U.S. GOVERNMENT PRINTING OFFICE

52–730 WASHINGTON : 1999

CHILDREN’S ACCESS TO HEALTH COVERAGE

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

APRIL 8, 1997

Serial 105–68

Printed for the use of the Committee on Ways and Means

(
ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut

JIM MCCRERY, Louisiana

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

PHILIP M. CRANE, Illinois

AMO HOUGHTON, New York

SAM JOHNSON, Texas

FORTNEY PETE STARK, California

BENJAMIN L. CARDIN, Maryland

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

XAVIER BECERRA, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.
iii

C O N T E N T S

Page

Advisory of March 20, 1997, announcing the hearing .......................................... 2

WITNESSES

Congressional Budget Office, Linda T. Bilheimer, Deputy Assistant Director

for Health, Health and Human Resources Division; accompanied by Murray

Ross, Chief, Health Cost Estimates Unit, Budget Analysis Division .............. 7

Congressional Research Service, Patrick J. Purcell, Analyst, Education and

Public Welfare Division ....................................................................................... 15

U.S. General Accounting Office, William J. Scanlon, Director, Health

Financing and Systems Issues, Health, Education and Human Services

Division ................................................................................................................. 27

Dubay, Lisa, Urban Institute ................................................................................. 65

Institute for Health Policy Solutions, Richard E. Curtis ..................................... 74

National Bureau of Economic Research, Jonathan Gruber ................................. 60

SUBMISSIONS FOR THE RECORD

American Academy of Child and Adolescent Psychiatry, Lawrence A. Stone,

M.D., statement .................................................................................................... 92

American Academy of Pediatric Dentistry, Chicago, IL, statement and

attachments .......................................................................................................... 94

American Dental Hygienists’ Association, Stanley B. Peck, statement .............. 99

Association Healthcare Coalition, Donald G. Dressler ......................................... 101

Council of Women’s and Infants’ Specialty Hospitals, Providence, RI, Susan

Erickson, statement ............................................................................................. 104

Vencor, Inc., Louisville, KY, statement ................................................................. 105
(1)

CHILDREN’S ACCESS TO HEALTH COVERAGE

TUESDAY, APRIL 8, 1997

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON HEALTH,

Washington, DC.

The Subcommittee met, pursuant to call, at 10:10 a.m., in room

1100, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]
2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943

March 20, 1997

No. HL–8

Thomas Announces Hearing on

Children’s Access to Health Coverage

Congressman Bill Thomas (R–CA), Chairman, Subcommittee on Health of the

Committee on Ways and Means, today announced that the Subcommittee will hold

a hearing on children’s access to health coverage. The hearing will take place on

Tuesday, April 8, 1997, in the main Committee hearing room, 1100 Longworth

House Office Building, beginning at 10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony at this

hearing will be heard from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for

consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

The percentage of uninsured children has remained relatively stable since 1988.

During that period, however, Medicaid coverage has increased as private coverage

has declined. From 1988 through 1995, the percentage of uninsured children increased from 13 percent to 13.6 percent, while the percentage of children covered

by private insurance dropped from 73.5 percent to 66.4 percent, and Medicaid coverage increased from 15.5 percent to 23.1 percent. Approximately one in four uninsured Americans are children. Of the 71 million children in the United Sates under

age 18, 9.6 million are uninsured.

Under current law, there is a large and growing public health care safety net for

children. The Federal Government shares the cost of providing comprehensive

health coverage to over 16 million children through the Medicaid program. Medicaid

currently covers one in four American children and pays for over one-third of all

births in the United States. About 3 million of the 9.6 million uninsured children

are currently eligible for Medicaid, but their parents or guardians have not enrolled

them in the program. In addition to Medicaid, the Health Insurance Portability and

Accountability Act (P.L. 104–191) enacted in the 104th Congress, limits preexisting

conditions and provides significant new protections to pregnant women and children.

There is no clear explanation why children are uninsured, not lending itself to an

easy solution. For example, children in families with incomes below 100 percent of

poverty are more than twice as likely to be uninsured as children in families with

incomes above 200 percent of poverty. However, nearly 14 percent of children without health insurance—1.4 million children—live in families with incomes above 300

percent of poverty. Moreover, while the majority of insured Americans get health

coverage through their employer, over 80 percent of uninsured children have parents who work part-time, and nearly 60 percent have parents who work full-time

for the entire year. In addition, because of the prevalence of school-based clinics,

public health programs and various public and private initiatives, some children

without health insurance may in fact have access to health coverage.
3

In announcing the hearing, Chairman Thomas stated: ‘‘So far, the issue of children without health insurance coverage has generated a significant amount of heat,

but very little light. We need to begin this discussion with a better understanding

of the scope of the problem before we advocate solutions. This hearing will provide

the first comprehensive Congressional overview of information available on uninsured kids.’’

FOCUS OF THE HEARING:

The hearing will try to more clearly identify the reasons that children in the

United States do not have access to health insurance coverage and the impact that

lack of access has on access to health coverage and health status.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit at least six (6) copies of their statement and

a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of

hearing noted, by the close of business, Tuesday, April 22, 1997, to A.L. Singleton,

Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102

Longworth House Office Building, Washington, D.C. 20515. If those filing written

statements wish to have their statements distributed to the press and interested

public at the hearing, they may deliver 200 additional copies for this purpose to the

Subcommittee on Health office, room 1136 Longworth House Office Building, at

least one hour before the hearing begins.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be typed in single space

on legal-size paper and may not exceed a total of 10 pages including attachments. At the same

time written statements are submitted to the Committee, witnesses are now requested to submit

their statements on a 3.5-inch diskette in WordPerfect or ASCII format.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, full address, a

telephone number where the witness or the designated representative may be reached and a

topical outline or summary of the comments and recommendations in the full statement. This

supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for

printing. Statements and exhibits or supplementary material submitted solely for

distribution to the Members, the press and the public during the course of a public

hearing may be submitted in other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ’HTTP://WWW.HOUSE.GOV/WAYSlMEANS/’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–225–

1904 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
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Chairman THOMAS. The Subcommittee will come to order.

I am looking for a public service announcement. I am pleased to

announce, the Medicare and the Health Care Chart Book compiled

by the Congressional Research Service and published in February

by the Committee on Ways and Means is now widely available to

the public on the Internet. The information can be assessed

through the House Ways and Means Committee home page. Somebody wrote it in and then crossed it out—apparently they didn’t

think I could read—www.access.gpo.gov.

I think the press and the public will find that the Chart Book

contains a wealth of extremely useful, timely information, and so

forth, and so forth. It really is the best compilation that we have

seen of charts that help you graphically understand the concerns,

the problems, the timeliness of decisions in the area of Medicare,

private health spending, and other issues that are before us encompassing today’s topic.

I am pleased to announce that the Subcommittee today is holding the first comprehensive hearing of the 105th on children’s access to health coverage. There are a number of pieces of legislation

that have been introduced, and I am very anxious to begin listening to folk about the problems associated and the possible advances

accompanying children’s access to health coverage.

Initiatives to increase health coverage for uninsured children

have not only been proposed by Members of Congress but also by

President Clinton. There is significant interest in making this a

priority for congressional action in health care. However, the issue

has generated significantly more interest than solutions, and I believe the facts about uninsured children are much more complex—

and I believe today’s testimony will bear that out—than many have

appreciated or understood.

I think before we can intelligently evaluate the myriad of legislative proposals and possibly then not get into some pitfalls which

would create unanticipated problems, or, even worse, pass legislation when we have already anticipated the resulting problems in

the health care system, we need to understand the interaction of

various decisions that we may very well make; and that is the goal

of today’s hearing.

Before we go to our first distinguished panel of analysts, researchers, and economists, the gentleman from California, Mr.

Stark, who I know has an interest in this area, would like to make

an opening statement.

[The opening statement follows:]

Opening Statement of Hon. Bill Thomas, a Representative in Congress from

the State of California

Today, the Subcommittee is holding the first comprehensive hearing of the 105th

Congress on children’s access to health coverage.

Initiatives to increase health coverage for uninsured children have been proposed

by President Clinton and members of Congress from both parties. Clearly, there is

significant interest in making this a priority for congressional action in health care.

However, so far the issue has generated significantly more interest than solutions.

I believe the facts about uninsured children are much more complex than we have

yet appreciated or understood.
5

Before we can intelligently evaluate the myriad of legislative proposals and sidestep pitfalls which may create unanticipated problems in the health care system,

we must examine and better understand the interaction of these facts.

That is the goal of today’s hearing.

We have asked a group of distinguished analysts, researchers and economists

from both the private and public sector to help us get a better picture of the landscape. I look forward to today’s testimony.

Mr. S

As you were speaking, I was reviewing my opening statement. It

TARK. Thank you, Mr. Chairman.

f

doesn’t offer a solution, unfortunately, and I guess that is what we

are here to find out a little about. What I am asking people to do

is think about the magnitude of the problem and put a face on it.

You are going to hear a variety of figures, but something like one

in seven kids do not have health insurance. And you say, so they

don’t have insurance. I think, and I would like the witnesses or my

colleagues to challenge my assumption here, that an uninsured

child, by definition, does not get proper medical care. Some may,

but on balance, if a child is uninsured, he or she is not getting the

proper care at the proper time.

And worse than the one in seven—and it is numbers we used

years ago in discussing the health insurance of adults; where there

may be some 40 million uninsured, there are about 10 million uninsured kids, 9.8 million I guess—is that there are many more, perhaps double, that number, if you take those children who at any

point in a year or two go uninsured for 1 month or more, because

those uninsured months pick up the preexisting condition restrictions. If they get back in the system in 30 or 60 days, they are apt

to have 6 months of waiting if they have diabetes or if they have

some childhood disease which goes on and the new insurance won’t

pick them up.

Now, I am not suggesting that that means there are 20 million

uninsured, but there could be over a period of time. Think of it this

way: If New York City—suddenly, through a lot of vitamin E, if everybody in New York City became under 18, they all drank from

the fountain of youth, and everybody in New York City would be

uninsured.

I have a map; I just picked the States, and these are all the

mountain States; but that is as if every person, every child, in that

State was uninsured. That is a lot of kids.

And now the solution: Some children have it through their workplace, and the parents basically pay nothing for it. If you force

other parents to pay something, the parents who are getting it free

won’t want to kick in. We have had that argument in schools, in

parochial schools versus private schools. Some people say, Well, if

we provide it through the Federal Government, the employers will

stop paying their share, and therefore we will pick up a burden

that is not needed.

But again, a general figure that I have in my mind—and I would

like to be corrected from the witnesses today—is that if we required, through whatever means, that every child be insured, even

if it were privately—I am not suggesting that this has to be a social

problem—that the cost of that coverage would be about $500 a kid

a year.
6

I am further told that if we don’t require it but make it available on sort of a voluntary basis, the cost goes up to $1,500 a year because of the adverse selection. Only the parents that think their

kids, or know their kids, are sick or have health problems will sign

up, and the rest go uninsured, and that puts an unfair burden on

whichever insurance company is doing it.

I don’t know how we get from here to there. The President sug- gested a $500 tax credit, but that does not go to every kid because

it is not refundable. I have looked at that and think it is a good

place to start.

I would not mind a tobacco tax. I happen to think that would

stop kids from smoking and pay for the cost, but there are a lot

of political problems in how you pay for it.

So maybe today from all these witnesses we will get some idea

of how—and I don’t think realistically we are going to get the

whole 10 million in any bill we do, but I would like to see us come

together and get as many of the 10 million as we can and get it

unpolitically in the next year or so. I look forward to the witnesses

helping us through this maze.

Thank you for indulging me, Mr. Chairman.

Chairman THOMAS. No, thank you. And I want to underscore a

couple points that you made, because although the testimony is

good, it is not, frankly, as helpful as we are looking for.

And I want to let you folks anticipate the direction of the questions, because although we have talked about the public versus the

private and subsidy versus tax credits and the driving out of private dollars, it concerns me a bit that not as many people as I

would have liked focused on the 135-plus billion dollars of tax benefit on the private side and how that might be utilized on the margin of the subsidy driving out ‘‘private insurance.’’

The other thing I found somewhat interesting was, apparently

some folk, based upon income, make decisions on health care from

an economic basis, and others from more of a health insurance protection basis—because at the high end you have got folks who don’t

have the insurance because it doesn’t make economic sense to

them; they are, in essence, self-insured.

And I understand that at the bottom end, if you are going to provide a publicly subsidized health program that is better than anything they can buy, they are going to opt out of the private one and

go to the public one. But I have some concern on a margin where

taxpayers are subsidizing a far better quality health care than people in the private sector can afford to pay for themselves.

So I guess, as the gentleman from California indicated, we understand the parameters, we understand the tradeoffs; and, frankly, most of the testimony was trying to get us to understand the

parameters and the tradeoffs; and at some point we have to grapple with the solutions.

You are about as good as we have got in terms of advising us

on solutions. So, as you look at your testimony, if you wish to give

us the parameters and the dilemmas and the tradeoffs, fine; but we

are still going to have to push you on. For example, Why didn’t you

take a look at the tax subsidy today in terms of certain types of

employers being able to deduct 100 percent, and how much of that

could go into a larger pot in rethinking the way in which the dis-
7

tribution of health insurance that is currently present in the country could be restructured to produce a fairer and more equitable

system, since it doesn’t make a lot of sense to me that somebody

gets 100 percent of their health care deducted and somebody else

gets nothing by virtue of their place of employment. That doesn’t

make a lot of sense from a larger health care policy.

That is where we are today, and, as I said, I felt that that was

largely ignored as you grappled with this problem of how high the

subsidy versus the tradeoff or the backing out of private dollars.

I have said enough. I am anxious to listen to you. Thank you

very much.

Today’s first panel: Linda Bilheimer, who is the Deputy Assistant

Director for Health, Health and Human Resources Division of the

Congressional Budget Office—Dr. Ross is with her today—Patrick

J. Purcell, who is the Congressional Research Service Analyst; and

once again, Dr. Bill Scanlon, Director, Health Systems Issues, General Accounting Office.

Thank you all for coming. And I do know that perhaps some of

you have done some examination of that larger question of tax subsidies on health care; and if you care to say anything during your

testimony, fine. Otherwise, I will ask you questions afterward.

Why don’t we begin with Dr. Bilheimer and move across the

panel.

STATEMENT OF LINDA T. BILHEIMER, DEPUTY ASSISTANT

DIRECTOR FOR HEALTH, HEALTH AND HUMAN RESOURCES

DIVISION, CONGRESSIONAL BUDGET OFFICE; ACCOMPANIED BY MURRAY ROSS, CHIEF, HEALTH COST

ESTIMATES UNIT, BUDGET ANALYSIS DIVISION

Ms. BILHEIMER. Mr. Chairman and Members of the

Subommittee, I am happy to be here today to discuss issues that

CBO would consider in evaluating health proposals for children.

I would like to introduce my colleague, Murray Ross, who will

join me in answering any questions you may have. With your permission, I will summarize my remarks and submit my full statement for the record.

Policymakers are considering three types of proposals for expanding health insurance coverage for children: Enrolling more children

in Medicaid by expanding eligibility and by extending outreach to

uninsured children who are eligible but not enrolled; providing refundable tax credits to low-income families who purchase health insurance for their children——

Mr. STARK. Doctor, would you pull the mike up.

Ms. BILHEIMER. Sorry—and providing direct subsidies to lowincome families with uninsured children to help them pay for insurance.

Some of those proposals would provide grants to the States to enable them to develop their own subsidy programs.

The cost of any proposal will depend on the number of uninsured

children, the extent of participation by both uninsured children and

children who would otherwise have another source of coverage, and

the cost per child receiving assistance.

Most proposals for expanding health insurance for children have

been developed in the context that about 101⁄2 million children
8

through the age of 18 are uninsured, of whom 3 million are eligible

for Medicaid.

The underlying situation is far more complex, however, than

those numbers suggest. The estimate of 101⁄2 million most closely

corresponds to the number of children who are uninsured at any

point in time. Thus, it represents neither the number of children

who are uninsured for long periods of time, such as 1 year or more

which would be considerably less than 101⁄2 million, nor the number of children who are ever uninsured during the year, which

would be considerably more than 101⁄2 million. Those numbers differ because some children, especially those in low-income families,

move in and out of insurance coverage. So, depending on a policy’s

focus, the potential target population of uninsured children could

be significantly more or less than 101⁄2 million.

Low-income children, who account for the majority of uninsured

children, differ in the types of coverage they have when insured.

Most children in families below the poverty level qualify for Medicaid, and relatively few of them have employer-sponsored coverage.

