TO: Ohio Voices for Children

TO: Ohio Voices for Children

FR: Cindy Mann and Michael Odeh

DT: February 29, 2008

RE: Imposing New Premiums for Children’s Medicaid Coverage in Ohio

Background. As states have expanded eligibility for children in their publicly funded coverage programs, they have generally charged families at the upper end of their eligibility range a premium to enroll their children into coverage. The experience with premiums will depend on the income level of the families who are subject to the premiums, the amount of the premiums, and the procedures used to implement the premium requirement. Research has shown that premiums in Medicaid and SCHIP can depress enrollment if the financial burden is too great in light of families’ income and other expenses. This occurs both because fewer families will apply and more families will disenroll if premiums are too high. To the extent that a state’s premium structure dampens enrollment, premiums can undermine the purpose of the coverage expansion.

There is no clear answer to the question, “what level of premium is affordable?” Research in Massachusetts and California found that families under 300 percent of the federal poverty level (FPL) need significant assistance affording health insurance because other costs constitute a larger share of their income compared to higher income households.[1] Looking at what families actually pay for employer-sponsored coverage can provide a benchmark of affordability, although it may overstate what families can actually afford or sustain over time (since at any given point in time families, particularly at lower incomes, may be struggling to maintain a health insurance policy they cannot afford because someone in the family has significant health care needs). In 2007, health insurance premiums and out of pocket spending on health care costs combined constituted 2.9 percent of income for families of all income groups and 5.3 percent of income for families with incomes between 251 and 300 percent of the FPL.[2]

Other States. Premiums in Medicaid and SCHIP programs are usually determined relative to income, that is, on a sliding scale. Only ten states charge premiums in families at 101 percent of the FPL, but all except two (Hawaii and D.C.) of the 12 states that cover children above 250 percent of the FPL impose premiums for children at that level.[3]

The premium schedules for the three states that have most recently adopted eligibility expansions for children in this income range (Illinois, Pennsylvania, and Wisconsin) may be particularly instructive. For families in the 250 percent to 300 percent of FPL income range:

·  Illinois charges premiums $40 per month per child;[4]

·  Pennsylvania charges premiums between $56 and $64 per month per child,[5] and;

·  Wisconsin’s new “Badgercare Plus” program charges $31 to $76 per child per month.[6]

Premiums in Medicaid and SCHIP have been shown to reduce enrollment. In a study of Medicaid expansions during the 1990’s, a premium set at one percent of family income was estimated to reduce enrollment by 15 percent, and the higher the premium the fewer families enroll.[7] A study of premiums in SCHIP estimates that a $10 increase in monthly SCHIP premiums will induce 10 percent of enrolled children to disenroll.[8] In fact, new or increased premiums in public programs have been shown to reduce enrollment or increase/hasten disenrollment, especially for children in lower-income families and in a number of SCHIP programs across the country.[9] Below are some findings that maybe particularly relevant to Ohio.

·  Vermont saw adverse effects on enrollment as a result of premiums. In 2003, Vermont increased premiums by $5 for children with income 185-225 percent of the FPL; by $11 for underinsured children with income 225-300 percent of the FPL (these were children enrolled in public coverage as a supplement to other insurance); and by $20 for otherwise uninsured children between 225-300 percent of the FPL. Overall children’s enrollment declined by 6 percent in the first six months after the premium increases; however, the declines varied by premium group. In the six months after the premium increase, enrollment initially declined but then increased (above earlier levels) for children with income under 225 percent of the FPL, whereas enrollment steadily declined by 17-19 percent and did not rebound for children with income above 225 percent of the FPL.[10]

·  Even relatively small premium changes can lead to disenrollment. In January 2003, New Hampshire increased premiums from $20 to $25 for children with income between 185-250 percent of the FPL and from $40 to $45 for children with income between 251-300 percent of the FPL. A study of the impact of the premium change, program caseload dropped and then resumed growing 3-5 months after the premium increase, although at a slower pace than before the increase. Overall, the researchers estimate that the implied effect was a 4 percent reduction in monthly caseload. Disenrollment occurred particularly among children with incomes 251-300 of the FPL.[11]

·  Virginia stopped its premiums when it found that thousands of children would lose coverage. Virginia imposed a $15 per child per month premium for children between 150-200 percent of the FPL; some 4,000 children were at risk of losing coverage for failure to pay the premium.[12] In the face of this potential loss of coverage, the state eliminated the premiums and cancelled the coverage terminations.

