CHIPing Away at the Problem of Uninsured Children

Introduction

The State Children's Health Insurance Program (CHIP), enacted in August 1997 as part of the Balanced Budget Act, represented the largest expansion of health insurance coverage in more than three decades. One of the key measures of its success would be whether state officials could enroll the children who were eligible. Research conducted by the Center for Studying Health System Change (HSC) showed that uninsured children were a diverse group, and that for CHIP to succeed, policy makers would need to target their programs to specific populations and local market conditions. This Research Report examines why children lack health insurance and explores the implications for implementing CHIP effectively.

Under CHIP, block grants were made available to states to expand Medicaid eligibility for children, establish new programs that subsidized private insurance for children, or combine the two approaches. Congress authorized $40 billion over 10 years to help pay for the program. All states and the District of Columbia -- with the exception of Washington and Wyoming at the time -- had developed or were developing CHIP implementation plans. States had considerable latitude in designing their programs: 20 were expanding Medicaid, 14 were developing new programs to subsidize private insurance, and 15 were combining both approaches.

HSC research indicated that 33 percent of all uninsured children would be newly eligible under CHIP expansions. The ultimate success of the program -- how many uninsured, eligible children actually obtained coverage -- depended not primarily on whether states chose public or private insurance options, but on how effectively they implemented the program. HSC findings made clear that states needed to understand the specific reasons children were uninsured before they could design and implement CHIP effectively.

Although uninsured children represented a diverse group, they were largely children of the working poor. Four-fifths had parents who worked, yet nearly 80 percent lived in families with incomes below 200 percent of the federal poverty level, according to HSC's Household Survey.

Why Children Are Uninsured

Most children in the United States obtained health insurance coverage through a parent's employer-sponsored plan, while some received coverage through public programs. The major reasons children went without insurance fell into four categories: their parents lacked access to employer-sponsored health insurance; their parents chose not to enroll them in the plan offered by their employer; there were gaps in eligibility for public insurance; or parents failed to enroll eligible children in publicly financed insurance programs.

Limited Access to Employment-Based Plans. The single most important reason children were uninsured -- affecting three out of four -- was that their parents lacked access to employer-sponsored health insurance because the parents were unemployed, their employers did not offer health benefits, or they were ineligible for the plan offered. Among these factors, employers not offering health benefits was the most significant, affecting two in five uninsured children. One in five uninsured children did not have a working parent in the home. Fifteen percent of parents were ineligible for their employer's plan because they had not worked at the firm long enough or did not work enough hours to qualify.

Parents Declining Coverage for Children. Another reason children were uninsured was that their parents were offered but declined to participate in an employer-sponsored health insurance plan. This was the case for 9 percent of uninsured children. The predominant reason cited -- by 84 percent of respondents -- was the cost of premiums, deductibles, copayments, and uncovered services. Only 12 percent said they did not need or want the insurance.

Some parents opted for health insurance for themselves but did not extend coverage to their children. This was the case for 15 percent of all uninsured children. Two possible explanations were that the firm did not offer family coverage or that parents declined family coverage because of the additional cost. The latter was more likely, since 98 percent of employees were in firms that offered dependent coverage. Moreover, employers often did not subsidize family coverage to the same extent as employee-only coverage, meaning parents faced additional out-of-pocket costs to cover their children.

Gaps in Public Insurance Coverage. About 5.7 million children, or 65 percent of all uninsured children, were not eligible for Medicaid when Congress enacted CHIP. The new program helped fill some of these gaps, but 31 percent of all uninsured children -- roughly 2.7 million -- would remain ineligible for federally supported health insurance.

Failure to Enroll Eligible Children. Prior to the enactment of CHIP, more than one-third of uninsured children -- totaling 3.1 million -- were eligible for Medicaid but were not enrolled. These children constituted about 16 percent of all Medicaid-eligible children. Parents may have been unaware of their children's eligibility, may not have perceived the need for insurance, or may not have chosen to enroll because of the stigma associated with Medicaid. In addition, the enrollment process involved administrative hassles, language barriers, and other obstacles. Recent welfare reform changes threatened to worsen this problem: historically, most children eligible for Medicaid were enrolled when their parents signed up for welfare, but with expanded public insurance eligibility and changing welfare laws, states would need to look beyond welfare offices to find eligible children.

Variation Across Communities

Although the problem of uninsured children is often framed as a national issue, its scope and nature varied tremendously at the local level. Across HSC's 12 study sites, there was a fivefold difference in children's uninsurance rates -- ranging from 4.4 percent in Lansing, the site with the lowest rate, to 22.4 percent in Miami, the site with the highest.

Four factors consistently explained the greatest variation across the 12 communities, in descending order of importance: the percentage of parents with an offer of insurance from their employer; the percentage of children from Spanish-speaking families; the percentage of Medicaid-eligible children; and the distribution of income among families with children.

These four factors were closely related to the four reasons children went without insurance. Employer offer rates were directly tied to whether parents had access to employer-sponsored coverage. In Miami, for example, only 54 percent of children had a parent who was offered health insurance through an employer, compared with 73 percent nationally. If offer rates in Miami had increased to match the national average, the children's uninsurance rate there would have declined by four percentage points.

