Federal legislation established two sets of policies regarding cost sharing for participants in freestanding SCHIP programs.

• Cost-sharing charges can be no more than nominal for children in families with gross incomes below 150 percent of the Federal Poverty Level (FPL). January 2001 HCFA (now CMS) guidelines limit the amount of cost sharing in these families to 2.5 percent of income.
• Cost-sharing requirements can be much more significant for children in families with incomes above 150 percent of the FPL. Cost sharing may be imposed on a sliding scale related to income. However, the total annual aggregate cost sharing may not exceed 5 percent of a family's income for the year involved.¹

Cost-sharing provisions can come in the form of copayments or premiums. Premiums, however, cannot be charged to families below 150 percent of the FPL.¹ In addition, because Medicaid prohibits virtually all cost sharing in the case of categorically needy children under age 18, States that elect to administer SCHIP as a Medicaid expansion program may not institute any form of cost sharing.

Copayments

As of early 2000, 19 States charged copayments to SCHIP beneficiary families, with most States' copayment charges ranging from $1 to $10, depending on the service.²

• Some States require copayments for specialized services, such as outpatient mental health (Florida), eyeglasses and hearing aids (Nevada), or surgery (Arizona and Rhode Island).
• Pennsylvania charges $5 for prescriptions but not for any other service.

One notable exception is that several States charge $25 or more for inappropriate emergency room visits; however, many of these States waive copayment charges if emergency treatment was sought appropriately.²

Washington does not collect copayments for patients who enter the emergency room and are then admitted to the hospital.

No form of cost sharing may be imposed on preventive services, including age-appropriate immunizations. Federal regulations mandate that States provide these services under Medicaid and SCHIP.

Premiums

States may charge premiums only if family income is above 150 percent of the FPL. As of 1999, 27 States charged premiums for SCHIP enrollees. Premiums ranged from $4 per child per month to $30 per child per month, depending on family income.

Programs differ greatly in the amount of time they will allow payments to be late before disenrolling children. States with long grace periods, such as Kansas and Wisconsin (12 months), do not pursue late payments unless the family is approaching its re-enrollment date. On the other hand, coverage is cancelled in some States, such as Illinois and Kentucky, when premiums are overdue by 30 days.

Few States have accurate data on reasons for disenrollment, but the inability to afford premium payments has not been an overwhelming factor. According to Steinberg:

• New York has disenrolled 5 percent of its SCHIP participants because they failed to pay premiums.
• Only 2 of 162 exit survey respondents in Ohio said they left the SCHIP program because they were unable to pay the monthly premiums.²

Having families contribute to the cost of their children's care is politically appealing in many States. Some anecdotal evidence exists that indicates that families value government insurance more if they participate financially in the program.² Cost sharing makes government programs appear more like private insurance, thus making them more attractive to working families.³

Although cost-sharing initiatives may reduce public costs per enrollee, research shows that high levels of cost sharing significantly affect children's participation in insurance programs, as well as their use of health services. Some researchers assert that premium charges are negatively related to enrollment levels.

• One study, based on enrollment data, found that if premiums are 1 percent of income, 57 percent of the uninsured will participate in a publicly subsidized insurance program. However, if premiums were increased to 3 percent of income, only 35 percent would participate, and at 5 percent of income, only 18 percent would participate.⁴

In implementing premium rate structure, States will need to assess the impact of charges on families with varying incomes. Fox and colleagues suggested that, in order to administer equitable cost-sharing practices, officials should institute a graduated rate structure for all enrollees from the lowest to the highest incomes.⁵

States' cost-sharing decisions are likely to be based on numerous factors, including the amount of State funds available, the size of the uninsured child population, the cost and complexity of administration, and concerns about fairness and personal responsibility.

1 HCFA (now CMS) SCHIP Web site: http://cms.hhs.gov/schip/.

2 Steinberg, D. "Keeping Kids Enrolled: Continuity of Coverage Under Medicaid and SCHIP." Denver, CO; Washington, DC: National Conference of State Legislatures. January 2000.

3 Hill, I. "Charting New Courses for Children's Health Insurance." Policy & Practice of Public Human Services. 58.4. (December 2000): 30-38.

4 Ku, L. and T.A. Coughlin. "The Use of Sliding Scale Premiums in Subsidized Insurance Programs." Washington, DC: The Urban Institute. March 1997.

5 Fox, H.B., McManus, M.A., Rodgers, J. and K.B. Hayden. "Cost-Sharing Options Under the State Children's Health Insurance Program." San Francisco, CA; Washington, DC: Maternal and Child Health Policy Research Center. March 1998.