But at any point in time, more than one-half the children in families with income between 100 and 200 percent of the poverty level

have employer-sponsored coverage, and a much lower proportion of

them are eligible for Medicaid.

The variability of low-income children’s health insurance status,

plus the fact that many of those above poverty have private coverage at least some of the time, makes designing an expansion policy difficult. Research indicates that subsidies or tax credits to encourage families to purchase coverage for their children would have

to provide generous amounts of financial assistance to reduce the

number of uninsured children significantly. It would be difficult to

prevent low-income children who would otherwise have private coverage from participating.

States might also seek to shift Medicaid-eligible children into a

program that was fully subsidized by the Federal Government.

Likewise, expanding Medicaid to cover higher income children

would result in the participation of some children who would otherwise have private coverage. Thus, the cost of proposals to expand

coverage—whether through direct subsidies, tax credits, or Medicaid—could be considerably greater than just the costs of covering

children who would otherwise be uninsured.

Although some proposals include measures to limit the participation of children who would otherwise have coverage, those measures would be difficult to enforce.

In addition to participation by different groups of children, the

cost of a program to expand coverage would depend on the covered

benefits, the average health status of children participating in the

program, and marketing and administrative costs, all of which

would vary by proposal. I discuss those issues at some length in my

written testimony.

That concludes my statement, Mr. Chairman. I would be happy

to answer any questions you may have, including questions relating to the tax credit and tax issues.

[The prepared statement follows:]
9

1 CBO analysts believe that the estimate of 10.5 million children, which comes from the March

1996 Current Population Survey, is closer to a point-in-time estimate than an estimate of all

children who were uninsured for the whole of 1995. For a discussion of methodological issues,

see the appendix to this testimony. 2Those estimates should be interpreted carefully because the family income, as well as the

insurance status, of those children probably fluctuated over the two-year period. In addition, unemployment rates were high in 1993, probably resulting in more children being uninsured than

in a more typical year.

Statement of Linda T. Bilheimer, Deputy Assistant Director for Health,

Health and Human Resources Division, Congressional Budget Office

Mr. Chairman and Members of the Committee, I appreciate the opportunity to

discuss issues that the Congressional Budget Office (CBO) would consider in evaluating proposals to expand health insurance coverage for children. Despite recent expansions of the Medicaid program, about 14 percent of U.S. children are uninsured

at any point in time. Many more low-income children are uninsured at some time

during the year, because shifts between insured and uninsured status are constantly occurring. Because of the number of children involved and the changing composition of the insured population, a policy that would substantially reduce the number of uninsured children could be both expensive and complicated to design.

Policymakers are considering three broad approaches to increase health insurance

coverage for children:

• Enrolling more children in Medicaid, both by expanding eligibility and by extending outreach to uninsured children who are eligible but not enrolled;

• Providing direct subsidies to low-income families with uninsured children to

help them pay for insurance; and

• Providing refundable tax credits to low-income families who purchase health insurance for their children.

The costs of such proposals would depend on the number of children who are uninsured, the extent to which they and children who would otherwise have private

insurance would participate in a subsidized program, and the average cost per child.

HOW MANY CHILDREN ARE UNINSURED?

According to widely quoted estimates, about 10.5 million children through the age

of 18, or 14 percent, are uninsured. At least 3 million of them are thought to be

eligible for Medicaid. Most proposals to expand health insurance for children have

been developed in the context of those numbers, and they assume that those figures

would form the basis for determining the potential costs and coverage effects of alternative options. But the underlying situation is actually far more complex than

those numbers suggest.

Although some children remain uninsured for the entire year, many more lack

coverage for only part of the year. An estimate made at a point in time—which the

10.5 million figure most closely represents—counts all of the first group but only

part of the second.1 But policymakers may be primarily concerned with children who

are uninsured for a year or more, which would be a smaller number than the pointin-time estimate. Alternatively, policies might focus on all children who are ever uninsured, which would be a considerably larger number than the point-in-time estimate. For example, a preliminary analysis conducted by CBO indicates that in 1993,

about 13.5 percent of children were uninsured at any one point during the year, but

6.5 percent were uninsured for the entire year, while a further 15.5 percent were

uninsured for part of the year. Those estimates indicate how children’s insurance

status can change over time.

Changes in insurance status are especially prevalent among children in lowincome families (those with family income less than 200 percent of the poverty

level). Such children are much more likely than others to be uninsured. CBO’s estimates suggest that at any point in time, more than one-fifth of low-income children

lack coverage, and they account for almost three-quarters of all uninsured children.

Moreover, in tracking children for more than a year, the probability that a child

will experience a spell without health insurance rises considerably. For example,

more than 40 percent of children in low-income families at the end of 1993 lacked

insurance coverage at some time in the preceding two years.2 However, some of

them were uninsured for relatively short periods (four months or less). The situation

may well have improved with the expansions of Medicaid coverage for poor children

under age 19 that are being phased in through 2002. Those expansions may have

reduced both the likelihood that poor children will become uninsured and the length

of time that those uninsured children lack coverage.
10

Within the low-income population, children in poor families (with family income

less than the poverty level) and in near-poor families (with family income between

100 percent and 200 percent of the poverty level) have similar probabilities of being

uninsured, but they have different patterns of insurance coverage. Relatively few

poor children have employment-based insurance at any point in time, but more than

80 percent are eligible for Medicaid. (That proportion will rise even higher as Medicaid coverage for poor children under age 19 continues to be phased in.) By contrast,

more than half of all near-poor children have employment-based coverage, and a

much lower proportion are eligible for Medicaid.

Because they account for the large majority of uninsured children, low-income

families are the focus of efforts to expand insurance coverage for children. But the

volatility of their insurance status and the fact that many children above the poverty level have private coverage at least some of the time raise difficult questions

about how best to design an expansion policy.

HOW MANY CHILDREN WOULD PARTICIPATE IN A SUBSIDIZED PROGRAM?

Participation in any form of subsidized health insurance program for children

would come from three groups of children: those who would otherwise be uninsured,

the target group of the expansion; those who would otherwise have private coverage;

and, in the case of subsidy or tax credit proposals, those who are eligible for Medicaid. The amount of federal assistance that low-income families would be eligible to

receive would affect the amount of participation by each group.

Eligibility for Federal Assistance

In designing a proposal to increase children’s health insurance, policymakers

would have to decide who would be eligible for different levels of financial support

and how long they could remain eligible without a reassessment of their financial

status. Eligibility criteria might include recent health insurance status and current

Medicaid eligibility, as well as family income.

Many proposals call for subsidizing uninsured children in families with income

below a specified level and using a sliding scale of financial assistance for higherincome families. Proposals that would expand Medicaid, however, would probably be

fully subsidized for all new participants, although they might include small premium contributions or cost-sharing requirements.

Designing a sliding scale of financial assistance to help families buy insurance for

their children would involve several policy trade-offs. On the one hand, the higher

the income level at which families could receive full subsidies, and the more slowly

that assistance decreased as income rose, the more costly the subsidies would be.

On the other hand, low subsidy rates would reduce the cost of the proposal, but they

would also discourage participation. Moreover, if families who earned too much for

full subsidies lost assistance quickly as their income rose, they would face high marginal tax rates (the tax rate on each additional dollar of income).

Some proposals would guarantee that low-income children remained eligible for

assistance for up to one year once they enrolled in the program, regardless of whether their family’s income or access to employer-sponsored coverage changed. Such a

policy could stabilize insurance coverage for low-income children and help them enroll in managed care plans. But extended eligibility could also prove costly given the

large number of children who are uninsured at some time during a year. It would

mean that some low-income children who would otherwise experience a relatively

short spell without insurance could enroll in the program and receive federal support for a full year. To avoid that outcome, proposals could restrict eligibility only

to children who had been uninsured for some minimum period of time. Such a restriction could reduce the number of eligible children significantly, at least in the

short run. But as discussed later, such a policy would be difficult to enforce, and

its effectiveness would probably erode over time.

Participation by Children Who Would Otherwise Be Uninsured

The rate of participation in a new health insurance program by low-income families with uninsured children would depend in part on whether the program involved

Medicaid expansions, subsidies, or tax credits. Both families’ attitudes toward the

program and the costs they would face would affect their participation.

Expansions of Medicaid. Efforts to use the Medicaid program to increase insurance coverage would probably focus on enrolling uninsured children who are already

eligible, although some proposals would also broaden eligibility. Enrolling more children who are now eligible would require major new outreach efforts. Some families

choose not to participate in Medicaid in part because of the perceived stigma associated with the program. Others may not participate because they know they have
11

3M. Susan Marquis and Stephen H. Long, ‘‘Worker Demand for Health Insurance in the NonGroup Market,’’ Journal of Health Economics, vol. 14, no. 1 (May 1995), pp. 47–63. 4Lisa Dubay and Genevieve Kenney, ‘‘Did Medicaid Expansions for Pregnant Women Crowd

Out Private Coverage?’’ Health Affairs, vol. 16, no. 1 (January/February 1997), pp. 185–193. Also

see David M. Cutler and Jonathan Gruber, ‘‘Medicaid and Private Insurance: Evidence and Implications,’’ Health Affairs, vol. 16, no. 1 (January/February 1997), pp. 194–200; and John

Holohan, ‘‘Crowding Out: How Big a Problem?’’ Health Affairs, vol. 16, no. 1 (January/February

1997), pp. 204–206.

conditional coverage: if their children become sick, they can enroll in Medicaid immediately. Both of those perceptions could be difficult for an outreach program to

overcome. Still other families may not enroll because they do not know they are eligible, which is more likely to be the case if they do not receive cash welfare benefits.

The combination of attitudes toward Medicaid and lack of awareness of eligibility

produces surprisingly low Medicaid participation rates among eligible children who

do not receive cash welfare benefits. CBO estimates that at any time during the

year fewer than 60 percent of children who do not receive cash benefits, do not have

private insurance, and are eligible for Medicaid are enrolled in the program. However, short periods of Medicaid eligibility may also contribute to that result. Most

uninsured children who qualify for Medicaid but do not participate appear to be eligible for only a few months. Proposals that would allow a one-year minimum period

of eligibility, although costly, would increase participation by such children.

Subsidies or Tax Credits. Subsidies or tax credits for the purchase of health insurance would probably have to be large to increase children’s coverage substantially.

Uninsured children are usually in low-income families, and such families appear to

be less responsive to subsidies than are higher-income families. A recent study by

researchers at RAND, for example, suggests that subsidies of as much as 60 percent

of the premium would cause only one-quarter of uninsured working families to buy

insurance.3

Assuming that families had to pay only a small portion of the premium, subsidies

to purchase private insurance might overcome any perceived stigma of Medicaid and

thus produce higher participation rates. But extensive outreach would still be needed to inform low-income families of their options. Participation in subsidy programs

might also be higher than otherwise if the procedures for determining eligibility and

enrolling in health plans were streamlined and coordinated.

Although tax credits would also be free of stigma, they would probably produce

lower participation rates than direct subsidies that had the same monetary value.

Low-income families could experience cash flow problems if they had to pay insurance premiums during the year but only received the tax credit at the end of the

tax year. Moreover, even if the credit was made available at the time a family purchased a health plan, the family would still face the possibility of having to repay

part of the credit amount at the end of the tax year if its income rose during the

year. Such uncertainty might discourage some families from participating. Having

to deal with the tax system could also pose a challenge for some low-income families, many of whom would not ordinarily file a tax return.

Participation by Children Who Would Otherwise Have Private Insurance

In the case of higher-income children, Medicaid expansions, subsidies, and tax

credits would all probably result in a significant share of federal payments going

to children who would otherwise have private health insurance for at least part of

the subsidy period. The participation of such children would raise federal costs beyond what was necessary to cover the uninsured.

Medicaid Expansions. Many researchers have looked at how the Medicaid expansions for children and pregnant women in the late 1980s and the 1990s have affected employment-based health insurance coverage. Private coverage of dependents

has fallen as the number of children and pregnant women enrolled in Medicaid has

soared. But that fact does not necessarily indicate that families have dropped private coverage to enroll in Medicaid; higher Medicaid enrollment may have resulted

because families were losing private coverage.

Studies have reached various conclusions about whether Medicaid ‘‘crowds out’’

private insurance. However, most researchers agree that little crowding out occurs

in families with income below the poverty level, although it increases higher up the

income scale. Researchers at the Urban Institute, for example, estimated that over

the 1988–1992 period, less than 30 percent of the increase in Medicaid coverage for

pregnant women with income between 100 percent and 133 percent of the poverty

level resulted from the crowding out of employment-based insurance. But the estimate was almost 60 percent for pregnant women with income between 134 percent

and 185 percent of the poverty level.4
12

Subsidies or Tax Credits. As noted earlier, any system of subsidies or tax credits

would have to be generous to have much impact on coverage. As a result, a large

share of subsidy payments would probably go to children who would have been insured in the absence of the program, which could increase costs considerably. The

probability of that outcome would rise, the higher the income level at which families

were eligible for subsidies. But the probability would be significant even for families

with income between 100 percent and 200 percent of the poverty level, who would

be among the primary targets of a program to expand insurance; more than half

of such families have employer-sponsored coverage.

Low-income workers would have an incentive to drop employment-based coverage

for their family and obtain children’s coverage through a federally subsidized program if, by so doing, they could increase their money wages. Employers with many

low-income workers might be willing to adjust the composition of their workers’

compensation packages accordingly.

To avoid such a response, most proposals would prohibit people from claiming

subsidies or tax credits for insurance if they had been enrolled in an employer-sponsored plan within the previous year (or some other recent period) or if they were

eligible for such coverage. But such provisions could be both costly and difficult to

enforce, because verifying eligibility would be problematic. They would also raise

questions of fairness. Some families who had chosen not to enroll in an employersponsored plan would be eligible for subsidies, whereas families with comparable income who had enrolled in their employer’s plan would be ineligible.

Moreover, even if such ‘‘firewalls’’ could be successfully imposed in the short run,

in the long run employers and low-income workers would change their behavior in

response to the availability of federal funds in ways that the requirements could not

prevent. For example, firms might transfer the jobs done by low-income employees

to contractual workers who did not receive fringe benefits, and over time, increasing

numbers might no longer offer family coverage.

Experience during the short existence of the health insurance tax credit (HITC),

established by the Omnibus Budget Reconciliation Act of 1990, provides some insight into the way that families with insurance would probably respond to tax credits or subsidies. The HITC, which existed between 1991 and 1993, allowed taxpayers

who qualified for the earned income tax credit (EITC) to claim an additional tax

credit if they bought health insurance coverage for their children. The credit was

6 percent for earned income up to $7,125. Taxpayers with earned income between

$7,125 and $11,275 could claim the maximum credit of $428, and the credit phased

down to zero by an earned income of $21,250.

The credit was small, on average, paying for less than one-quarter of the taxpayer’s share of a family health insurance premium. Hence, it was unlikely to provide much incentive for uninsured families to obtain coverage. The income of taxpayers who claimed the credit was 30 percent higher, on average, than that of other

EITC recipients. Thus, claimants were primarily in the phaseout range of the credit,

and their credit amounts were sufficiently small that it seems likely they would

have purchased health insurance anyway.

Interactions Between a Subsidy or Tax Credit Program and Medicaid

The existence of a federally subsidized program of health insurance for children

would give states an incentive to shift children out of Medicaid—for which they

share responsibility with the federal government—into the new program. For example, states that provide Medicaid coverage to children in higher-income families

than required by federal law might lower their income standards. To limit such responses, federal policymakers could consider requiring financial contributions from

the states or maintenance of effort with respect to the existing Medicaid program

in any proposal to expand health insurance coverage for children through a mechanism other than Medicaid.

Despite possible shifting by the states, however, the net effect of a subsidy or tax

credit program would probably be to increase rather than decrease Medicaid enrollment. The reason is that many children applying for a new program would probably

be among the 3 million uninsured children who are eligible for Medicaid at any

point in time. Proposals would generally bar such children from participating in any

new federally subsidized option, requiring them to obtain coverage from Medicaid

instead. That requirement would mean that the states and the federal government

would share the costs of covering those children.

HOW MUCH WOULD A PROGRAM COST PER PARTICIPANT?

The cost per child of expanding health insurance coverage would depend on which

services were covered, the extent to which newly covered children used them, and
13

the cost of administering the program. Because proposals for expanding children’s

coverage would be voluntary, parents with less healthy children would be more likely to participate. Premiums are generally higher, however, the less healthy the population that is enrolled in a health plan. So if a policy goal is to keep premiums

low in order to encourage parents to buy insurance for their children, limiting that

type of adverse selection would be a priority in designing the program. Administrative costs would also vary according to the design of the program.

