periods, none of the state officials  expressed concerns that this change contributed to CHIP crowd-out.  Administering a waiting period may involve the state tracking or  determining whether the applicant meets any of the state and federal  waiting period exemptions, the number of months for the waiting period  before the applicant can be enrolled in CHIP, and informing the federally  facilitated exchange if an exemption to the waiting period applies to the  applicant. As a result, some officials noted that reducing waiting periods  eased their state’s administrative burdens, as well as eliminated gaps in  children’s health insurance.

Among the four selected states, officials from New York said they  eliminated their waiting periods because, after undergoing the various  administrative steps to verify each application and apply the waiting  period, the majority of the CHIP applicants met at least one waiting period  exemption. However, three of the selected states with separate CHIP  programs maintained waiting periods, and state officials from Texas told  us that few individuals met the waiting period exemptions. Some state  officials told us they attributed waiting periods—which require children to  go uninsured for a period of time—to gaps in health care, and their states  eliminated the waiting period in an attempt to provide continuity in  children’s access to health care.

Although not required by law, officials from two of our selected states with  Medicaid expansion CHIP programs told us their states previously had  approved 1115 demonstration waivers permitting their states to use a  CHIP waiting period, but eliminated them in 2013 and 2014 to close gaps  in children’s health insurance coverage. Currently, these states use  similar procedures as separate CHIP states to prevent crowd-out,  according to state officials. Of our three selected states with Medicaid  expansion CHIP programs, one state monitors CHIP enrollment trends; a  second state requires its managed care organizations to check CHIP  enrollees for other sources of insurance as part of their claim processing  activities; and one state conducts database checks for other health  insurance at the time of enrollment and re-enrollment.

The Effect of States’ Procedures to Prevent CHIP Crowd-Out is Unclear, as Relatively Few Studies Have Examined the Issue

The effect of some of the states’ procedures on preventing CHIP crowd- out is unclear and, according to selected state officials and stakeholders,  some crowd-out prevention procedures may have unintended  consequences. For example, state officials and stakeholders told us  waiting periods result in coverage gaps, which, as one stakeholder noted,  could be catastrophic for a family with a sick child who would not have  coverage during the waiting period. Several CHIP officials we  interviewed believed their procedures are effective in preventing crowd- out; however, they either had not studied the effectiveness of their  procedures or could not speak to the effectiveness of any particular  procedure.

Relatively few of the studies we reviewed examined the effectiveness of  state procedures for preventing crowd-out. Specifically, two studies  looked at this issue. Both studies concluded that cost-sharing procedures,  such as premiums, can reduce the potential for crowd-out among higher- income CHIP-eligible families.

A 2014 study used CHIP-related data from 2003 and found that CHIP  premiums discourage individuals with private health insurance from  dropping their insurance to enroll in CHIP. The study compared  health insurance outcomes across 19 states for children with incomes  slightly above states’ CHIP income eligibility thresholds with children  in families with incomes slightly below the thresholds. The results  indicated that there is an association between CHIP premiums and  private insurance coverage; that is, a $1 increase in the CHIP  premium above the income cut-off is associated with a 2.2 percentage  point higher probability of the child being privately insured for families  within 15 percent of the upper income level, and a 1.7 percentage  point higher probability for families within 25 percent of the upper  income level. These findings suggest that private health insurance  may be a preferable alternative for CHIP eligible families at higher  income levels who face higher CHIP premiums.

A 2013 study used survey data from 50 states and the District of  Columbia from 2002 to 2009 to estimate the effect CHIP premium  contributions have on enrollment in CHIP, private insurance, and rates  of uninsurance among children in families with income eligibility levels  of 200 to 400 percent of the FPL. The study found that if CHIP  programs expand eligibility to those at higher income levels and  charge those families a higher premium, the families may be more  likely to choose private health insurance, nullifying the effects of CHIP  expansion among higher income families.

We provided a draft of this report to HHS for review and comment. The  department provided technical comments, which we incorporated as  appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Health  and Human Services, the Administrator of CMS, appropriate  congressional committees, and other interested parties. In addition, the  report will be available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-7114 or at yocomc@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff that made key contributions to  this report are listed in appendix III.

Appendix I: Crowd-Out and Trends in Children’s Health Insurance and Employer Sponsored Health Insurance

Crowd-out may occur when employers modify or decide not to offer  health insurance to their employees or to their dependents because of  Children’s Health Insurance Program (CHIP) availability. For example,  employers who are aware of CHIP may decide not to offer health  insurance to employees due to concerns about the costs of providing  insurance, especially for smaller sized firms, or as a result of changes in  federal or state policies, such as requirements resulting from the Patient  Protection and Affordable Care Act (PPACA).

For example, PPACA required employers with a certain number of  employees to offer their full-time employees a health insurance option  meeting certain criteria, including affordability, or face tax penalties.  Some researchers and policymakers expressed concern that this  requirement may encourage employers to change how they offer  insurance to employees, such as no longer offering family and dependent  coverage, instead only offering health insurance to the employees,  thereby causing employees with children to seek public insurance or  insurance through health insurance exchanges. Other researchers and  organizations point to PPACA increasing the availability of private health  insurance offered by employers and through health insurance exchanges,   particularly in areas and among populations where employer sponsored  health insurance may not be as readily available.

