Five states to subsidize employer coverage for children, but HCFA warns of crowd-out with these program
Five states to subsidize employer coverage for children
Five states to subsidize employer coverage for children, but HCFA warns of crowd-out with these programs
At least five states, Massachusetts, Colorado, Oregon, Minnesota and California, hope to use some of their Children’s Health Insurance Program (CHIP) dollars to subsidize employer-sponsored coverage for children. They will offer subsidies of employer-sponsored coverage in addition to insurance through a state-sponsored children’s program.
Officials in California said the state decided the HealthyFamilies program should offer subsidies for employer-sponsored coverage as well as a state-sponsored insurance pool for children partly to lessen crowd-out. Crowd-out occurs when public funds replace private funds to finance health coverage.
"It seems to us that if you work for an employer and have been unable to take advantage of the coverage provided by that employer, it would be less disruptive to the market for you to take advantage of it rather than redirecting you into a purchasing pool," said Leslie Cummings, associate director for health policy at California’s Department of Health Service. "That would help to sustain the employer market."
To the surprise of at least some state officials, however, the Health Care Financing Administration (HCFA) said last month that it planned to subject plans for employer-sponsored coverage to "particular scrutiny" for potential crowd-out. In a Feb. 13 letter to the state officials, HCFA said "we believe there is a greater potential for substitution of public for existing private spending on health insurance in these types of arrangements."
Companies with low-wage workers, for example, might decide to reduce or eliminate their premium contributions for dependents. And if families with children already enrolled in their employers’ plans are able to take advantage of the subsidies, government funds would be used to replace existing, private coverage instead of to cover more uninsured.
HCFA says states need to include five provisions in their plans for subsidizing employer-sponsored coverage (see page 8), to prevent "crowd-out." These include requiring that employers contribute at least 60% of the cost of family coverage and limiting the subsidies to children who have been uninsured for at least the previous six months (known as a "look-back" period.)
Most states have set the employer contribution requirement at 50%, according to Lee Partridge of the American Public Welfare Association. She noted, however, that HCFA has indicated that the 60% contribution level should be considered "preliminary guidance" and that it may be flexible on this point.
Massachusetts, which is launching its Insurance Reimbursement Program (IRP) in July, includes no look-back period. The state also has decided to provide subsidies even to employees and their families who currently have insurance through their employers if they meet the income guidelines.
IRP was planned before CHIP and was approved by HCFA several years ago in a Section 1115 Medicaid waiver.
The question of whether to subsidize premiums for employees who are already insured by their employers was a major part of the debate over IRP. Out of fairness to employers who have been insuring their low-income workers, the state decided to include them in the program, according to Mark Reynolds, deputy commissioner of the MassachusettsMedicaid program.
Like the Massachusetts program, the Oregon program also was planned before CHIP and can be launched without CHIP funding. Both plans will cover the entire family, not just children.
"We don’t expect the entire (Oregon) program to qualify" for CHIP funding, said Bob DiPrete, director of the Oregon Health Council, which advises the state legislature on health policy issues. He noted that adults do not qualify for CHIP funding and he does not expect HCFA to allow the state to subsidize all employer benefit packages because some do not meet CHIP requirements.
Initially, Oregon expects to cover some 5,000 children through the subsidy of employer insurance and an additional 15,000-20,000 children through the state-sponsored insurance program for children. The Oregon legislature has already funded the program that will subsidize employer-sponsored coverage.
Mr. DiPrete said Oregon plans to require the same six-month look-back" period for its state-sponsored insurance program as for subsidized employer coverage. This will help prevent migrations from employer plans to the state program. While many experts doubt that families with employer coverage would voluntarily switch to a Medicaid-type program, because of the stigma, Mr. DiPrete believes that Oregon’s state-sponsored program could indeed attract people. It offers the same managed care plans as the private market.
HCFA encouraged Minnesota to subsidize employer-sponsored because the state had already done so much to cover children up to 275% of the federal poverty level (FPL), according to Pat Callaghan, a member of the health care administration staff for the Minnesota Department of Human Resources.
"HCFA helped us brainstorm on this," Ms. Callaghan said. Currently children are locked out from participation in the state-sponsored MinnesotaCare program if they have access to insurance through an employer, even if that insurance is too costly for their families to afford.
The Minnesota legislature is considering several bills that would set the structure for the program. The MinnesotaCare program currently uses a four-month look-back period.
Colorado, which recently became the first state to win approval of its state-sponsored non-Medicaid CHIP program, is also planning to offer subsidies of employer-sponsored coverage beginning in July, said Laura Tollen, manager of health-care initiatives in the Colorado Department of Health Care Policy and Financing.
Ms. Tollen said the state hopes to negotiate with HCFA to allow some flexibility in the requirement that an employer pay 60% of the premium. Under the Colorado program, Colorado families with uninsured children would have a choice of whether to buy coverage through their employers or through the Children’s Basic Health Plan, which covers children through age 17 up to 185% of FPL. There is currently a three-month "look-back" period for the Basic Health Plan
Children need to be uninsured for three months before they can join California’s Healthy Families program. However, subsidized employer coverage (called the purchasing credit plan) has been put on hold temporarily because of a drafting error in the state statute, Ms. Cummings said.
As written, the statute makes the subsidized employer insurance package a far more favorable option than coverage through the purchasing pool because no cost-sharing is allowed under the
employer plan.
Contact Ms. Callaghan at 612-215-9448; Ms. Tollen at 303-866-6092; Mr. DiPrete at 503-378-2422; Mr. Reynolds at 617-210-5670; and Mr. Curtis at 202-857-0810.
HCFA requirements for subsidies of employer health plans
• With the exception of newborns, children in a family will not be eligible for subsidies through an employer-sponsored group health plan if the family had employer-sponsored group coverage for these children within the previous six months. By establishing this provision, HCFA hopes to prevent families from dropping their children from the company plan and signing them up for a less-expensive state-run program.
• To discourage employers from lowering their existing contributions for dependent coverage, states will only be permitted to subsidize employer coverage if the employer contributes at least 60% of the cost of family coverage.
• To ensure that subsidies through employer plans is cost-effective, a state’s payment can be no greater than it would be if the children were enrolled in a separate CHIP program operated by the state.
• Families receiving assistance through an employer-sponsored group health plan must apply for the full premium contribution available from the employer.
• To demonstrate cost effectiveness, the state will be required to collect information and conduct an evaluation that examines the amount of substitution (if any) that has occurred under the program and the effect of these provisions on access to the program."
Five states to subsidize employer coverage for children, but HCFA warns of crowd-out with these program
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