Premiums in Medicaid/SCHIP can increase public costs. Added costs for the state or counties could result if premiums cause fewer children to gain coverage than otherwise would have been expected. Research has shown that decreases in Medicaid/SCHIP enrollment are associated with increases in emergency department use among the uninsured, reflecting a shift from ambulatory care to more expensive settings.[13] For example, one study, found that a $10 increase in monthly SCHIP premiums will induce 10 percent of enrolled children to disenroll and raise public expenditures by six percent,[14] and another study found that a 10 percent disenrollment in Medicaid/SCHIP would increase the costs of health care in the community by $2,121 for each disenrolled child.[15]

Additionally, premiums may induce healthier families to disenroll from the program at higher rates, resulting in a phenomenon known as “adverse selection,” which can increase the per-child cost of serving children left in the program.[16]

·  Florida rescinded a premium increase after seeing these kinds of effects. In July 2003 Florida increased KidCare premiums from $15 to $20 per family per month, but rescinded the increase for families with incomes below 150 percent of the FPL by October 2004.[17] After the relatively modest premium increase, there was a sharp decrease in the length of enrollment and a 36 percent increased chance of disenrollment among children between 101-150 percent of the FPL.[18] After the premium increase, children with chronic conditions or special health needs were 8-17 percent less likely to disenroll than healthy children, suggesting that some adverse selection was occurring and a possible increase in per capita program costs for the remaining children.

Finally, by imposing premiums that might cause greater discontinuity in coverage, the state will likely incur added “churning” costs – opening, closing and reopening cases as families move in and out of coverage. Unaffordable premiums can be a key cause of churning in public programs.[19]

Public program expansions for families need to be specifically designed to address the affordability issues the expansions were designed to address. The lack of affordable sources of private insurance is prompting states to expand their publicly-funded insurance programs. Nationally, employer sponsored insurance (ESI) coverage rates for children declined by five percentage points between 2000-01 and 2005-06,[20] and the percent of firms offering coverage declined by nine percentage points between 2000 and 2007.[21] Even when ESI is available, it may be unaffordable for families, given that the growth in the family contribution of ESI has far outpaced the growth in workers earnings[22] as employers shift at least some of the rising health insurance costs onto employees.[23]

Ohio acted to cover children with incomes above 200 percent of the FPL because private insurance is either not available or unaffordable to a growing number of families in this income range. As Ohio moves forward it will be important for the state to ensure that its premiums and other charges do not unintentionally undermine the state’s ability to accomplish its important coverage goals.

Other Key Resources

S. Artiga & M. O’Malley, “Increasing Premiums and Cost Sharing in Medicaid and SCHIP: Recent State Experiences,” Kaiser Commission on Medicaid and the Uninsured (May 2005).

L. Ku & V. Wachino, “The Effect of Increased Cost Sharing in Medicaid: A Summary of Research Findings,” Center on Budget and Policy Priorities (July 7, 2005).

3

[1] L. Blumberg, et al., “Setting A Standard of Affordability for Health Insurance Coverage,” Health Affairs, 26: w463-w473 (2007); J. Gruber, “Evidence on Affordability From Consumer Expenditures and Employee Enrollment in Employer-Sponsored Health Insurance,” (March 2007), available at http://econ-www.mit.edu/files/128; and K. Jacobs, et al., “Health Coverage Expansion in California: What Can Consumers Afford to Spend?,” UC Berkeley Labor Center & UCLA Center for Health Policy Research (September 2007).