Crowd-out may also occur when employees drop or decide not to enroll in  insurance offered by their employers and enroll their children in CHIP  because of CHIP availability; however, as we have reported in the past,  assessments of crowd-out should consider the affordability and  availability of the employer sponsored insurance. For example, families  with access to employer sponsored insurance may find CHIP more  affordable or find CHIP benefits more comprehensive than employer  sponsored insurance. Alternatively, they may find that CHIP provides  better access to services specific to their child’s health care needs. For  example, an evaluation of CHIP published in 2014 found that CHIP  enrollees had better access to dental benefits than children with private  insurance, although they were less likely to have a regular source of  medical care and nighttime or weekend access to a provider.

As we have identified in prior work, assessments of the potential for  crowd-out must take into account an understanding of the extent to which  private health insurance is available and affordable to low-income families  who qualify for CHIP. American Community Survey (ACS) data showed  that for 2013 through 2017, the most prevalent source of insurance for  children in the United States under the age of 19 was private health  insurance available through a parent’s employer or union. (See fig. 2.)

Although private health insurance is the most prevalent source of  insurance for children, there is substantial variation across states in  coverage rates. (See fig. 3.) For example, in eight states, fewer than 40  percent of children were insured through an employer in 2017. In  contrast, in Utah, more than 60 percent of families with children were  insured by an employer in 2017.

Medical Expenditure Panel Survey (MEPS) data show that the extent to  which employers offered individuals insurance in 2013 through 2015  varied by family income. For example, MEPS Household Component  data—which includes information on whether individuals were offered  insurance by their employers—show that over 90 percent of families with  incomes greater than 400 percent of the federal poverty level (FPL) were  offered insurance by their employers from 2013 through 2015. The  percentage of families offered insurance by their employers ranged from  about 35 percent for families with incomes less than or equal to 138  percent of the FPL to about 85 percent for families with incomes above  300 and less than 400 percent of the FPL. (See fig. 4.) An Agency for  Healthcare Research Quality (AHRQ) analysis of MEPS Insurance  Component data—which includes information on whether employers  offered insurance to their employees and the cost of that insurance— shows that in 2017, 24.2 percent of small employers (less than 50  employees) with a predominately lower-wage workforce offered their  employees health insurance compared with 57.6 percent for small  employers with a higher-wage workforce. In contrast, in 2017, offer rates  at larger employers—that is, employers with more than 50 employees— was 94 percent for those with predominately lower-wage employees and  98.7 percent for large employers with predominately higher wage  employees.

With regard to affordability, the MEPS Insurance Component data show  that average employee premium contributions for family coverage from  2013 through 2017 increased. Over this period, employees who work for  employers with a predominantly lower-wage workforce—that is,  employers that paid 50 percent or more of their workforce $12 or less per  hour—contributed a larger amount and percentage of premiums to their  employer-sponsored insurance than did employees who work for non- low-wage employers. (See fig. 5.) MEPS Insurance Component data  also show that employees who work at establishments with a  predominately lower-wage workforce enroll in insurance offered by their  employers at a lower rate than employees of other establishments,  though it is not known if this is due to affordability reasons. Finally,  MEPS Insurance Component data show that the percentage of  employees with deductibles and the amount of the deductibles have  increased from 2004 to 2017. Between 2013 and 2017, average family  deductibles increased about 36 percent, from $2,491 in 2013 to $3,396 in  2017.

In addition, research published in 2018 on high deductible health  insurance plans showed both increasing enrollment in these plans and  that larger employers (1,000 or more employees) contributed more  toward health insurance premiums for these plans than smaller  employers (less than 25 employees). For example, according to this  study:

From 2006 to 2016, there was a 35 percentage point increase (11.4  percent to 46.5 percent) in enrollees in high-deductible health plans,  with enrollees from smaller employers more likely to be enrolled in  these plans compared with enrollees from larger employers (56.4  percent of enrollees from small firms compared with 42 percent of  enrollees from large firms).

A lower percentage of enrollees from the smaller firms had a plan with  an employer-funded account, which defray health care costs,  compared with enrollees from larger firms. For example, in 2016, only  about one-third of enrollees in high-deductible health insurance plans  from the smallest employers had an employer funded account to help  pay for medical expenses compared with 89.3 percent of enrollees  from the largest employers. High-deductible health insurance plan  enrollees of the smallest employers were also more likely to not have  the choice of an alternative plan type compared with enrollees from  the largest employers.

Appendix II: Source of Health Insurance for Children under Age 19 by State in 2017

Although private health insurance is the most prevalent source of  insurance for children, there is substantial variation across states in  coverage rates. Figure 6 provides information on the percentage of  children under age 19 insured through employer sponsored insurance,  Medicaid, and the Children’s Health Insurance Program, as well as those  who were uninsured in 2017.

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov.

In addition to the contact named above, individuals making key  contributions to this report include Shannon Legeer (Assistant Director),  Toni Harrison (Analyst-in-Charge), Mollie Lemon, and Courtney Liesener.  Also contributing were Alison Binkowski, George Bogart, Jill Center, Leia  Dickerson, Giselle Hicks, Drew Long, Kristeen McLain, Yesook Merrill,  Jasleen Modi, Vikki Porter, Lisa Rogers, and Merrile Sing.

Over 9 million low-income children who don’t qualify for Medicaid use CHIP—the Children’s Health Insurance Program.

Forty-two states with certain types of CHIP programs must take steps to minimize or prevent “crowd-out”—when families substitute CHIP for private health insurance.

We found that there isn’t much information on how often substitution occurs. All 42 states have at least 1 procedure to prevent substitution, such as searching databases to determine whether CHIP applicants have other coverage.