Even after accounting for differences in income levels, insurance offer rates, and other factors, Hispanic children were the group most likely to be uninsured. More than one in four lacked health insurance. However, it was the language barrier, rather than Hispanic ethnicity itself, that predominantly affected uninsurance rates among these children. Higher-than-average percentages of Spanish-speaking families contributed to the elevated uninsurance rates among children in Miami and Orange County.

Within federal guidelines, states had considerable discretion in setting Medicaid eligibility levels. Prior to CHIP, variations in state Medicaid eligibility rules for children accounted for as much as a two percentage point difference in overall uninsurance rates among children across the 12 sites.

Income distribution among lower-income families, particularly the percentage living in poverty, explained a significant portion of the variation in local uninsurance rates for children. Concentrations of poor children in Little Rock and Miami accounted for some of the relatively high rates of uninsurance there. Because HSC's estimates controlled for local variations in Medicaid eligibility and employer offer rates, one explanation for the higher rates was that lower-income families were less likely to enroll in private insurance even when it was available.

Implications for Tailoring CHIP Programs to Local Conditions

CHIP had the potential to significantly reduce the number of uninsured children in the United States. To realize that potential fully, however, states needed to be creative and aggressive in identifying and recruiting eligible children.

States could design their programs to reach children who were uninsured because their parents experienced a gap in coverage, whether due to a job transition or some other reason. Specific strategies included directing outreach activities to unemployment offices; refraining from imposing waiting periods for CHIP coverage when children became uninsured because parents lost or changed jobs; covering children for 12 months even if they no longer met eligibility criteria due to changes in family income; considering insurance market reforms that limited waiting periods for new employees and the ability of firms to deny coverage to part-time workers or those with preexisting conditions; and developing portability provisions to ensure continuity of coverage.

The finding that employer-sponsored health benefits remained unaffordable for many lower-income families suggested that states should be cautious about imposing heavy financial burdens through premiums, deductibles, and copayments on participating families. Since one-quarter of uninsured children potentially eligible for CHIP had parents who were offered private health insurance, states might consider coordinating coverage with private employers or subsidizing premiums for employer-sponsored plans.

Under Medicaid, states could pay the premiums, deductibles, and copayments of beneficiaries with private insurance when doing so was cost-effective. Few states had taken advantage of this option because of administrative challenges such as identifying beneficiaries with private coverage options. Because CHIP eligibility extended to higher-income children whose parents were more likely to have employer offers, more states might have been willing to explore this approach.

Many states had enacted or were considering measures to reduce the stigma associated with receiving public health insurance by making Medicaid and CHIP resemble private insurance as closely as possible. Many were also working to streamline eligibility determinations. Beyond these broad efforts, states recognized the need for targeted outreach to specific populations.

Hispanic Families. Forty percent of uninsured Medicaid-eligible children were Hispanic, and children potentially eligible for CHIP were twice as likely to be Hispanic as the general population of children. This suggested that outreach efforts should be directed toward neighborhoods with large Hispanic populations and Hispanic social, religious, and cultural institutions. Sensitivity to language barriers was particularly important: Hispanic Medicaid-eligible children of parents not fluent in English were far more likely to be uninsured than those whose parents were fluent. This indicated that language was a major barrier to enrollment and may have been related to both knowledge and acceptance of public insurance. It could also reflect the family's immigration status, a potential legal barrier to coverage.

Health Care Settings. Only one uninsured child in five did not have a usual source of care. While it was reasonable to assume that emergency rooms, hospital outpatient clinics, and public clinics regularly informed uninsured patients of their public insurance options, it was less clear that physicians in private practice actively did so. About a third of uninsured children who were Medicaid-eligible used a doctor's office as their usual source of care. Among children potentially eligible for CHIP, the proportion grew to 41 percent. This suggested that states might encourage physicians to participate in outreach efforts to identify and enroll eligible children.

Conclusion

The challenge of insuring America's children was not a monolithic problem with a single solution. The reasons children lacked coverage varied -- from employers not offering insurance to parents declining available coverage due to cost, from gaps in public program eligibility to the failure of eligible families to enroll. These factors operated differently across communities, producing a fivefold variation in children's uninsurance rates between the highest- and lowest-performing sites in the HSC study.

For CHIP to realize its potential as the largest expansion of children's health coverage in a generation, states needed to move beyond one-size-fits-all approaches. Effective implementation required understanding local conditions -- which children were uninsured, why they lacked coverage, and what barriers stood between eligible families and enrollment. The research pointed to the particular importance of addressing language barriers for Hispanic families, leveraging health care settings as enrollment points, reducing administrative burdens, and coordinating with employer-sponsored insurance where possible.

The data from HSC's Community Tracking Study provided a detailed picture of children's insurance coverage drawn from observations on over 60,000 individuals and nearly 33,000 families across 60 communities, with about 11,600 families with children. This nationally representative dataset provided the empirical foundation for understanding both the scope of the problem and the specific levers available to policy makers as they implemented CHIP programs in their states.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance trends.

CMS -- Health Insurance Marketplace -- Federal marketplace information and enrollment resources.

Health Affairs -- Peer-reviewed health policy research and analysis.

Robert Wood Johnson Foundation -- Health policy research and programs.

Commonwealth Fund -- Research on health care system performance and coverage.