Costs per Child Under a Medicaid Expansion

If Medicaid expansions focused primarily on enrolling uninsured children who

were already eligible, those children might actually cost less to insure than current

enrollees. Because most poor children who are sick can enroll in Medicaid at any

time, those who are eligible but are not enrolled may be healthier and use fewer

health services than the ones who are enrolled. If that is indeed the case, states

might be able to negotiate lower rates for such children with managed care plans.

Whether children who enrolled under expanded eligibility requirements would be

less costly than current enrollees is uncertain, however.

Expanding Medicaid to cover more children would entail relatively low administrative costs because the eligibility, enrollment, and provider contracting systems

are already in place. But the additional outreach services that would be needed to

enroll children who are now eligible could be costly.

Premiums Under Subsidy or Tax Credit Programs

Premiums for insurance purchased with subsidies or tax credits would depend on

the covered benefits and on whether coverage was provided through individual policies or group plans.

Covered Benefits. Depending on the proposal, benefits for children might range

from relatively costly packages, offering services similar to Medicaid’s, to much leaner benefits, perhaps not even covering hospitalization. Benefit packages with higher

cost-sharing requirements would generally be less costly than those with lower ones.

But higher cost-sharing requirements would make health care less affordable for

low-income families. Alternatively, a proposal that would expand coverage primarily

through health maintenance organizations and other strictly managed health plans

could provide comprehensive benefits more affordably.

Coverage Through Individual Policies or Group Plans. Proposals vary with regard

to the type of coverage that would be eligible for subsidies or tax credits. Some proposals would subsidize only the purchase of special insurance policies for children.

Others would allow families with access to employer-sponsored coverage to use subsidies or tax credits to help pay for that coverage.

The costs of special children’s policies would depend on a variety of factors. Premiums might vary, for example, according to the age of the child. In addition, they

would vary if policies covering more than one child were permitted. Allowing only

single policies would increase the risk of adverse selection because families might

choose to enroll only their less healthy children. How children’s policies were marketed and purchased would also affect the probabilities of healthier or less healthy

children enrolling, as well as the administrative costs of the program. Possibilities

for marketing and purchasing include establishing a nonprofit or government organization to coordinate those functions, using the schools to group children together

to buy insurance, or requiring insurance companies to sell children’s policies in the

individual market.

Selling policies through schools would provide a way to group mostly healthy children together to purchase health insurance, thereby reducing adverse selection and

helping to keep premiums low. In effect, schools could serve the same grouping function for children that employers do for workers. Moreover, the costs of marketing

the program through schools could be relatively low. The disadvantage of a schoolbased program, however, would be the fragmentation of a family’s health insurance

coverage that could result; not only parents but, presumably, preschool children

would be ineligible, and those children might have to enroll in a different program.

By contrast, requiring families to buy insurance coverage for children in the individual market would reduce the probability that a generally healthy mix of children

would enroll, and premiums would be correspondingly higher. Marketing costs

would also be high because each family would be negotiating for health insurance

on its own. Costs could be reduced, however, if a nonprofit or government organization existed to provide standardized information about health plans and to coordinate their purchase.

If families could use subsidies or tax credits to buy employment-based coverage,

they would become part of their employer’s group, and the employer would generally

cover part of the insurance cost. But because many employers pay 60 percent or less
14

of a family premium, the employee’s share might still be more than the cost of purchasing children’s policies for one or two children. The advantage would be that parents as well as children would gain coverage, and they could all enroll in the same

health plan.

ADMINISTRATIVE COSTS UNDER SUBSIDY OR TAX CREDIT PROGRAMS

The costs of proposals using subsidies or tax credits would also depend on how

complex they were to administer. All such proposals would have to develop mechanisms for establishing eligibility, determining subsidy or credit amounts, and giving

those subsidies or credits directly to low-income families (perhaps in the form of

vouchers) or to health plans and employers. The costs of those functions would vary

among proposals.

Proposals that used the schools to administer subsidies, for example, could

achieve considerable efficiencies by tying eligibility for the subsidies, as well as their

amounts, to eligibility for subsidized meals (as occurs in Florida’s Healthy Kids program). Parents could make payments directly to the school system, which could negotiate with health plans. By contrast, if families were able to use subsidies or tax

credits to buy employment-based coverage, the agency administering those subsidies

or credits might have to deal with thousands of employers, to verify both eligibility

and the amount of the premium.

Any proposal using tax credits would have the advantage that the tax system provides a ready means for verifying income. But tax credits would also require lowincome families who do not usually file tax returns to do so in order to obtain a

credit. Moreover, experience with the EITC suggests that establishing a mechanism

that would enable low-income families to receive a tax credit when they purchased

health insurance would be difficult; very few families take advantage of the present

option to receive their earned income credit in advance.

CONCLUSION

Most uninsured children live in families whose income is below 200 percent of the

poverty level. Such children tend to have sporadic health insurance coverage, causing many of them to experience spells without coverage during the year. Thus, the

potential target population of uninsured children could be significantly greater than

the 10.5 million who lack coverage at any point in time.

Reducing the number of uninsured children significantly would require generous

levels of direct subsidies or tax credits, and it would be difficult to prevent lowincome children who would otherwise have private coverage from participating in

such a generous program. The likelihood of their participation would increase as the

income level at which families could qualify for federal assistance rose. As a result,

the cost of a program to expand health insurance coverage for children would probably be considerably higher than the cost of covering only those children who would

otherwise be uninsured.

An alternative approach to direct subsidies or tax credits would be to expand

Medicaid to cover higher-income children, although that approach would also cause

some children who would otherwise have private coverage to enroll in the program.

Another way to lower the number of uninsured children would be to induce more

children who were already eligible for Medicaid to enroll. However, achieving that

outcome would require making major outreach efforts and, possibly, modifying the

program to guarantee a minimum period of eligibility.

APPENDIX: ESTIMATING HOW MANY CHILDREN ARE UNINSURED

Because the health insurance status of many children, especially those in lowincome families, is so volatile, the question of how many children are uninsured is

not easy to answer. The number of children who are uninsured at any point in time,

the number who are uninsured for the entire year, and the number who are uninsured sometime during the year differ considerably. Understanding what different

estimates of the number of uninsured children actually measure is important in

evaluating the costs and effects of proposals to expand coverage for children. But

unfortunately, people who respond to the national sample surveys from which analysts derive estimates of insurance status appear to interpret questions about their

health insurance in ways that make distinguishing among the different measures

difficult. Determining people’s potential eligibility for such programs as Medicaid is

also difficult, because family incomes fluctuate over time in ways that surveys may

not be designed to track.

Analysts at CBO use two national sample surveys from the Bureau of the Census

to estimate rates of health coverage: the annual March supplement to the Current
15

Population Survey (CPS) and the Survey of Income and Program Participation

(SIPP). Data from the CPS present a relatively current snapshot of children’s health

insurance status, whereas the SIPP data illuminate the transitions in insurance status that children experience over time. Because of underreporting of health insurance coverage, especially of Medicaid, both surveys probably underestimate health

insurance coverage to some degree.

The CPS produces timely estimates of insurance coverage each year. The current

widely quoted estimates of 10.5 million uninsured children under age 19, of whom

at least 3 million are eligible for Medicaid, come from the March 1996 CPS. But

analysts disagree on how to interpret those estimates. Some believe that they refer

to children who were uninsured throughout 1995, which is the information that the

survey intends to obtain. Other analysts, including those at CBO, believe that people’s responses to the CPS questions produce estimates that reflect the number of

children who were uninsured at a point in time, rather than for the full year.

The SIPP data support that interpretation. Although the SIPP is less timely than

the CPS, it is a longitudinal survey that tracks the insurance status of a sample

of children over time. Thus, analysts can determine how many children were uninsured for the whole year and how many were uninsured for part of the year. The

most recent survey to track respondents for up to 33 months covered 1992 through

part of 1994. CBO’s preliminary analysis of that survey indicates that in 1993,

about 13.5 percent of children were uninsured at any point in time. That estimate

corresponds closely to the March 1993 CPS estimate of 13.1 percent. The SIPP data

also indicate that 6.5 percent of children were insured throughout 1993 and a further 15.5 percent were uninsured for some part of the year.

Mr. Purcell.

Chairman THOMAS. Thank you very much, Dr. Bilheimer.

f

STATEMENT OF PATRICK J. PURCELL, ANALYST, EDUCATION

AND PUBLIC WELFARE DIVISION, CONGRESSIONAL

RESEARCH SERVICE

Mr. PURCELL. Good morning, Mr. Chairman and Members of the

Subcommittee.

My name is Patrick Purcell. I am an Analyst in the Education

and Public Welfare Division of the Congressional Research Service.

In the copies of my written testimony, you will find some charts

illustrating the points I will be discussing, but in the interest of

brevity, I will not refer directly to these charts in my remarks this

morning.

Chairman THOMAS. The same request would be made, if you

would talk directly into the microphone. They are very

unidirectional, and it is hard to pick it up.

Mr. PURCELL. Surely.

In announcing today’s hearing, Mr. Chairman, you stated that

the Subcommittee would focus on identifying the reasons why some

children do not have health insurance coverage and the impact that

lack of insurance has on their access to health care services.

As you know, most of the 70 million children in the United

States are covered by some form of health insurance, either public

or private. More than 6 out of 10 are covered by private health insurance plans, and almost one-quarter are covered by the Medicaid

Program. In any given month, however, between 9 and 10 million

children have no health coverage.

I would like to use my time before the Health Subcommittee

today to describe some of the employment and income characteristics of the families of uninsured children, which may explain in
16

part why they do not have access to the private health insurance

system that covers the majority of Americans.

First, however, it is important to note that an estimated 3 million uninsured children are eligible for coverage under the Medicaid Program but are not enrolled. The reasons that some parents

or guardians do not enroll their eligible and otherwise uninsured

children in the Medicaid Program are not yet well understood, but

anecdotal evidence suggests that lack of knowledge about their

children’s eligibility for Medicaid, failure of the parent or guardian

to supply required information during the enrollment process, and

a welfare stigma that some families associate with the Medicaid

Program may all contribute to eligible children remaining uninsured.

Although one-third of uninsured children may be eligible for

Medicaid, most are not. Data from the Census Bureau, however, indicate that nearly 60 percent of uninsured children are members

of families in which one parent is employed year round full time.

Another 20 percent are in families with a parent who is employed

part time.

That so many uninsured children are members of working families is significant because employers are the predominant source of

health insurance coverage in the United States today. In 1995

more than 70 percent of the U.S. population under the age of 65

was covered by private health insurance, and most of those who

were covered by these plans were insured through their own employer or that of a family member.

To understand why nearly 10 million children lack health insurance when most of them are the children of working parents, we

need to ask why these workers are themselves unemployed. To address this question, the Congressional Research Service has been

examining data collected by the Bureau of the Census and the National Center for Health Statistics.

We used data from two national household surveys, the Current

Population Survey and Health Interview Survey, to find some of

the key employment, income, and demographic characteristics that

distinguish working heads of families who are uninsured from

working family heads who are covered by private health insurance.

In an average month during 1994, an estimated 6.3 million

heads of families were employed either full time or part time but

had no health insurance coverage. About three-fourths of these

families included children. These family heads were predominantly

young, working for small firms in the service sector or in retail or

wholesale trade, and had family incomes that were lower than the

national average.

For example, in 1994 nearly half of employed, uninsured family

heads were under the age of 35, compared with just one-quarter of

employed family heads that were covered by private health insurance. Half of all employed, uninsured family heads worked in firms

with fewer than 25 employees, while just 21 percent of employed

and privately insured family heads worked for firms of this size.

And finally, 60 percent of employed, uninsured family heads had

family incomes of less than $30,000. In contrast, among those that

were employed and privately insured, only 16 percent had family

incomes below $30,000.
17

Most of the working family heads who are without health insurance during any given month have been uninsured for a significant

period of time. In 1994 more than half of the working family heads

who were without health insurance in a given month reported that

they either had been last insured more than 3 years ago, or that

they had never been insured. Just 15 percent said they had been

covered by health insurance within the past year.

Among working but uninsured family heads who had lost health

insurance coverage some time within the last 3 years, one-half said

that the reason they had stopped being covered was either because

they had lost a job or had changed jobs. The recently enacted

Health Insurance Portability and Accountability Act may help reduce loss of insurance coverage caused by changing jobs, but those

that lost insurance as a result of a job change still represented only

one-sixth of employed, uninsured family heads in 1994.

Although most Americans have health insurance coverage

through their own employment or that of a relative, acquiring

health insurance through employment is possible only when this

benefit is offered as part of the compensation package. It is important to note, therefore, that in the 1994 Health Interview Survey,

70 percent of working, uninsured family heads reported that health

insurance coverage was not offered at their place of employment.

Nevertheless, even though most employed but uninsured family

heads reported that health insurance coverage was not available

through their employers, only 1 in 10 cited the lack of an

employment-based plan as the main reason they were uninsured.

More than 60 percent, on the other hand, said it was the high cost

of health insurance that was the primary reason they were not covered.

Finally, data from the Health Interview Survey also show that

1.3 million working, uninsured family heads were offered health insurance at their place of employment but declined that coverage.

Of this number, two-thirds said that the cost of the insurance was

at least one of the reasons they did not accept it.

In 1994 almost one out of every six families with a working but

uninsured head reported they had spent nothing for medical care

in the previous 12 months. Among working families with private

health insurance, only 1 in 12 reported no spending for medical

care. Moreover, this disparity in the proportion of families with no

medical expenditures is not explained by differences in either family size or the age of the family head.

While working uninsured family heads were more likely to have

zero medical expenses, families in both groups were about equally

likely to have reported medical expenses exceeding $500. In both

cases, about one-third of the families had expenses in this amount.

One possible explanation for uninsured families having a greater

likelihood of zero expenditures than insured families but an equal

likelihood of expenditures exceeding $500 is that they are more

price sensitive than insured families with respect to small medical

expenses that they might consider discretionary. When serious illness or injury occur, however, medical expenses are not easily

avoided, so that relatively large expenses occur among both insured

and uninsured families with similar frequency.
18

Because of the disparity in family incomes, however, a given

medical expense would account for about twice the share of average

family income among employed but uninsured family heads as it

would among those covered by private health insurance.

In summary, most uninsured children are the dependents of

working parents, but their parents tend to be employed in small

firms that do not offer health insurance coverage. Moreover, the average income of these families is substantially lower than that of

families that are covered by private health insurance.

Finally, about one-third of all uninsured children are eligible for,

but not enrolled in, the Medicaid Program. While Medicaid would

pay most of the medical expenses of these children if they were to

become seriously ill, failure to enroll may diminish their access to

primary and preventive health care services.

That concludes my remarks, Mr. Chairman. I would be happy to

answer any questions.

[The prepared statement and attachments follow:]

Statement of Patrick J. Purcell, Analyst, Education and Public Welfare

Division, Congressional Research Service

In announcing today’s hearing, Mr. Chairman, you stated that the Subcommittee

would focus on trying to identify the reasons why some children do not have access

to health insurance coverage, and the impact that this lack of insurance has on

their access to health care. As you know, most of the 70 million children in the

United States are covered by some form of health insurance, either public or private. More than 6 out of 10 are covered by private health insurance plans, and almost a quarter are covered by the Medicaid program. In any given month, however,

between 9 and 10 million children have no health insurance coverage. I would like

to use my time before the Subcommittee today to describe some of the employment

and income characteristics of the families of uninsured children, which may explain

in part why they do not have access to the private health insurance system that

covers the majority of Americans.

Before addressing the issue of access to private health insurance coverage, I

would like to note that, according to information from the Census Bureau’s Current

Population Survey, an estimated 3 million uninsured children are eligible for coverage under the Medicaid program but are not enrolled. The reasons that some parents or guardians do not enroll their eligible and otherwise uninsured children in

the Medicaid program are not yet well understood, but anecdotal evidence suggests

that lack of knowledge about their children’s eligibility for Medicaid, inability of the

parent or guardian to supply required information during the enrollment process,

and a ‘‘welfare stigma’’ that some families associate with the Medicaid program may

all contribute to eligible children remaining uninsured.

While up to a third of uninsured children may be eligible for Medicaid, data from

the Census Bureau indicate that nearly 60% of uninsured children are members of

families in which at least one parent is employed year-round, full-time, and another

20% are in families with a parent who is employed part-time. That so many uninsured children are members of working families is significant because employers are

the predominant source of health insurance coverage in the United States. In 1995,

more than 70% of the U.S. population under age 65 was covered by private health

insurance, and more than 90% of those who were covered by these plans were insured through their own employer or that of a family member.

