What Are the Implications of Crowd-Out?

Health services researchers indicate that crowd-out may produce some benefits as well, such as:

Low-income children gaining access to health insurance that is more comprehensive (e.g., includes coverage of preventive care) than the private coverage that their families could otherwise afford.

Low-income families who have been paying a substantial portion of the cost for private insurance coverage obtaining financial relief through subsidized coverage.

Employers who have historically provided health insurance coverage to their low wage employees may incur lower health insurance costs.

There is a concern however regarding the negative implications of SCHIP and the potential that in order to save money, employers with low-wage employees could potentially stop offering dependent coverage and encourage their employees to enroll their children in SCHIP; or that parents who are currently contributing significantly toward family coverage may drop that coverage in order to take advantage of the lower out-of-pocket cost of the SCHIP plan.

Other researchers have raised questions as to whether these are necessarily negative effects of SCHIP. Linda Bilheimer, Deputy Assistant Director for Health at the Congressional Budget Office and a presenter at the July/September 1998 ULP SCHIP Workshops, pointed out the need to consider several factors which present crowd-out and its implications for SCHIP in a broader context.

The family income of children in the SCHIP target population fluctuates frequently, thus affecting the types of insurance coverage for which they are eligible.

Although these children may be uninsured at the time they enroll in SCHIP, their parents periodically become eligible for private insurance again, and SCHIP displaces private coverage during those periods.

If the child remains enrolled in SCHIP throughout these fluctuating periods, SCHIP has been successful in providing a stable continuous source of coverage for children that would have otherwise ricocheted in and out of coverage. Presumably, one of the goals of the SCHIP program is to ensure stability of coverage for children in low-income families.

Effect of SCHIP on Health Insurance Market Dynamics

Dr. Bilheimer suggested that in the long term some displacement of private insurance by SCHIP is inevitable by virtue of the labor market adjusting to the availability of the Federal subsidized insurance.

As new firms form and existing firms restructure, especially in the highly changeable small employer market, they now have the option of offering workers higher wages instead of providing family health insurance coverage.

Employees may feel that it is in their best interest to seek employment at a place where they earn a higher wage and have their children covered in some way other than employer-sponsored coverage.

Over time SCHIP will provide subsidies for low-income families, enabling them to take advantage of such higher wages, and the availability of SCHIP will alter the dynamic of the marketplace.

Understand Crowd-Out Implications