[2] Ibid. (Jacobs, et al.)

[3] See D. Cohen Ross, A. Horn, & C. Marks, "Health Coverage for Children and Families in Medicaid and SCHIP: State Efforts Face New Hurdles," Kaiser Commission on Medicaid and the Uninsured (January 2008). CCF added information for state-funded expansions.

[4] See the ALL KIDS premium schedule at http://www.allkids.com/income.html .

[5] See the CHIP premium schedule at http://www.chipcoverspakids.com/upload/admin/File/CHART_DEC07.pdf .

[6] See the BadgerCare Plus premium schedule at http://dhfs.wisconsin.gov/badgercareplus/pubs/BadgerCare%20Plus%20Premiums022208.pdf .

[7] L. Ku & T. Coughlin, “Sliding Scale Premium Health Insurance Programs: Four States’ Experiences,” Inquiry, 36: 471-480 (Winter 1999/2000).

[8] T. Johnson, M. Rimsza, & W. Johnson, “The Effects of Cost-Shifting in the State Children’s Health Insurance Program,” American Journal of Public Health, 96: 709-715.

[9] G. Kenney, et al., “Effects of Public Premiums on Children's Health Insurance Coverage: Evidence from 1999 to 2003,” Inquiry, 43: 345-361 (2006); and G. Kenney, et al., “Effects of Premium Increases on Enrollment in SCHIP: Findings from Three States,” Inquiry, 43: 378-392 (Winter 2006/2007).

[10] S. Kappel, “Effects of Medicaid Premiums on Program Enrollment: Preliminary Analysis,” Joint Fiscal Office (April 8, 2004); and Vermont Department of Prevention, Assistance, Transition, and Health Access, “Impact of Premiums on the Medicaid Program Second, Third and Fourth Quarter 2004 Reports,” (January 2005), available at http://www.path.state.vt.us/premium/premium.html

[11] G. Kenney, et al., “Effects of Premium Increases on Enrollment in SCHIP: Findings from Three States,” Inquiry, 43: 378-392 (2006/2007).

[12] Virginia Department of Medical Assistance Services memo, (May 15, 2002).

[13] P. Cunningham, “Medicaid/SCHIP Cuts and Hospital Emergency Department Use,” Health Affairs, 25: 237-247 (2006).

[14] T. Johnson, M. Rimsza, & W. Johnson, “The Effects of Cost-Shifting in the State Children’s Health Insurance Program,” American Journal of Public Health, 96: 709-715.

[15] M. Rimsza, R. Butler, & W. Johnson, “Impact of Medicaid Disenrollment on Health Care Use and Cost,” Pediatrics, 119: e1026-e1032 (May 2007).

[16] E. Shenkman, et al., “Disenrollment and Re-enrollment Patterns in SCHIP,” Health Care Financing Review, 23: 47-64 (Spring 2002); and R. Stein, et al., “Health of Children in Title XXI: Should We Worry?,” Pediatrics, 112: e112-e118 (2003).

[17] E. Shenkman, “Healthy Kids Program Changes in State Fiscal Year 2003-2004 Associations with Enrollee Case-Mix, Health Care Expenditures, and Disenrollment,” A Report to the Healthy Kids Corporation (November 2004).

[18] J. Boylston Herndon, et al., “The Effect of Premium Changes on SCHIP Enrollment Duration,” Health Services Research, early release? (2007).

[19] L. Summer & C. Mann, “Instability of Public Health Insurance Coverage for Children and Their Families: Causes, Consequences, and Remedies,” The Commonwealth Fund (June 16, 2006).

[20] E. Gould, “The Erosion of Employment-Based Insurance,” Economic Policy Institute (November 1, 2007).

[21] Kaiser Family Foundation/HRET, “Survey of Employer Health Benefits, 2007,” (September 2007).

[22] Ibid.

[23] L. Mishel, “Employers Shift Health Insurance Costs Onto Workers,” Economic Policy Institute (August 16, 2006).