To understand why nearly 10 million children lack health insurance when most

of them are the children of working parents, we need to ask why these workers are

themselves uninsured. To address this question, the Congressional Research Service

has been examining data collected by the Bureau of the Census and the National

Center for Health Statistics. We used data from two national household surveys—

the Current Population Survey and the National Health Interview Survey—to find

some of the key employment, income, and demographic characteristics that distinguish working heads of families who are uninsured from working family heads who

are covered by private health insurance.
19

1This figure includes 4.5 million employed, uninsured heads of families with children and 1.8

million employed, uninsured persons with a spouse but without children. (CRS analysis of data

from the Current Population Survey).

AGE, INDUSTRY OF EMPLOYMENT, AND FAMILY INCOME OF EMPLOYED, UNINSURED

FAMILY HEADS

In an average month during 1994, an estimated 6.3 million heads of families were

employed either full-time or part-time but had no health insurance coverage, either

public or private.1 These family heads were predominantly young, working for small

firms in the service sector or in retail or wholesale trade, and their families had

incomes that were lower than the national average. For example, in 1994:

• 48% of employed, uninsured family heads were under age 35. (Figure 1)

• 51% of employed, uninsured family heads worked in firms with fewer than 25

employees. (Figure 2)

• 56% of employed, uninsured family heads worked in wholesale or retail trade

or in business, personal, or professional services. (Figure 3)

• 39% of employed, uninsured family heads had family incomes of less than

$20,000, and 60% had incomes below $30,000. (Figure 4)
20

LENGTH OF TIME SINCE LAST INSURED (FIGURE 5)

Most of the working family heads who are without health insurance coverage during any given month have been uninsured for a significant length of time. In 1994,

55% of the working family heads who were without health insurance in an average

month reported that they had either last been insured more than 3 years ago or

that they had never been insured. Only one-third reported that they had been insured some time in the last 3 years, and just 15% said that it had been less than

a year since they were last covered by health insurance.
21

REASONS THAT PREVIOUS INSURANCE COVERAGE STOPPED (FIGURE 6)

Among working but uninsured family heads who had lost their health insurance

coverage some time within the last 3 years, half said that the reason they stopped

being covered by insurance was either because they had lost a job or because they

changed jobs. No other single reason cited for loss of health insurance coverage accounted for as much as 10% of all responses to this question. The recently enacted

Health Insurance Portability and Accountability Act (P.L. 104–191) may help reduce

loss of insurance coverage caused by changing jobs, but those who lost insurance

as a result of changing or losing a job still represented only one-sixth of all employed, uninsured family heads in 1994.
22

REASONS UNABLE TO FIND INSURANCE COVERAGE (FIGURE 7)

About one-third of the 2 million working but uninsured family heads who had lost

their health insurance coverage within the last 3 years reported that they subsequently sought an alternative source of health insurance but were unable obtain

coverage. By far the most commonly cited reason for being unable to regain health

insurance coverage—mentioned by more than four-fifths of those responding to this

question—was that they could not afford to purchase it. Seven percent of those who

sought alternative coverage reported that they were turned down due to ill health

or other risk factors.

REASONS CITED FOR BEING CURRENTLY UNINSURED

Although most Americans have health insurance coverage through their own employment or that of a relative, acquiring health insurance through one’s employer

is possible only when this benefit is offered as part of an employee’s compensation

package. It is important to note, therefore, that in the 1994 National Health Interview Survey, 70% of working, uninsured family heads reported that health insurance coverage was not offered at their place of employment. (Figure 8)

Even though 7 out of 10 employed but uninsured family heads reported that

health insurance coverage was not available through their employers, only 11%

cited the lack of an employment-based plan as the main reason that they were uninsured. More than 60%, on the other hand, said that the high cost of health insurance was the primary reason that they were not covered by health insurance, which

may indicate that they would have purchased health insurance on their own if they

had considered it worthwhile to do so. (Figure 9)

Even among uninsured family heads who said that they were not offered health

insurance at their place of employment, more than twice as many cited the high cost

of insurance as the main reason they were uninsured as said that it was because

they could not get coverage where they worked.

Finally, out of 1.3 million working, uninsured family heads who were offered

health insurance at their place of employment but who declined that coverage, twothirds said that the cost of this insurance was among the reasons that they declined

to be covered. (Figure 10)
23
24
25

2 Adjusted for age, the ratio of employed uninsured family heads to employed privately insured

family heads who reported zero medical expenditures in the previous twelve months was 1.83/

1. Adjusted for family size, the ratio was 1.95/1. In these tabulations, medical expenditures exclude spending for nonprescription drugs and insurance premiums for those with insurance.

AMOUNT SPENT ON HEALTH CARE IN PREVIOUS 12 MONTHS (FIGURE 11)

Fifteen percent of families in which the head was employed but uninsured reported zero expenditures for medical care in 1994. This is twice the rate at which

families where the head was both employed and insured reported no expenditures

for medical care. If the higher proportion of uninsured family heads with no medical

expenses had been due to the uninsured family heads being younger than their privately insured counterparts or from having fewer children than the family heads

who were privately insured, then we would expect the difference in these proportions to diminish significantly once we controlled for the effects of age and family

size. In fact, however, even when we adjust for size of family and age of the family

head, families with an employed but uninsured head were still about twice as likely

as those in which the head was employed and privately insured to have reported

no medical expenses during the previous year.2

While working uninsured family heads were more likely than family heads who

were working and privately insured to have reported zero medical expenses, they

were almost as likely as privately insured family heads to have had incurred medical expenses of $500 or more. In both groups, about one-third of the families reported out-of-pocket medical expenses of $500 or more in the preceding 12 months.

One possible reason for uninsured family heads to have a greater likelihood of zero

expenditures than insured family heads, but an almost equal likelihood of an expenditure exceeding $500 is that they are more price-sensitive than insured family

heads with respect to small medical expenses that might be considered discretionary. When serious, illness or injury occur, however, medical expenses are not

easily avoided, so that relatively large expenses occur in insured and uninsured

families with similar frequency.

Because of the disparity in family income between the uninsured and the insured,

however, medical expenses account for about twice the share of income for families

with an employed but uninsured head as they do in families where the head is both

employed and covered by private health insurance.

This concludes my presentation, Mr. Chairman. I would be happy to answer questions.
26
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27

Chairman THOMAS. Thank you, Patrick.

Dr. Scanlon.

STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH

FINANCING AND SYSTEMS ISSUES, HEALTH, EDUCATION

AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE

Mr. SCANLON. Thank you, Mr. Chairman and Members of the

Subcommittee. I am pleased to be here today as you consider the

question of health insurance coverage for children.

My remarks are drawn from a number of recently issued GAO

reports on trends in the private sector and Medicaid coverage for

children, including shifts in employers’ commitments to family coverage and the experiences of innovative State and local programs

to insure children.

Over the last several years, we have seen a continuing deterioration in the extent of private coverage accompanied by a sharp rise

in the number of children on Medicaid.

Between 1989 and 1995, the percentage of children covered by

private plans fell 11 percent. Without that decline, an additional 5

million children would have been privately insured at some time

during 1995. Declines in private insurance coverage have been

widespread, affecting both adults and children. However, children

have been affected more, as 70 to 90 percent of the decline involved

dependent coverage.

Many employers, responding to several years of double-digit increases in health insurance costs, have restructured their health

plans to gain more control over costs. Workers, on average, are required to pay higher shares of premium costs, and workers’ costs

for family coverage have increased more sharply than costs of single coverage.

Other steps taken by employers to limit costs may also discourage acquisition or retention of family coverage. They include: Providing alternative benefits or incentives to workers who choose

employee-only coverage or who obtain family coverage through

their spouse; refusing to cover a spouse if the spouse has other

health insurance; imposing a surcharge for working spouses covered as dependents; refusing to provide dependent coverage unless

the employee is the family’s primary wage earner.

Mr. Chairman, I would note that in our testimony we did not address the issue of tax preferences for health insurance, but in this

context, employers are clearly acting in terms of appealing to employees’ rationale in trying to maximize their benefits at minimum

cost.

Given that our tax preferences are neutral in terms of whether

or not they encourage family coverage, it may be possible to restructure them in a way that would encourage employers to maintain more support for family coverage. That would deal with the

potential 5 million employees who currently work for firms who

offer no family coverage, as well as some of these firms that have

reduced their support for family coverage. It does not, though, ad-
28

dress the 18 million workers who are working for firms that offer

no health insurance.

While we have seen these deteriorations in private coverage and

expanded Medicaid eligibility, States, localities, and private organizations have all developed innovative programs to offer subsidized

coverage to uninsured children that would not qualify for Medicaid.

In 1996 9 States had State and locally funded programs and 24

States had privately funded programs. In reviewing six of these

State or privately funded programs, we found they could provide

potentially useful lessons for future efforts to insure children. For

example, unlike State Medicaid Programs which operate as openended entitlements, the programs cap enrollments and, if necessary, maintain waiting lists to stay within their fixed budgets

that were provided by revenues from taxes, grants, and donations.

These waiting lists generally operated, however, on a first-come,

first-served basis without establishing priorities based on service

needs.

All six programs we reviewed required at least some of the families to share in the cost through premiums, and some programs

also required copayments for certain services such as prescription

drugs and eyeglasses. The family’s premium share increased as

their income increased. In all programs, the lowest income children

paid no premium or a very heavily subsidized premium. Two of the

programs allowed children of any income to join, but families with

higher incomes were responsible for paying the full premium costs.

While all six programs covered basic preventive and outpatient

services, some limited other services such as hearing, vision, dental, and mental health care. Some, particularly the private funded

programs, also limited inpatient care. They sometimes did so anticipating that children would qualify for Medicaid if they needed

more extensive care.

All of the programs worked extensively to reach families of uninsured children. One program worked through the schools, which allowed them to most easily reach their target group, school-aged

children.

Other outreach efforts included dedicated hotlines, television and

radio ads, bus billboards, fast-food restaurant tray liners, and presentations provided at churches and other community locations. To

encourage enrollment, two of the programs used sports and television personalities as spokespersons.

These outreach efforts served not only to identify children eligible for their programs, they also identified children eligible for

Medicaid and channeled them into that program.

The programs were also developed to be easily administered.

Most operated at least partially through nonprofit or private insurers, which enabled the programs to use existing provider payment

systems and physician networks, guaranteeing patient access to

providers. Each of the six programs developed simplified enrollment procedures and took specific steps to avoid the appearance of

a welfare program.

In conclusion, let me say that the recent erosion in private coverage has left many children without insurance and has created interest in expanding coverage. However, efforts to expand coverage

for children need to be developed in ways that do not supplant ex-
29

isting private insurance. In addition, Medicaid’s potential should

not be ignored, as many uninsured children are eligible for Medicaid but do not enroll. Outreach strategies developed by State and

private programs could guide State efforts to reach such children.

Other innovative elements in the State and private programs,

such as sliding-scale premiums and cost sharing for program enrollees, should be considered in efforts to cover more uninsured

children while controlling costs. However, adopting strategies like

limiting inpatient care, on the premise that other funding may be

available, may not provide the range of coverage children need.

Mr. Chairman, that concludes my statement. I would be happy

to answer any questions you have or Members of the Subcommittee

have.

Thank you.

[The prepared statement and attachments follow:]

Statement of William J. Scanlon, Director, Health Financing and Systems

Issues, Health, Education, and Human Services Division, U.S. General

Accounting Office

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss recent changes in health insurance coverage and the effect of these changes on children. Without health insurance, many

families face difficulties getting preventive and basic health care for their children.

Children without health insurance are less likely to have routine medical and dental

care, establish a relationship with a primary care physician, and receive immunizations or treatment for injuries and chronic illnesses. Recognizing the importance of

health insurance for children, Members of the House and Senate and the administration have proposed expanding children’s health insurance coverage—either

through grants to the states, refundable tax credits, vouchers, or other means.

My remarks today will focus on three points: (1) recent trends in children’s health

insurance coverage, particularly in employment-based coverage; (2) the increasing

role of Medicaid in insuring children and possible interactions with private insurance; and (3) some small-scale but innovative state and private efforts to provide

coverage for uninsured children. These remarks summarize findings from previous

GAO work, based on our analysis of the Bureau of the Census March Current Population Surveys for health insurance coverage in 1989 and 1995 and information from

the Census on trends in coverage from 1987 through 1995; other public and private

surveys, such as a survey conducted by KPMG Peat Marwick on employer health

insurance; interviews with experts, insurance company executives, and benefits consultants; current research on health insurance issues; and case studies of state and

private programs that insure children. (A list of GAO products related to this issue

appears at the end of this statement.)

In summary, we found that while most children have health insurance, almost 10

million children lack insurance. Between 1989 and 1995, the percentage of children

with private coverage declined significantly—part of an overall decline in coverage

of dependents through family health insurance policies. Increases in the cost of providing health insurance have prompted many employers to take steps that discourage or limit dependent coverage, such as raising premiums or providing incentive

payments to employees who refuse family coverage. This erosion in employer support for health insurance has contributed to the increasing number of children in

working families without private health insurance.

As these reductions in private coverage were occurring, Medicaid eligibility for

children expanded. These expansions helped to cushion the effect of the loss of private coverage, but they also may have contributed to some further reductions in private coverage. Families respond to the availability of public coverage differently.

While some families may have been induced to drop private coverage to gain Medicaid for their children, others may not have taken advantage of the program. Indeed,

almost 3 million Medicaid-eligible children remain uninsured.
30

1For information on the structure of the private market for individual coverage, see Private

Health Insurance: Millions Relying on the Individual Market Face Cost and Coverage Trade-Offs

(GAO/HEHS–97–8, Nov. 25, 1996).

A number of states, in conjunction with local governments, and private entities

have developed children’s insurance programs that differ significantly from Medicaid. Some of these public/private efforts may prove instructive in developing future

strategies for insuring children. For example, by targeting their outreach efforts, the

programs have been able to identify uninsured children—some of whom are eligible

for Medicaid. In addition, the programs have developed service packages based on

preventive care and required parents to assume some of the insurance cost through

premium contributions and copayments for specific services. Such strategies have

helped to stretch program dollars and provide needed health care to more children.

THE DECLINE IN PRIVATE HEALTH INSURANCE COVERAGE HIT CHILDREN HARDER AS

EMPLOYER FINANCIAL SUPPORT DECREASED

Between 1989 and 1995, private family insurance coverage declined for both children and working-age adults. Most of the decline was for the dependents of workers—most dramatically for children. During this period, the percentage of children

with private health insurance dropped from 74 percent to 66 percent. Had this decrease not occurred, nearly 5 million more children would have had private health

insurance.

Eroding employer financial support for providing health insurance to employees’

families has contributed to the overall decline in private insurance coverage. The

vast majority of privately insured children are covered under their parents’

employment-based health care plans.1 But as health insurance premiums reached

10 percent of employers’ payroll costs, many employers began to reconsider the

amount of employee insurance—particularly family coverage—that they would support. The health insurance cost to employers for a worker who does not elect family

coverage is less than half the cost of family coverage. As a result, firms are considering a variety of ways to control the cost of coverage—particularly family coverage.

There was a slight decrease in the proportion of workers whose employers sponsored health insurance between 1988 and 1993. The decrease was more pronounced

among those working in small firms—13 percent fewer people working for firms

with fewer than 10 employees had employers who sponsored coverage. Even if an

employer sponsors a plan, it may not cover family members. In 1993, almost onequarter of the workforce could not get family coverage at work. Over 18 million

workers were employed by firms that did not sponsor coverage at all, and more than

5 million workers worked for firms that sponsored coverage for workers, but not

family members.

Most employers that offered coverage raised employee premium contributions significantly—especially for family coverage. In large firms with 100 or more employees, average monthly premium contributions increased 79 percent for family coverage compared with 64 percent for single coverage between 1988 and 1993. A Hewitt Associates analysis of benefits offered by a group of major firms with 1,000 or

more employees showed that median monthly premium contributions for family indemnity coverage increased 64 percent between 1990 and 1995, whereas median

monthly premium contributions for employee-only indemnity coverage increased 47

percent.

