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Crowd-Out - Recent Developments

"Crowd-out" refers to the potential for Medicaid and SCHIP to substitute publicly supported insurance for employer-sponsored insurance, thus limiting the ability of public funds to expand insurance coverage to the uninsured.¹ The issue of crowd-out is complicated by the fact that uninsured children are not necessarily concentrated in lower income brackets. Thus, efforts to increase coverage to children in families with income beyond 200 percent of the Federal Poverty Level (FPL) may result in higher rates of crowd-out.²

Policymakers must find the right balance between expansions and restrictions to cover the greatest number of uninsured while producing minimal levels of crowd-out. The majority of recent studies acknowledge that crowd-out occurs but state that it is not a significant problem.

• A 1999 study on the Florida Healthy Kids program showed that there is a small degree of crowd-out because purchasing employer-based coverage is an economic burden on near-poor families. However, 5 percent of the children enrolled in Healthy Kids had employer-based coverage before program enrollment.³
• A study done by Families USA in 2000 estimates that, nationwide, less than 12 percent of children with family incomes below the FPL, and only 36 percent of children in families with incomes between 100 and 150 percent of poverty, have employer-based coverage.⁴ Thus, the potential for crowd-out in this population is not large.
• Another study indicates that substitution of SCHIP coverage for private insurance generally occurs for children in low-income families that have difficulty paying the employee share of health premiums. Thus, modest levels of crowding out may be an appropriate use of public funds.⁵
• Minnesota's eligibility requirements include a number of provisions intended to minimize crowd-out of private employer-sponsored insurance coverage. Applicants are not eligible for MinnesotaCare if:
  • They had any form of health coverage in the 4 months prior to application, or
  • They currently have access to employer-subsidized coverage, or
  • They have had access to employer-subsidized coverage during the 18 months prior to application.

  A survey of the parents of children enrolled in MinnesotaCare showed that 7 percent of the respondents reported substituting the MinnesotaCare program for existing private coverage: 3 percent of them reported that they dropped employer-sponsored health insurance and 4 percent reported that they dropped individual coverage in order to enroll in the MinnesotaCare program. According to the research team, "this very low level has been heralded as indication that the program has led neither to a misuse of the system nor an erosion of the private market."⁷

• A small number of studies indicate that crowd-out is a much larger problem. Researchers at the Center for Studying Health System Change found that while the proportion of low-income children with public coverage has increased, the percentage with private coverage has decreased sharply, resulting in no net change in the percentage who are uninsured.⁸

Under Section 2102(b)(3)(C) of the SCHIP legislation, a State SCHIP plan must include descriptions of procedures used to ensure that SCHIP coverage does not substitute for coverage under group health plans. The new SCHIP final regulation outlines the procedures States with separate SCHIP programs should adopt to reduce the potential for substitution. States that cover children at or below 200 percent of the FPL must monitor the occurrence of substitution. States that cover children between 200 and 250 percent of the FPL must not only monitor substitution but also specify in the State plan steps to be taken if monitoring reveals high levels of substitution. States that provide coverage above 250 percent of the FPL must have substitution monitoring and prevention strategies in place, but have the option of selecting waiting periods or other effective strategies to limit substitution.

Limitations in available data make the issue of crowd-out especially difficult to measure accurately. Until more data are gathered, the extent of the problem cannot be determined. SCHIP policymakers need to be aware of the potential for crowd-out in their programs and should balance concerns about substitution with the promotion of access to insurance.

1 Falliaras, A., O'Brien, M.J., Ginsburg, S. and A. Westpfal. "Examining Substitution: State Strategies to Limit Crowd-Out in the Era of Children's Health Insurance Expansions." Washington, DC: Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services. 1997.

2 Dubay, L. and G. Kenney. "Lessons from the Medicaid Expansions for Children and Pregnant Women: Implication for Current Policy." Washington, DC: The Urban Institute. 1997.

3 Shenkman, E., Bucciarelli, R., Wegener, D.H. and R. Naff. "Crowd Out: Evidence From the Florida Healthy Kids Program." Pediatrics. 104.3 (September 1999): 507-513.

4 "What is Crowd-Out and Why Should Children's Health Advocates Care?" Washington, DC: Families USA. 2000.

5 Meyer, J. A., Wicks, E.K., Anthony, S.E. and L.E. Rosenberg. "Crowd-Out Under CHIP: Business and Employee Attitudes Toward the New State Children's Health Insurance Program." Washington, DC: Economic and Social Research Institute. April 1999.

6 Sexton, J. "MinnesotaCare and Crowding-Out." Washington, DC: Institute for Health Policy Solutions. September 1998.

7 Call, K.T., Lurie, N., Jonk, Y. and R. Feldman. "Who Is Still Uninsured in Minnesota?" JAMA. 278.14 (October 8, 1997): 1191-1195.

8 Cunningham, P.J. and M.H. Park. "Recent Trends in Children's Health Insurance Coverage: No Gains for Low-Income Children." Washington, DC: Center for Studying Health System Change. April 2000.