In addition to increasing premium contributions, employers are increasingly turning to other options in their benefit design to limit their costs. These options may

discourage family coverage but may also result in employers of two-income families

sharing in the cost of coverage and avoiding the cost of duplicate coverage. These

options include

—providing alternative benefits or incentives to workers who choose employeeonly coverage,

—providing financial incentives to employees who obtain family coverage through

their spouse,

—refusing to cover a spouse if the spouse has other health insurance,

—imposing a surcharge for working spouses covered as dependents,

—refusing to provide dependent coverage unless the employee is the family’s primary wage earner, and

—changing premium structures so that larger families pay higher premiums.
31

2 Beginning in 1986, the Congress passed a series of laws that expanded Medicaid eligibility

for pregnant women on the basis of family income and eligibility for children on the basis of

family income and age. Before these eligibility expansions, most children received Medicaid because they were enrolled in Aid to Families with Dependent Children. Starting in July 1989,

states were required to expand coverage for pregnant women and infants with family incomes

at or below 75 percent of the federal poverty level. Two subsequent federal laws further expanded mandated eligibility for pregnant women and children. By July 1991, states were required to cover (1) pregnant women, infants, and children up to age 6 with family income at

or below 133 percent of the federal poverty level and (2) children 6 years old and older born

after September 30, 1983, with family income at or below 100 percent of the federal poverty

level. 3See David M. Cutler and Jonathan Gruber, Does Public Insurance Crowd Out Private Insurance? Working Paper No. 5082 (Cambridge, Mass.: National Bureau of Economic Research, Apr.

1995). 4See Lisa Dubay and Genevieve Kenney, Revisiting the Issues: The Effects of Medicaid Expansions on Insurance Coverage of Children (Washington, D.C.: The Urban Institute, Oct. 1995);

Lara D. Shore-Sheppard, ‘‘Stemming the Tide? The Effect of Expanding Medicaid Eligibility on

Health Insurance Coverage,’’ unpublished draft, Nov. 1995; Lara D. Shore-Sheppard, ‘‘The Effect

of Expanding Medicaid Eligibility on the Distribution of Children’s Health Insurance Coverage,’’

paper presented at the Cornell/Princeton Conference on Reforming Social Insurance Programs,

May 1996; and Esel Y. Yazici, ‘‘Medicaid Expansions and the Crowding Out of Private Health

Insurance,’’ paper presented at the 18th Annual Research Conference of the Association for Public Policy Analysis and Management, Pittsburgh, Pa., Nov. 2, 1996.

EXPANDED MEDICAID COVERAGE OFFSET MUCH OF THE DECLINE IN PRIVATE

COVERAGE FOR CHILDREN

Between 1989 and 1995, the number of children in the United States increased

by almost 7 million, but the number of children with private health insurance coverage remained virtually unchanged. During this same period, Medicaid eligibility

for children expanded so that poor and near-poor children under age 12 became eligible,2 and enrollment increased by 6 million children. Despite the growth in Medicaid, the number of uninsured children grew by more than 1 million—reaching almost 10 million uninsured children by 1995.

There is considerable debate about the extent to which expanding Medicaid eligibility contributed to the decline in the percentage of children who had private coverage. For example, one study suggests that as much as one-sixth of the overall decline in the proportion of people with private coverage may have occurred because

families dropped their insurance to enroll children and pregnant women in Medicaid.3 However, other studies found a lesser effect or no effect at all.4

Regardless, the studies indicate that, at most, one-sixth of the loss in private coverage stems from families’ choosing to substitute Medicaid for private coverage. Consequently, had Medicaid eligibility not been expanded, the number of uninsured

children would probably have been even greater.

Moreover, Medicaid expansions could have reduced the number of uninsured children even more, but many uninsured children who are eligible for Medicaid do not

enroll. In 1994, almost 3 million Medicaid-eligible children lacked health insurance.

Our previous work and that of other researchers points out several reasons families

do not enroll their eligible children in the Medicaid program. Some low-income families are unaware that their children may be eligible for Medicaid, and some are stymied by the complexity of the enrollment process. Moreover, some families may not

consider health coverage necessary until a child experiences a medical crisis. The

stigma associated with participation in a publicly funded health insurance program

can also deter some families.

While states have developed Medicaid outreach programs, their past outreach efforts focused more on encouraging use of preventive care by current participants

than on encouraging new enrollment. The Health Care Financing Administration

and the Health Resources and Services Administration are in the preliminary stages

of developing a more aggressive outreach program for potential Medicaid beneficiaries.
32

5We visited the Alabama Caring Program for Children, the Western Pennsylvania Caring Program for Children, Pennsylvania’s Children’s Health Insurance Program, New York’s Child

Health Plus Program, the Florida Healthy Kids Program, and MinnesotaCare. MinnesotaCare

began as a state-funded program, but Medicaid began to fund children participating in the program as of July 1995 through Minnesota’s Medicaid 1115 waiver. The children’s portion of

MinnesotaCare is still distinct from its Medicaid program, however.

STATES, LOCALITIES, AND PRIVATE ORGANIZATIONS HAVE CREATED NEW STRATEGIES

TO INSURE CHILDREN

While many states expanded Medicaid beyond federal requirements to cover more

uninsured children, a few developed innovative programs to offer subsidized coverage apart from Medicaid. By 1996, 9 states had state-and locally funded programs,

and 24 states had privately funded programs. While most of these programs are

small in scale, they do provide important lessons regarding program design characteristics.

In earlier work that we conducted on six of these state-funded or privately funded

programs in five states,5 we found that while the programs’ approaches varied significantly, they shared some common characteristics. In some ways, they differed

strikingly from Medicaid.

—Unlike state Medicaid programs, which operate as open-ended entitlements, all

the programs capped enrollment to stay within their fixed budgets. The state programs’ funding came from state general revenues; dedicated shares of specialized

taxes, such as tobacco taxes or health care provider taxes; local tax revenue; and

grants and donations from foundations and other private-sector entities. The private

programs raised money through private donations, many with considerable support

from Blue Cross/Blue Shield organizations.

—All of the programs we visited were designed to augment the existing range of

coverage options by covering uninsured children not eligible for Medicaid. Two of

the programs allowed children of any income to join, but families with higher incomes were responsible for paying full premium costs.

—All six programs required at least some of the families to share in the costs of

coverage through premiums and copayments—with the families’ share increasing as

income increased. For example, Pennsylvania’s Children’s Health Insurance Program charged nothing for children in families with income below 185 percent of the

federal poverty level and charged $29 to $34 per month per child for children in

families with income between 185 and 235 percent of the federal poverty level. All

programs heavily subsidized premiums for the lowest-income children—ranging

from charging families nothing to charging $10 per child per month for children

with family income at or below 130 percent of the federal poverty level. In every

program, most children received the maximum subsidy. (See app. I.)
f

33

limited other services, such as vision, hearing, dental, and mental health care. Some

also limited inpatient care, particularly the privately funded programs. The pro-

—While all six programs covered basic preventive and outpatient services, some

f

grams that limited inpatient services sometimes did so anticipating that the children would qualify for Medicaid if they needed more extensive care.

—The programs were developed to be easily administered. Most operated, at least

partially, through nonprofit or private insurers, which enabled the programs to use

existing provider payment systems and physician networks, guaranteeing patient

access to providers.
34

—Each of the six programs worked extensively to reach families of uninsured children and to promote their knowledge of the program. One program worked through

the schools, which allowed it to most easily reach its target group: school-aged children. Other outreach efforts included dedicated hot lines, television and radio ads,

bus billboards, posters in local discount stores, fast-food restaurant tray liners, and

presentations provided at churches and other community locations. To encourage

enrollment, three programs used sports and television personalities as program

spokespersons. These outreach efforts served to identify not only children eligible for

the six programs but also children eligible for Medicaid, who were then channeled

into that program.

—Each of the six programs developed simplified enrollment procedures and took

specific steps to avoid the appearance of a welfare program.

CONCLUSIONS

Although most children are still covered by private employment-based insurance,

recent erosion of private coverage has left many children without coverage. The

Medicaid expansion has cushioned the effect of this erosion on children. However,

efforts to expand coverage for children need to be developed in ways that do not supplant existing private coverage. Despite the Medicaid expansion, many uninsured

children who are eligible for Medicaid do not enroll. Outreach strategies developed

by state and private programs could guide state efforts to reach uninsured children

who are eligible for Medicaid but not enrolled. Other innovative state and private

strategies, such as sliding-scale premiums and cost sharing for program enrollees,

could provide a model for enrolling more uninsured children while controlling costs.

However, adopting other strategies, such as limiting services like inpatient care on

the premise that other funding may be available, may not provide the range of coverage that children need.

Mr. Chairman, this concludes my statement. I would be happy to answer any

questions you or Members of the Committee may have.

f
35

RELATED

f

GAO PRODUCTS

Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases (GAO/

HEHS–97–35, Feb. 24, 1997).

Private Health Insurance: Millions Relying on Individual Market Face Cost and Coverage

Trade-Offs (GAO/HEHS–97–8, Nov. 25, 1996).

Medicaid and Uninsured Children, 1994 (GAO/HEHS–96–174R, July 9, 1996).

Health Insurance for Children: Private Insurance Coverage Continues to Deteriorate (GAO/

HEHS–96–129, June 17, 1996).

Medicaid: Spending Pressures Spur States Toward Program Restructuring (GAO/T–HEHS–

96–75, Jan. 18, 1996).

Health Insurance for Children: State and Private Programs Create New Strategies to Insure

Children (GAO/HEHS–96–35, Jan. 18, 1996).

Medicaid and Children’s Insurance (GAO/HEHS–96–50R, Oct. 20, 1995).

Health Insurance for Children: Many Remain Uninsured Despite Medicaid Expansion (GAO/

HEHS–95–175, July 19, 1995).
36

Medicaid: Spending Pressures Drive States Toward Program Reinvention (GAO/HEHS–95–

122, Apr. 4, 1995).

Medicaid: Experience With State Waivers to Promote Cost Control and Access Care (GAO/

HEHS–95–115, Mar. 23, 1995).

Uninsured and Children on Medicaid (GAO/HEHS–95–83R, Feb. 14, 1995).

Tax Policy: Health Insurance Tax Credit Participation Rate Was Low (GAO/GGD–94–99, May

2, 1994).

Employer-Based Health Insurance: High Costs, Wide Variation Threaten System (GAO/HRD–

92–125, Sept. 22, 1992).

Access to Health Insurance: State Efforts to Assist Small Businesses (GAO/HRD–92–90, May

14, 1992).

I am fully cognizant that we are looking for answers when perChairman THOMAS. Thank all of you very much.

f

haps the basic charge was to try to review the area, because as we

have moved forward in our knowledge in this area, there are certain frustrations that have begun to develop.

And I guess the first question I would ask all of you is that we

are now focusing, as I indicated in my opening remarks, on children’s insurance. It is kind of like an age bracket, and we are normally used to looking at age brackets in terms of the 65 and above

for Medicare. And when I look at some of the States that have been

pulled together and listen to some people who are talking about

employer retirement programs, we had a panel several weeks ago

in which—I believe it was GTE in terms of telecommunications—

and more and more are having folks retire at 55. Now there is this

concern between 55 and 65 of an age group who are uninsured,

which is a relatively large number.

But when we were looking at the general universe of those who

were uninsured, I was not surprised to know that it was the 25 to

34 age group that was above the poverty level, employed, who did

not have insurance. I have had two in that category.

A lot of it is a mental set about the fact that they do not need

it because nothing is going to happen to them, and there is no

package out there that fits their needs, and a whole series of

issues. But they are the single largest group. And now we have

children, and, as Pete said, maybe one in seven; somebody else

used the statistic, five out of six children are insured.

I guess my first question would be, If we were looking for a segment from a societal point of view, is this the segment that we

would focus on vis-a-vis the other groups?

And yes, I understand the payoff in terms of dealing with health

care early over the life of the child, but what has happened recently that has had us focus on this particular segment? Because

when you break out children, you have concerns about family income, how you tie them in to various programs, and the consequence of perhaps somebody in the family being insured and

someone else not from the poverty end.

So why this age segment? Why are we looking at this question?

Anybody.

Ms. BILHEIMER. I guess, Mr. Chairman——

Chairman THOMAS. From a priority point of view when we have

limited dollars.

Ms. BILHEIMER [continuing]. I think three issues have really focused attention on children. First, we have undertaken extensive

expansions of the Medicaid Program for children. I think some peo-
37

ple viewed those expansions as ways to provide coverage for children, and they are now looking and seeing that the problem of uninsured children has not, in fact, been solved, that we still have

very large numbers of uninsured children in spite of large expansions of Medicaid.

Second, the issue that you addressed—that children do not appear, if they are uninsured, to gain access to basic preventive

health services—has caused concern.

Third, if coverage for children focuses on the broader child population, that is a relatively inexpensive group of the population to

insure.

I think all three of those issues have caused people to focus on

children as a group that we could perhaps expand coverage to relatively inexpensively. But I think you are correct in saying that it

is not necessarily the group in which the highest rates of

uninsurance are likely to be found.

Chairman THOMAS. My concern is about reaching them inexpensively. We have testimony, and we will get it later, and it is fairly

obvious, that children that are covered have better health profiles.

That makes sense.

But when you look at some of the efforts that have been made,

as Mr. Scanlon indicated, in the States, it makes sense, if you are

focusing on uninsured children, to use groupings where children

are, like schools, which may in fact fracture to a certain extent the

way we have looked at offering insurance historically. If you are

going to deal with it from a Medicaid point of view or subsidy point

of view, you have to get at the family income.

And we have experienced from our EITC changes and the others

that it is very difficult incrementally to get people to change behavior, and administratively it is relatively expensive to look at those

groups. I don’t completely understand your statement that we can

do it inexpensively.

I understand the group, and if we can get them into the insurance and their health care needs are not that great so that they

would be good to add to the insurance pool and would not be expensive when they are covered with the insurance. If that is what you

meant, I understand it.

Ms. BILHEIMER. That is what I meant. And your point is well

taken on the administrative costs of doing anything like this.

Chairman THOMAS. Any other reaction?

Mr. PURCELL. I would like to add a fourth point, and that is a

fairly dramatic change in the source of health insurance among

children since the late eighties.

Between 1988 and 1995, the proportion of children covered by

private health insurance has declined from about 731⁄2 percent to

about 661⁄2 percent. Simultaneously, the proportion of children covered by Medicaid went from about 15 to 23 percent.

There is a lot changing in the health insurance field among children, and we don’t know for sure yet whether the trend of declining

private health insurance coverage among children is going to continue or not. While these changes have occurred——

Chairman THOMAS. But when you make that statement, then, I

come back to you and say, Why? And I think the answer is obvious,

but why have we had this switch? The uninsured have remained
38

relatively stable among the population, but who insures them has

switched from private to public. Why?

Mr. PURCELL. I don’t know. But I do know——

Chairman THOMAS. Is the answer marketplace, the cost of the insurance in the private sector?

Mr. PURCELL. I think that probably is a large part of the answer.

A lot of employers are finding that they simply cannot afford to

offer this fringe benefit to their workers, and so they are cutting

back. The next panel will discuss whether there was a cause and

effect going on here, if expansion of Medicaid caused families to

consciously drop family coverage to pick up Medicaid. There is

some evidence of that occurring too. But I think the bulk of the evidence is that it is the employers that are deciding that this is

something that a lot of them can’t afford.

Ms. BILHEIMER. Picking up on that, Mr. Chairman, a recent

study that was undertaken by a firm here in Washington surveyed

employers to look at their attitudes toward coverage of families,

and I think a majority of the firms that were interviewed stated

they didn’t think that employers should pay more than 50 percent

of family coverage. Some thought that employers should be paying

less, and some thought that employers should not be paying for

family coverage at all.

I think the attitudes of employers are changing quite rapidly.

Chairman THOMAS. Thank you.

One other question I wanted to—we have got a lot of questions,

and we can try to weave them together.

Mr. Stark, in his opening statement, talked about the concern of

how long children have been uninsured. And you have a chart, Mr.

Purcell, which shows about one-third of them have been uninsured

in terms of family heads for more than 3 years, which means the

children clearly have been uninsured for more than 3 years, 18 percent from 1 to 3 years, and 22 percent never had insurance.

When you look at the distribution of who has it and the length

at which they don’t have it, you have the vast majority from 1 year

to never having had it before.

But one of the focuses of the President’s proposal is to spend almost $10 billion in the area of subsidies to low-income workers on

a temporarily unemployed window. And I guess my question would

be, If we have limited bucks and we are trying to get the most

bang for the buck, is this where you folks would spend that money?

Mr. PURCELL. I would say that part of that distribution is caused

by the fact that this survey asks people about their health insurance coverage at a point in time, and at a point in time people

without health insurance for a long period are heavily represented.

There is this other group of people which is substantial which

sort of churned in and out of insurance coverage because of job

changes. And if you follow a sample of families through the course

of 1 year, you would see that a larger proportion of people who are

ever uninsured, are uninsured for a short period.

Chairman THOMAS. And if we could get at some of the problems

of not picking up insurance through those short-term problems,

which are definitional problems as to who is eligible in a pool, we

can resolve a number of those problems, in my opinion, for a whole
39

lot less money. And if I have limited dollars to spend, I would like

to think about spending them in perhaps a slightly different way.

You all received this sheet. I believe CRS helped us. And I don’t

think it is available to the general audience, but we will make it

available if anyone shows an interest. All it tried to do was take

a look at how many people we were using to subsidize the number

of folks covered under primarily government programs—Medicare,

Medicaid, veterans’ health care, FEHBP, Department of Defense,

consolidated health centers, Indian health care. It came to about

110 million people, at a cost of $332 billion. We were looking at the

exclusion and deduction side of it, and there are about 150 million

people covered roughly, with 135 billion dollars’ worth.

This just underscores everybody’s comment that if it is in the private sector, you wouldn’t want to drive out private sector dollars

currently paying for insurance and substitute them with public dollars, because clearly the tradeoff is a very expensive one, leading

to the trend of a very, very heavy price tag added to the already

very heavy price tag in terms of public subsidy.

Dr. Bilheimer, you folks did a study, though, about the employer

contribution; and the concern that I have, historically, I have dealt

with a lot of things like salaries and the rest, and when you deal

with income variations and you apply a 100-percent deduction to

it and it is tied percentagewise to income, there is a clear skewing

of benefits to the higher income. If you used fixed dollar amounts

that would be available, obviously the lower end would be a

percentagewise higher benefit.

I understand you looked at the employer benefit picture. Can you

give us some feel for the distribution of benefits?

Ms. BILHEIMER. Yes. CBO’s Tax Analysis Division conducted a

study back in 1994 of the tax subsidy for employment-based health

insurance. As you know, the subsidy from the tax exclusion increases with the size of the premium, the share of the premium

paid by an employer, and the marginal tax rate of the employee,

all of which tend to increase with income.

Premiums are likely to be higher at higher income levels, both

because workers are more likely to have insurance year-round and

to be covered by more than one policy, and because they are more

likely to have family rather than individual coverage.

So when we looked at where the subsidy goes by income level,

we looked at the average tax subsidy for tax units—that is sort of

the equivalent of families—between 100 and 200 percent of the

poverty level, versus those with incomes at 400 percent of the poverty level and above. And in 1994, that average tax subsidy was

about $250 for families between 100 and 200 percent of the poverty

level, versus about $1,160 for families at 400 percent the poverty

level and above. A major reason for that outcome was that many

of the taxpayers between 100 and 200 percent of the poverty level

didn’t actually have employment-based coverage at all.

If we looked just at people in that income bracket who had

employer-sponsored coverage, their tax subsidy averaged about

$730, compared with about $1,340 for families at 400 percent of the

poverty level and above who had employment-based coverage.

But before one draws too many conclusions from that, remember

that although higher income people benefit more than lower income
40

people from the tax subsidy, the net distributional effect depends

on how it is financed. The benefits accruing to higher income families may be offset by other taxes that must be raised to make up

for the lost tax revenues.

Chairman THOMAS. I appreciate that last point, which is a universal one that folks often do not look at when they look at the various particular areas. But I still see in the overall, including those

who do not have insurance, a 4- to 5-time benefit and then more

realistically, a 2-to-1 benefit. But anything approaching a 2-to-1

benefit by virtue of what is supposed to be available to all is, I

think, a significant emphasis.

Mr. Purcell, there is a chart in figure 2 in your testimony which

talked about the uninsured family heads vis-a-vis size of the firm,

number of employees, and although you break it down between 10

and 24 and 25 and 99, if you grouped it from 10 to 100, since your

next group is 100 to 500 and then 500 to 1,000 and above 1,000,

what you would get would be a percentage reduction, which I think

most people would find rather intuitive, up to a point that, under

10, the smaller firms, you had 38 percent of them who did not have

the insurance and somewhere around 15 percent for the 10 to 100

and then 11 percent for the 100 to 500, and 4 percent for the 500

to 1,000. That is a clear, reduced percentage of uninsured as the

size of the company gets larger. And then you go to the 1,000 plus,

and you have 19 percent.

My assumption has to be that that includes a number of people

who, by choice, don’t make, to them, an economic decision to have

insurance. Or do you have other evidence to the contrary?

Mr. PURCELL. I believe that some of it is what you pointed out,

and some of it may be that the large—not all large firms are like

GM or IBM. There are fairly high-wage people there. Some of these

are large firms with low-wage work forces and low benefits as well.

But predominantly, I think your interpretation is accurate.

Chairman THOMAS. And then another chart, figure 3, which I

find interesting and, again, almost self-evident to most people who

have looked at the area, and that is, clearly, far and away the type

of employment that does not provide insurance is the wholesale

and retail trade area, and historically such has been the case.

One of the areas I did not see represented in any examination

is one that is of concern to me—and I will end on this, and anybody

can respond to it—is that we have had the first of what I consider

consolidation in terms of health cost changing the industry on the

delivery of health care with the movement toward managed care.

What we have not seen completely yet, although it is beginning

to occur, in the area of simply offering insurance itself, is to begin

to examine the households with two earners and the reconciling of

insurance between those two earners, because it has historically

been the choice of the earners to determine which insurance they

will go with and which employer.

More and more, the second employer is a government entity either at the State, local, or Federal level. And what we have seen

is more and more a richer package offered at that level, and we

have not seen the full movement of employers requiring identification of what else is out there in terms of insurance, so that you

don’t get duplication of insurance costs through employers, but that
41

you get everybody covered with one dollar coverage in a way that

creates a seamless but not duplicative structure.

And I don’t think we fully appreciated the transfer of what used

to be private insurance costs to the public sector by virtue of the

employee opting for the spousal insurance covered by a government

entity rather than the private sector.

Any comment by anybody on that?

Mr. SCANLON. I think you are very right, Mr. Chairman, in terms

of the slowness, but the start of developments in this area as employers are recognizing that there are savings available through

better coordination of insurance for dual working couples.

As we have noted in our testimony, there have been a number

of different steps that employers have taken. And with respect to

that first chart you referred to of Mr. Purcell’s, the major firms,

firms of over 1,000 employees, very frequently will make use of

flexible spending accounts, which make it easy for an employee to

make a rational choice in terms of foregoing health insurance coverage sort of with their firm if their spouse is able to provide them

with comprehensive coverage through other employment.

I think we don’t have good numbers on the fraction of employers

that are doing this, but it appears to be a growing trend that employers are seeking better coordination of coverage in order to reduce their costs, and they are offering incentives to their employees

to make it attractive to them as well.

Chairman THOMAS. It just seems to me, if in fact this is going

to be something, we could examine the way in which we allow the

cost of insurance to be written off by corporations and the growing

percentage for those who are self-employed between dependents

only or dependents with family deductions that would allow us to

resolve at least a portion of the dilemma that we see between the

subsidy, the tax credit, and the driving out of private insurance

versus public. And I didn’t see anybody in any of the testimony focusing on the full use of all of the tax structure that currently provides support in the purchase of insurance.

And then just finally, this one chart which compares the uninsured head of family and the privately insured head and the cost

of health care, I guess my reaction was, I was amazed at how similar the two charts look in that with just about a 4-percent adjustment on the zero and 2 percent on that first $500, the expenses are

the same between the insured and the uninsured. And I found that

more remarkable than the marginal comment you made about the

charts.

Mr. PURCELL. Actually, I put them side by side for that reason

because, for the most part, the charts look——

Chairman THOMAS. I want to assure you that had they been on

separate pages, I would have still noticed how similar they look.

But I appreciate you putting them on one page.

Mr. PURCELL [continuing]. They are similar, but the one difference I think that stands out is that about twice as many of the

families with an employed uninsured head reported zero expenditures. So the only difference is——

Chairman THOMAS. Well, I understand. But that is 8 percent versus 15 percent when you say double the amount.
42

But in terms of high cost, no cost, and intermediate cost, I think

that is striking, how similar they are.

Mr. PURCELL. I think that may be because, as I said in my testimony, if illness or injury occur, it doesn’t happen with respect to

whether or not you have insurance.

Chairman THOMAS. Precisely. I thank you.

Mr. STARK. Thank you, Mr. Chairman.

I would like to review with the panel this issue of what was referred to as crowding out. I guess the major concern is that if we,

in fact, subsidize kids’ insurance, then employers will not pay for

it themselves. It makes good sense. And I would like to just discuss

this a little bit in terms of not the emotional issue of, should we

insure kiddies, but what happens to the cost.

If private companies drop dependent coverage, they will save

about 15 to 20 percent. Does anybody want to disagree with that?

In the ballpark? OK.

They are dropping coverage or increasing cost sharing to the employees, which is about the same thing, I guess, at an increasing

rate. Does anybody want to disagree with that?

Mr. SCANLON. That is correct.

Mr. STARK. We are in an area of high employment, so there is

some competition certainly for skilled workers. But at the low end

of the scale—if you were going to offer any health insurance, you

would offer it to workers first, it seems intuitive, because you

might have some single workers and you are mostly concerned

about attracting the worker. So the incentive for the employer who

is going to do the right thing or is going to try to make a more attractive workplace is at least to start with workers coverage and

not necessarily dependent coverage. Still OK?

Ms. BILHEIMER. I would like to make one comment, Mr. Stark.

With regard to the 15- or 20-percent reduction in premium payments by employers, that would depend on whether they were

dropping coverage for all dependents or were still offering policies

that covered the spouse.

Mr. STARK. So, 15 to 20 percent is the kiddies’ cost, not necessarily the spouse?

Ms. BILHEIMER. Not necessarily the spouse.

Mr. STARK. All of that kind of smushes together, doesn’t it? Because, generally, I don’t know of any policies that are not all dependents, spouse, and children.

Ms. BILHEIMER. Employers are beginning to develop alternative

policies now.

Mr. STARK. It is worker plus spouse, or worker plus spouse and

kids? You are getting three levels rather than the traditional two?

Ms. BILHEIMER. In some cases, even more than that. Some employers may offer a one-parent-with-a-child policy.

Mr. STARK. OK. Tradition is no longer serving me to keep current on this stuff. So you are saying they are cutting these decisions more narrowly.

Well, what I am having trouble seeing, then, if my $500 figure

is right—and it may or may not be, but let’s use it because I can

do the math with my shoes and socks on—and it is $500 for a kid,

we are talking 25 cents an hour.
43

John Hallahan at Urban Institute basically says that if we have

substantial coverage expansion—that is picking up kids—we are

going to crowd out private coverage and that the only way to avoid

crowding out private coverage is to do little or nothing and accept

a large number of uninsured.

I guess what I am getting at is, Do any of you see an in between?

Mr. Thomas suggests some various tax incentives to give employers

less of a tax credit or deduction for only the worker and then increase the percentage of the deduction if they insure more members of the family. But that is, in effect, giving them some money—

that is federally buying it one way or the other.

Is there any alternative to either requiring or sitting with and

watching the crowding out? That is where I am stuck. Does anybody have a solution?

Mr. SCANLON. Well, I don’t think employers are acting unilaterally in this situation.

Mr. STARK. But it is the trend; am I not correct?

Mr. SCANLON. Well, except that much of the research has indicated that employees’ choice plays a big role here, too, that when

given an opportunity to have less cost to them for insurance, they

may opt to choose Medicaid as opposed to choosing their employerbased insurance.

Mr. STARK. To choosing what?

Mr. SCANLON. Choosing Medicaid rather than employer-based insurance.

Mr. STARK. Oh, OK. But I am going to assume that is your 3 million or so, and it still leaves 7 million for whom Medicaid is not

an option.

Mr. SCANLON. That is true. But in terms of behavior, the employee has——

Mr. STARK. If we do universal coverage, Medicaid wouldn’t be an

issue anyway, then, if everybody paid two bits an hour, they would

have the choice to go public or private.

But I just want to see how we get this crowding out for the people that would otherwise buy the insurance.

Mr. Purcell. Dr. Bilheimer. Anybody.

Mr. PURCELL. I think one possibility might be, for instance, in

the decision whether or not to enroll a child in Medicaid, since

there is this large number of uninsured above the poverty line, for

whom currently Medicaid is basically free.

There is always the possibility of transitioning from a full subsidy to a partial subsidy. If you have some income, you can buy in

at a partially subsidized premium. And that way, if the family does

have some alternative choice of insurance, at least it is not a comparison of, this one costs and this one is free; there is at least some

cost to either choice.

Mr. STARK. So you are saying we might expand the Medicaid coverage as an option?

Mr. PURCELL. With some sort of income-related premium.

Mr. STARK. Yes. But I am just saying expand the Medicaid coverage income eligibility and requirement, because now we no longer

are doing that quite as extensively as we did.

Mr. PURCELL. Exactly.
44

Ms. BILHEIMER. I think as you get higher up the income scale

with some form of subsidy or tax credit, some amount of replacement is almost inevitable. That is something that has to be considered as part of a policy.

Having said that, the design of a particular policy may affect the

extent to which that occurs. If you are dealing with subsidies or tax

credits for family coverage versus individual policies that you are

selling through the schools, you are going to get different types of

response.

Mr. STARK. Wouldn’t it make sense if someplace up the income

scale, you had individual insurance, whereas the higher up the income scale, the more likely it is that you have individual insurance

at your place of employment. The convenience factor of just adding

your spouse or kiddies to the policy as opposed to—the marginal

difference for a person at a relatively high income of going out and

shopping the kids’ insurance on the cheap, as opposed to including

it in one deduction from your paycheck, sounds to me like——

Ms. BILHEIMER. I think the convenience factor is very important,

and it is not just from the financial side.

Mr. STARK. It is being in the same health plan?

Ms. BILHEIMER. It is being in the same health plan. I talked to

some people in the Florida Healthy Kids Program, for example, and

they said they didn’t think there was a big issue with higher income families enrolling in the program, even though they couldn’t

really police it. They said the convenience factor was a considerable

one because the children would have had to have been in a separate health plan from younger children who were not eligible and

from the parents, and that was a big issue for them.

Mr. STARK. My time is over. But in a sense I guess what I am

trying to ask the panel is, If we are going to subsidize for kids, we

are going have to put up with some crowding out. Is that fair?

Ms. BILHEIMER. Yes.

Mr. SCANLON. Right. And in addition to charging a premium to

families as incomes increase, the other technique that has been

used by States is to establish less easy access to their Medicaid

Programs by requiring that people be uninsured for a period of

time so that you cannot just simply drop private coverage and join

the Medicaid Program immediately. If you are going to be in one

of the optional groups, you would have to have a waiting period of

some period of uninsurance.

Mr. STARK. And our problem, in January the NFIB said they oppose any legislation to expand coverage for uninsured children because it would just be another mandate that undermines the ability

of small businessowners to manage their health care costs and voluntarily provide health benefits to their employees. So there you

sort of set up the argument.

If we talk about crowding out, we have a very substantial lobbying effort to stop it. We need some help.

Thank you, Mr. Chairman.

Chairman THOMAS. Thank you.

And just to add a couple of other factors to it, as long as some

of our witnesses will be talking, they are dealing with the 150, 185,

or maximum 200 percent of poverty. We can talk about it as a marginal crowding out, but some of these proposals are 300 percent of
45

poverty, and there is going to be a bidding war on the Senate side

which may go higher.

I think you have a serious problem regarding crowding out, and

my problem is, when you look at the government-provided programs with no cost, no payment, no deductibles for prescription as

well, versus what an employer might be able to offer, you can get

fairly high up in the income level in terms of the attractiveness of

going public versus private, so that, on the margin, not only do you

have to deal with the phasing out, I believe, but you also are going

to have to deal with some copays and deductibles or some other

kinds of packages to create a number of smaller stairs rather than

this relatively high income cliff.

Does the gentleman from New York wish to inquire?

Mr. HOUGHTON. Yes. Thank you, Mr. Chairman.

I am trying to put my arms around what are the critical issues

here. We have got a problem. The uninsured children have remained relatively stable in number since 1988, and Medicaid has

gone up, and the uninsured children, I guess, have gone from 13

to 13.6 percent. Medicaid coverage has increased.

What is the answer to this thing in terms of the States? For example, New York State has a program, and you have listed these

things in terms of some of the coverage which has been extended

to them. It has been quite successful. Is this an answer to our problem? Or must we go to a Federal expensive, complicated system to

solve some of these issues?

So that is the number one question.

Question number two is, Why are the uninsured families increasing in some of the larger companies rather than the smaller companies? And does the concept of self-insurance, which some firms are

going to, make any sense?

So I throw those two questions out to anybody in the panel who

would like to answer.

Mr. SCANLON. I think the New York program and the other State

programs that we have reported on have been quite successful in

terms of covering children, covering them relatively efficiently, and

by keeping costs down.

These programs have operated on very limited scales. They have

relied on some State revenues. They have relied on donations and

other fundraising, and, as a result, they have had to limit their enrollments.

In some programs there have been waiting lists, and sometimes

the time on the waiting list can be considerable. So the issue, in

part, is the benefit of these programs. If we want to make them

more available, we have to find additional revenue sources.

The States feel pressure and would tell you that they would feel

hard pressed to substantially add their contributions to this.

In terms of private donations, it is always hard to raise money

privately in large amounts, and that is what I think these programs have encountered, but they have done a remarkable job in

terms of operating very effectively with the limited dollars they

have had.

The major firms, I think, are recognizing, as Mr. Purcell indicated, that they have a heterogeneous work force, and they are offering that work force a set of options in terms of benefits. And
46

lower income workers, we have found, tend to forgo insurance because they have other priorities they would like to spend their incomes on, so that when they are given a choice of benefits, they

may more frequently forgo insurance, particularly for children, because we talked about children being less expensive to insure. It

is in part because most children are healthy. They need important

preventive and routine care on a periodic basis, but generally most

children are healthy, and therefore, parents may feel they can forgo

the insurance.

Mr. HOUGHTON. What about the self-insurance concept?

Mr. SCANLON. Most of the major firms are engaged in selfinsurance. Therefore, they are very sensitive to the costs of the

services that their employees are going to be using and are seeking

ways to minimize those costs.

The coordination of coverage between a worker and that worker’s

spouse is one of the techniques that is available to them.

There is also concern from employers with respect to these costs

in regard to fairness to all their workers. As you provide coverage

for a family, it costs more to cover a larger family, and why would

an employer subsidize one worker more than another by paying

more for their benefits? Employees are taking actions with respect

to that as well.

I think the issue of self-insurance versus purchased insurance

from an outside firm comes back to the issue of cost, though. The

firm feels sensitive to the cost in both situations and may have

somewhat more control when they self-insure in terms of how they

structure their benefits, but still their decisions may be motivated

or affected primarily by the cost issue.

Mr. HOUGHTON. Yes, but with the number of children covered by

private insurance dropping quite substantially, does that include

the self-insurance?

Mr. SCANLON. That included the self-insured, yes.

Mr. HOUGHTON. And that will be a further goal to reduce the cost

and eliminate the insurance for children in those people who are

self-insured?

Mr. SCANLON. I am sorry?

Mr. HOUGHTON. Well, will the movement toward self-insurance

accelerate the reduction in coverage for children?

Mr. SCANLON. I don’t think it should have a major impact on it,

except to the extent that it gives the employer more flexibility in

designing their plans in ways that coordinate coverage for working

spouses better.

Mr. HOUGHTON. Thank you very much.

Chairman THOMAS. Does the gentleman from Nevada wish to inquire?

Mr. ENSIGN. Thank you, Mr. Chairman.

I would, first of all, like to try to identify a few of the problems

out there. We have heard a lot about uninsured children, and certainly from an emotional standpoint and from a press standpoint,

that grabs headlines and that stirs a lot of people’s emotions.

What percentage of the children that are uninsured are getting

improper health care?

Mr. SCANLON. We have seen in evaluations, some of the programs that we looked at, that as many as one-third of the parents
47

reported they delayed getting necessary care for their children

when they were sick and they did not have insurance.

Mr. ENSIGN. And was that simply because they did not have insurance?

Mr. SCANLON. Concern over the cost was the primary reason as

to why they delayed the obtaining of services.

Mr. ENSIGN. The reason I ask that is that in the State of Nevada,

at least in Clark County, which is the Las Vegas metropolitan

area, we provide free vaccinations for children, and yet we still

have a fairly high number of unvaccinated children simply because

the parents, even though it does not cost them anything, they don’t

do it, and the schools require vaccinations. Even with all of that,

you still have a fairly high number of children that don’t get vaccinated.

I guess that is one of the reasons I ask the question, is that, if

a lot of these people were insured, would their children still be getting proper health care?

Mr. SCANLON. Insurance and costs are not the only barrier to the

proper use of services. There is clearly a role for education and outreach to parents and families to ensure that they do receive proper

services, that they recognize when they need particular services.

The efforts need to be done in combination, if we are going to be

effective in delivering services to children.

Mr. ENSIGN. How much of it do you think is education? How

much of it do you think is just pure laziness and pure irresponsibility?

I think it is totally irresponsible for parents not to get their children vaccinated. But is that because people don’t realize that they

need vaccinations? Do you think the people are that ignorant to

know, growing up in America, that vaccination is a good thing for

children?

Mr. SCANLON. I am afraid that we have never looked into it. I

think it is a tough question in terms of what is motivating or what

is deterring people from seeking health services. I recognize it is

a very important question, because if we are going to overcome

these nonfinancial barriers, we need to understand their causes.

But it is not something we have looked at or I am aware that others have looked at as well.

Mr. ENSIGN. Dr. Bilheimer, maybe I can ask you a question, because I have read proposals that had to do with taking the EITC

arm, making that a place where you could provide a tax credit, directing that portion of the EITC for families with lower incomes to

require them if they are going to get the EITC to buy private

health insurance.

Could you comment on that?

Ms. BILHEIMER. I have not looked at those proposals at any

length, but I am certainly aware they are out there.

For some families, supposing health insurance cost $500, $700,

$800 a child; that would make a significant dent in their income.

It would take a significant part out of their EITC. But for those

who were in the range of the maximum EITC credit, if they had

one or two children, it would probably be worth their while to do

that.
48

As you get up into the upper end of the phaseout range of the

EITC, which for families with more than one child, would be income of around $25,000 to $29,000—the EITC would be less than

the cost of the insurance for two children. So, it probably would not

be in their interest to participate.

The other question you have to ask is, What type of insurance

would be available if you established a $500 tax credit that would

be taken out of a family’s EITC? Experience with the HITC, health

insurance tax credit, that existed between 1991 and 1993 suggests

that if there were credits available for small amounts, insurance

companies might emerge that would offer very bare-bones policies

or, in some cases, policies that provided very little coverage at all,

and they would convince people that this was coverage and would

the EITC requirement.

I think this would have to be very carefully monitored so that we

didn’t go through some of the experience we went through with the

HITC.

Mr. ENSIGN. Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from Georgia wish to inquire?

Mr. LEWIS. Thank you, Mr. Chairman. Thank you, Mr. Chairman, for holding this hearing. I think this is an urgent concern.

I must first say that I think our country is too rich and too great

to have children who do not have health insurance. This is a problem we can fix, and I think, through the help of our Chairman and

our colleagues, we can fix it. We must fix it. This hearing is a good

first step, and I look forward to working with you toward the completion of this process.

I missed the testimony of members of this panel, but I have had

an opportunity to read most of the statements, and so I would like

to raise a question. Is it true that many parents working at jobs—

put it simple—are not offered health insurance? If that is true,

then is the question whether public action will replace private action, known as the crowding out effect, so serious?

Ms. BILHEIMER. If you take families below 100 percent of the

poverty level, I think most researchers who have looked at the

issue conclude that the probability of much crowding out is very

small.

For families between 100 and 200 percent of the poverty level,

especially once you get up above 150 percent of the poverty level,

at any point in time about 50 percent of the children do have

employment-based coverage.

So, much above 150 percent of the poverty level, some crowding

out is part of the price that you would pay for expanding coverage.

Some of the other panelists may want to comment.

Mr. PURCELL. Yes, I would just like to say that although a large

percentage of employed, uninsured family heads work at firms that

do not offer insurance, there are many other people who work at

firms that are similar that do offer health insurance. It is a question of targeting.

If you were to somehow make insurance available to those who

work at firms that don’t offer it, you don’t want to create an incentive for those firms that do offer it to drop it.
49

Mr. SCANLON. I would agree, and I think one of the things we

face in how to minimize the crowding out effect is that solutions

such as charging premiums and making insurance less readily

available to encourage employers to maintain their insurance are

not going to be perfect. There is still going to be an impact when

there is public insurance available.

However, we need to recognize whether the tradeoff in terms of

the expanded coverage we may obtain is commensurate with the

amount of crowding out that we are willing to tolerate.

Mr. LEWIS. Dr. Scanlon, let me ask you: It seems to me everyone

agrees that quite a few children, maybe around 10 million, are uninsured. There is debate and sometimes conflict or maybe a little

controversy about the actual number, but everyone agrees that

some of our children are uninsured, have it as debate whether

Medicaid expansion encourages families to drop private health insurance. Is it fair to say there is no agreement even in the academic community on whether that is true?

Mr. SCANLON. I think in the academic community there is agreement that there has been a crowding out effect. There is disagreement in terms of the magnitude of that effect. It is a difficult issue

to study.

One of the ways of looking at it that would be most ideal is to

be able to follow large groups of people through time and observe

their behavior. We don’t very often get an opportunity to do that,

we have to work with more fragmentary evidence, and the researchers in this area have done excellent work in terms of trying

to use that evidence to identify the extent of the crowding out effect. They have come up with varying estimates. I think we all recognize it is real, and we are not quite sure of its magnitude.

Mr. LEWIS. Would other members of the panel like to respond

about this controversy, this debate over the number of children

that are actually uninsured?

Ms. BILHEIMER. I think, Mr. Lewis, that the next panel is going

to include experts on this issue.

Mr. LEWIS. So, I should be patient and wait.

Mr. Chairman, could I just take another 30 seconds?

According to the testimony from the Congressional Research

Service, the uninsured are employed at all sizes of firms, not just

small firms. Would it be a good guess that the main reason for this

is that they cannot afford health insurance even if the firm offers

it?

Mr. PURCELL. I think there is one of the tables that shows that

among employed, uninsured family heads, there are about 1.3 million who were offered insurance at their place of employment but

declined it, and about two-thirds of them said the reason they declined it was at least partly because of the cost.

Mr. LEWIS. Would you be prepared, any member, to tell Members

of this Subcommittee that we have hundreds, thousands, and

maybe millions of our citizens that are working every day, and the

working poor, but they cannot provide or be part of an effort to provide or pay part of the health insurance for their children or for

themselves?

Ms. BILHEIMER. I don’t know that we have a specific number that

we can give you. But to add to Mr. Purcell’s comment, there are
50

two issues involved here. The first is whether people can afford

what their employer offers. The second is that in some cases, particularly among poor families, people are not eligible even though

their employer offers coverage, because they are part-time workers

or because they are in a probationary period prior to being eligible

to enroll. Surveys suggest that a significant number of low-income

people do work for employers that offer insurance, but in fact, they

are not eligible to participate.

Mr. LEWIS. Thank you.

Thank you, Mr. Chairman.

Chairman THOMAS. I thank the gentleman.

Does the gentleman from Nebraska wish to inquire?

Mr. CHRISTENSEN. Mr. Chairman, this may have already been

asked, and it might not be the right panel, so I will ask it, and if

it has already been asked, we will just go on.

Has there been any discussion about the number of participants

in the 10 million figure who are illegal aliens or who are legal

aliens?

Chairman THOMAS. That has not been asked.

Mr. CHRISTENSEN. Would anyone have a comment on that or

know that figure, or should we save that for the next panel?

Ms. BILHEIMER. I do not have any number on that. I don’t know

whether anybody else on the panel does.

Mr. PURCELL. Actually, the CRS was asked that question recently, I think, by the Senate Finance Committee; and we looked

at the CPS. The problem is there are not a lot of people in-household surveys who are going to willingly admit that they are illegal

aliens. There is data, though, on citizenship and birthplace of both

parents; and a small fraction of those children who were reported

to be uninsured were either noncitizens or born in another country.

It was about 9 percent.

Mr. SCANLON. We don’t have any additional information.

Mr. CHRISTENSEN. Mr. Purcell, you were commenting earlier—

before I had to leave, you were talking about free health care and

free this and free that; and I would just remind you there is nothing free in this country.

Mr. PURCELL. I agree, there is no free lunch. That is what they

taught us in Economics 101. I was speaking to the issue of who

pays; and in this case, for instance, Medicaid, that it is the other

people who are paying.

Mr. CHRISTENSEN. I know.

Also, during your testimony, you talked about the stigma that

may be identified with people not participating in the Medicaid

Program and taking the opportunity of getting their health care.

How big a problem do you think that really is? Did your study or

did your findings show anything in terms of the actual stigma of

participating in a welfare-type program?

Mr. PURCELL. It is not something that anyone can quantify. And

I also believe, it is just my opinion, having looked at the data over

a number of years, that it may decline over time because I think

fewer and fewer people automatically associate Medicaid with welfare. That is partly because the eligibility requirements are now

very distinct for the two, and it is possible over time more and
51

more people will have a view of Medicaid as just a public insurance

program and not necessarily as welfare.

Mr. SCANLON. I would note that in the State programs that we

looked at there was a sensitivity on the part of the program officials to avoid welfare stigma with their programs. They wanted to

clearly identify them as insurance programs and make them more

mainstream. They were very proud of the fact that to a provider

it may be invisible as to what the source of insurance was. For an

individual, program managers thought that making their coverage

more like mainstream insurance provided better access to providers

for their beneficiaries, and I think that is an important distinction

in their minds.

Mr. CHRISTENSEN. Have any of you examined the issue that Senator Trent Lott talked about this past week concerning the expansion of the MSA proposal to cover the temporary lapse of parents

in between-job situations and coverage for their children?

Ms. BILHEIMER. That is a very recent proposal, and we really

haven’t had an opportunity to look at it, so we don’t know any of

the specifics. It would depend on whether the proposal was designed to provide more coverage for families or whether it was specifically targeted at children. It is not clear right now how a medical savings account specifically for children might work; so, until

we see more details, I don’t think we can comment on that.

Mr. CHRISTENSEN. OK. My time is running out. I do want to

make a quick comment, Mr. Chairman.

At a time when we do have a system that is available as far as

Medicaid that is not being utilized by a lot of those that need to

use it, we have free immunizations—and, frankly, in my district,

there are very few kids that are ever denied access to health care

when they truly need emergency health care. But, we also want to

be cognizant of the fact that we want to make sure that we take

care of the children. In terms of compassion, I think that is the

right thing that we focus on.

But I also don’t want to move too quickly and create a problem

where there may or may not be a problem and not fully utilizing

the current system that is in place, and so I appreciate the panel

and their testimony and look forward to learning more about this

issue.

Chairman THOMAS. I thank the gentleman for his comments. You

will find that most everybody is focusing on, as we use limited tax

resources, how we can get the most bang for the buck; and clearly,

some alternative insurance programs like medical savings accounts

might actually provide us more bang for the buck in honor of our

colleague from Louisiana, who is not here, and who is fond of saying that people will consume as much health care as other people

are willing to pay for.

There is a clear understanding of this transitionary period

where, if I have to pay for it and I get less and I have an option

of not paying for it and getting more, that it is a simple choice for

them to make.

My concern is that, as we look at the bang-for-the-buck question,

we not only look at this crowding-out concept but also alternatives

in what government might offer rather than a standard, one-sizefits-all Medicaid approach.
52

Does the gentlewoman from Connecticut wish to inquire?

Mrs. JOHNSON of Connecticut. Thank you, Mr. Chairman, and

thank you for holding this hearing. I think it is extremely important we get a better grasp of what is happening for children in

America with regard to health services; and, in that regard, I

would like to pursue a slightly different line of questioning.

What do we know about where the uninsured children live?

Ms. BILHEIMER. In terms of the States where they live?

Mrs. JOHNSON of Connecticut. And the locations. In other words,

what percentage of uninsured children live in New York, Chicago,

and Los Angeles? What percentage live in the top 2 percent of the

largest cities? In other words, does knowing about where these children are located have any—can that help us look at how we might

meet their needs? What do we know about where they live?

Mr. PURCELL. CRS just put out a report on the number of uninsured children by State. In terms of regional distributions, there is

a slightly higher likelihood of being uninsured for children who live

in the South and the West, compared to the Midwest or Northeast.

I am not sure, I have not looked at data that breaks out urban

rural, so I can’t really tell you whether a child is more likely to be

uninsured if they live in a rural area or an urban area. But, we

can certainly look at that.

Mrs. JOHNSON of Connecticut. We are likely to know that the 3

million of the 10 million who are Medicaid eligible but not participating probably do live in the cities. But it would be interesting.

Anyway, what I need to know is, Can you analyze this for me?

Can you find this out? And can you find out if the majority of the

uninsured children do live in urban areas, what percentage of those

urban areas have community health centers?

Mr. PURCELL. We can certainly address the first of those questions fairly easily, which is the percentage that live in cities versus

rural areas. And the data are even accurate to look at some——

Mrs. JOHNSON of Connecticut. Well, can you look at where the

community health centers are located?

Mr. PURCELL. We can do that, yes.

Mrs. JOHNSON of Connecticut. The reason this is important, the

community health centers provide dental, vision, health, mental

health, and prenatal on a sliding-scale fee; and this is a great

underutilized resource in America. And when you look at the chart

that the Chairman was referring to, 8 million people are helped by

the community health centers for $8 million, I think.

But I have long worked with community health centers, and people don’t think about them. And when we had big layoffs and steep

and sudden layoffs in Connecticut, I referred a lot of families to the

community health centers which are in our area. There is a

brandnew one in my hometown, state of the art, beautiful; and because they have doctors who are reducing their loan costs, often extremely capable and qualified doctors.

So this is not second-tier health care, and it is available very

cheap. People don’t know about it. The new one in my district has

been going door to door. So we need to know before we jump into

this who lives within what kind of radius of our community health

centers and whether or not more money going into our community

health care system will reach better.
53

We also need to know, Are any of the States that are into this

issue, are they finding a way to add a hospital component to the

community health center plan? Now, Connecticut has had community health centers develop their only network alternative to compete for Medicaid family business; and we need to look at what in

addition to community health care center dollar expansion it would

cost us to also add in hospital components. That is one of the questions I would like your help on.

I assume you have no immediate information. If not, I will just

go on to the other information we also need. We also need to know

how many of these children live in cities where there is a welldeveloped series of school-based health clinics, and this goes to this

issue of the fact that we actually fund free vaccines for all the children in America. They just don’t get them. We have known that for

a long time.

Remember, President Clinton proposed a free vaccine program;

and we said, we already have it; and we went on about how they

don’t deliver it. So we need to look at that and then what health

care are these children getting now? What percentage of the 10

million are seen in emergency rooms and we are paying through

uncompensated care. Do we know about all the money we are pouring into uncompensated care costs? How much of that is going to

these children?

A kid breaks his arm, he is uninsured, he goes to the emergency

room, he gets all the care he needs. Well, once he is in the emergency room system, if he has no insurance, if the family is low income or even if not, minimum amounts are paid by the children.

So we need a better understanding of how we are paying for essential services for these children now, where is that money. Because we might be better off pulling that money out of the system

and using it in a different way. And maybe insurance premium

isn’t the best way.

And the last thing I would like to say ask you, Mr. Scanlon, what

is Tenn-Care doing? What does that tell us? Also, in your very interesting chart, which we thank you very much, they were very

helpful, the States that do have children programs, what are the

experiences in those States with displacement? So Tenn-Care and

the States’ displacement you might actually answer.

Then, Mr. Purcell, a similar kind of question. You have a couple

charts that show 17 percent of families that are uninsured heads

of household but working full time and then your other chart, 19

percent of upper income. On one chart, 17 percent earn more than

50,000. The other 19 percent of employers, over a thousand employees don’t choose it. Where is our potential to at least get some percentage of the children through that group?

So, if you would take off on some of those questions, I would appreciate it.

Mr. SCANLON. Sure. Tenn-Care was a program that very effectively reduced the number of uninsured. It was introduced in 1994.

It employed one of the methods that we have talked about here

today, which is to require that individuals who wish to enroll in

Tenn-Care have a period of no insurance before they would be eligible so that people would not drop their private coverage in favor

of the subsidized coverage available through Tenn-Care.
54

There was a very dramatic increase in the number of insured in

Tennessee immediately following the introduction of the program.

Now, Tennessee was able to reduce the per person cost of coverage

in moving from their fee-for-service system to the managed care

model that they are using for Tenn-Care. They were, frankly, surprised by the number of people that were enrolling and have not

reopened enrollment for a considerable period of time. So after having enrollment open for the first year of operation, newly uninsured

have not had the opportunity to join the Tenn-Care Program as

Tenn-Care faces other financial demands that they have been

struggling to meet.

Mrs. JOHNSON of Connecticut. And what does your experience

say about do they have any uninsured children in Tennessee anymore and are the uninsured children amongst those who have been

post the open enrollment period?

Mr. SCANLON. We have not looked at recent data on Tennessee,

but I would expect, with the passage of time, that there has been

an increase in the number of uninsured children. We can find out

more information about that for you.

Mrs. JOHNSON of Connecticut. We need to know in that first year

if they went down to zero uninsured children or zero cared-for children—I don’t want to use the wrong language and get the wrong

answer. I want to know if there were people that didn’t get care

in that first year because they were out of the system and what

they did, in the sense, was reach a zero tolerance for uncared-for

children.

Mr. SCANLON. They were very effective in terms of expanding eligibility. I think zero is a hard thing to reach, and so there were

undoubtedly small numbers that were not getting the care they required. But Tennessee was effective in expanding their eligibility

in that period. We can find out for you how that has changed since

the introduction of the program in 1994.

Mrs. JOHNSON of Connecticut. Given all the questions we have

been asking, if you would take a look at the Tenn-Care Program

and see what indication it gives us, I would appreciate it.

Mr. SCANLON. We would be happy to.

[The information was subsequently received:]

This responds to Mrs. Johnson’s question on the impact of TennCare on the number of uninsured children in Tennessee, including current policy on enrolling children. Since the beginning of TennCare, in January 1994, the estimated percentage

of uninsured Tennesseans declined. (See Table 1.) When it first opened enrollment,

TennCare provided coverage not only to people eligible for Medicaid, but also to people who had been uninsured as of March 31, 1993. Researchers estimate that

TennCare reduced the uninsured population by about 47 percent between 1993 and

1994. However, the percentage of uninsured Tennesseans has crept up since 1994,

likely in part because TennCare began to limit new uninsured enrollees and remove

some enrollees from its program due to nonpayment of premiums. Because

TennCare’s funding was limited and enrollment had grown more than expected,

TennCare closed enrollment in January, 1995 for persons who had been uninsured—unless they were Medicaid-eligible or uninsurable due to preexisting conditions.
55

Table 1.—Estimated Number and Percentage of Uninsured Persons in Tennessee, 1993–1996

1993 1994 1995 1996

Number .................................... 452,232 298,653 303,785 333,268

Percent ..................................... 8.9 5.7 5.8 6.3

Source: William F. Fox and William Lyons. Health Care and TennCare: A Survey of Tennesseans. (Knoxville: Tennessee: Center for Business and Economic Research and Social Science Research Institute, the University of Tennessee at Knoxville: February, 1997), p. 2.

TennCare currently covers about 550,000 children under 18 years old. Most of these children come from the

Medicaid-eligible population, but about 75,000 were previously uninsured and would not have been Medicaid

eligible. An estimated 67,430 children were uninsured in Tennessee in 1996.

Due to concern about the number of children still uninsured, in April, 1997 TennCare opened enrollment to

uninsured children under 18 years old. To encourage enrollment, the program also dropped three potential

barriers to care. TennCare disregarded any potential COBRA coverage, waived any back premiums owed to

TennCare from previous enrollment, and waived any requirement about the length of time children had to be

uninsured prior to TennCare enrollment. It is too early to tell what impact these changes will have on the

number and percentage of uninsured children in Tennessee.

to the issue of over 50,000 people who don’t carry insurance? Do

Mrs. JOHNSON of Connecticut. Mr. Purcell, How do you respond

f

they have children?

Mr. PURCELL. If you will note, in that group of tables I think it

says about three-fourths of the families included have children. The

reason I did the table with that particular group is because I was

under time constraints preparing for the hearing. We are going to

reproduce that whole table focusing particularly on families with

uninsured children.

Mrs. JOHNSON of Connecticut. Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from California, Mr.

Becerra, wish to inquire?

Mr. BECERRA. Thank you, Mr. Chairman.

I note in an Urban Institute report recently the Institute found

that, regardless of industry, employer-sponsored coverage is falling

for all groups. According to the Institute’s report, from 1988 to

1993 employers provided coverage for employees between the ages

of 18 to 34 in all sectors at a rate that was 7 percent less. For children zero to 10, during that same period, coverage fell by 8 percent.

Question to the panelists, whether any of you believe this is a

trend that will continue and what is it about service industry employment which seems to be the trend, especially in the areas like

the West, that leads to lower rates of coverage?

Ms. BILHEIMER. In terms of whether it will continue, surveys of

employers show an increasing unwillingness to pay for much more

than 50 percent of family coverage—and, in some cases, less. So I

don’t think anyone is very sanguine about the trend slowing.

In terms of service occupations, these are low-compensation jobs.

But one of the reasons they provide little coverage is they are often

part-time work; they are often contract companies. These new

types of employment arrangements or part-time arrangements are

much less likely to provide fringe benefits, and we are seeing more

low-income workers in those types of jobs.

Mr. BECERRA. What about those working for a computer company? That is service in many respects as well. If you work for

America On-Line doing some service work, that is fairly high paid

but oftentimes without the benefits as well.
56

Ms. BILHEIMER. I don’t know what to say on that. I don’t know

whether anybody else on the panel has any insight on that.

Mr. PURCELL. There is some anecdotal evidence I recently discussed with another analyst at CRS. In that particular industry,

there is an increasing trend, for instance, among programmers to

hire people under contract rather than full-time employees. One of

the reasons being they do not offer any benefits, it is strictly a

wage deal.

Mr. SCANLON. I think another factor is that this is also a group

of people who are in an age range where they sometimes choose to

forgo insurance. When offered a flexible spending contract, what

they do is choose other kinds of benefits rather than health insurance. And you may see, in terms of looking at a particular company, that a portion of their employees do not have insurance from

their company but they are actually insured because they also have

a working spouse that provides them coverage.

Mr. BECERRA. I don’t know if any study shows this, but it seems

to me if you take a look at where you find those industries that

are most successful in providing coverage to their employees, it

seems to be the northeastern manufacturing industries which seem

to be the most unionized; and where you find the least amount of

coverage is in the newer industries, the service-sector industries,

that seem to be least unionized. Would that be a fair or unfair assessment to make?

Ms. BILHEIMER. If you look at industries in general, that seems

to be the case, yes.

Mr. BECERRA. Any comment of the panelists on whether the cost

of not insuring the children is real or speculative? If every day we

do not insure the 10 million children in this country, is there a real

cost or are we just speculating?

Ms. BILHEIMER. One of the questions Mrs. Johnson asked was,

Do we know where children are actually receiving health services?

And, do we know what health services they are actually getting?

Insofar as children are not receiving preventive health services,

that obviously affects their health status as children and maybe

later in life. But we don’t know the extent to which uninsured children do receive some services from local health departments, community health centers, or school clinics. So your question is a very

difficult one to answer.

Mr. SCANLON. I think we also have a concern that as we want

to think about better management of care, greater continuity of

care, both in terms of controlling cost and ensuring quality of service, that is, if children do not have a regular source of care and regular source of financing for care, there will be a tendency to use

services only when they are needed on an emergency basis or on

some more urgent basis. And you end up spending more in those

situations than you would have if the person had continuous care.

I know that managed care firms are very concerned that if they

are going to participate in the Medicaid Program, they would rather not have the emergency room be the point of entry to Medicaid

eligibility. They would like to engage in provision of primary preventive care so that they can better control the cost of care.

Mr. BECERRA. Mr. Chairman, if I could continue for just a moment longer.
57

If I could get both Dr. Scanlon and Dr. Bilheimer to attempt to

respond to the question, to give me a more direct response to the

fact that we have children in this country that are not insured, a

cost associated with that. In our ultimately providing health services nationwide, do we save more money by seeing these kids remain uninsured? Because, obviously, we don’t have to federally or

through private insurance provide premium coverage for that individual child. Or are we incurring a cost because the child not having health insurance may not be receiving health benefits which ultimately may be received at a later date at a higher cost?

Ms. BILHEIMER. I don’t think we know how the total costs net

out. We do know that uninsured children use fewer health services

of a preventive nature. But they do still receive a lot of health services, some of them in the emergency room, when they are sicker.

But I don’t think anybody has done a study of what the net costs

are of children remaining uninsured.

Mr. SCANLON. I would agree completely. I think our problem is

that, while we can identify the source of higher costs, namely the

use of more expensive services, the exacerbation of certain conditions, we have not been able to weigh that against what the cost

would be of an effective strategy to expand the insurance coverage

to the majority of these uninsured children.

Mr. BECERRA. Isn’t it true, though, that the CDC and other research institutes have actually done some studies that show, for example, that providing a woman with prenatal services—a lowincome woman with prenatal services probably would save us at

least $3 for every $1 spent on prenatal services?

I know there is another study that shows that the outcome—the

death outcome or death rate of a similar-situated patient who is

going into a hospital is much different for the insured white patient

versus the uninsured white patient or the uninsured minority patient, so that what we see is that people go in for the same problem

and a lot fewer of the minority or poor—or the white poor come out

than do the insured, especially the insured white.

Mr. SCANLON. I think those situations are exactly what you are

pointing to, exactly the kind of situation where we can demonstrate

that in those instances there is cost effectiveness in terms of providing more timely services.

I think what Dr. Bilheimer and I were referring to, though, was

to weigh that against insuring a large population that may not

have as intensive a need for services as either pregnant women or

some persons that are hospitalized. The larger population will gain

some benefits. What we don’t know in terms of the cost savings associated with those benefits is whether we are going to have a net

effect or not.

Mr. BECERRA. Thank you, Mr. Chairman.

Mr. ENSIGN [presiding]. Before I go to the gentleman from Texas,

just one comment on the line of questioning from the gentleman

from California. That is, from what I understand, the two areas

where we know for sure there are cost savings, one is more children and coverage, one is with vaccinations, the other is with prenatal care.

With all the other services, I don’t know that there is a cost savings. As a matter of fact, from what I understand, there is probably
58

a cost increase for covering all children. But for those two areas,

that are the cheapest areas, by the way, to provide care, those are

the areas that we know that there are cost savings.

Mr. SCANLON. I think for very prevalent conditions, those are two

of the most prominent in terms of cost savings. For more rare or

sort of less frequent conditions, there is also potential for cost savings. Good management of conditions like asthma and diabetes can

be effective in terms of reducing health utilization and also having

better outcomes, but the number of children that suffer from those

types of conditions is small compared to the overall child population.

Mr. ENSIGN. The gentleman from Texas.

Mr. JOHNSON of Texas. I would like to follow up on Mr. Ensign’s

question earlier about people who have access to health care but

don’t get it, and back to the EITC.

Do you think penalizing people by deducting an amount from

their EITC would motivate them to enroll? We have already tried

to increase their deduction, and it hasn’t worked according to you.

And you say three-fourths of all the uninsured children are below

the poverty level, so I would presume they would be almost eligible

for Medicaid anyway.

Ms. BILHEIMER. With regard to deductions from the EITC, I

think it really depends on what tax credit people get. For people

who are getting the maximum of about $3,000, which is for families

with income between $9,000 and $12,000, obviously it would still

be well worth their while to participate in the EITC, even if an

amount were deducted to pay for health insurance.

I think the concerns would be, first of all, that it would take a

significant amount out of their total income. Second, if it were

known you were going to get $500 taken out for each child who was

not insured, insurance companies would start offering packages for

around $500 to cover children. And as I said earlier, when we had

the health insurance tax credit earlier in this decade, some not

very good insurance policies got sold to low-income people under

the guise of the EITC.

And then, for people who were higher up in the phaseout ranges

of the EITC, you would reach a point at which the cost of insurance

would exceed the amount they would get from the tax credit anyway. So, this would probably not be worth their while to participate

in.

Mr. JOHNSON of Texas. The bulk of those are eligible for Medicaid anyway, aren’t they?

Ms. BILHEIMER. A significant percentage of families who get the

EITC would have children who were eligible for Medicaid, but by

no means all of them. I think about one-third of EITC recipients

currently do not have health insurance, something like that.

Mr. JOHNSON of Texas. One-third of them?

Ms. BILHEIMER. I think that is correct, yes.

Mr. JOHNSON of Texas. Are those one-third also eligible for Medicaid?

Ms. BILHEIMER. We have not looked into that. We can certainly

see what we can find out on that issue.

[The information follows:]
59

We have looked into the question of how many uninsured children in families receiving the EITC are eligible for Medicaid. Unfortunately, we do not have reliable

data that allow us to determine who is jointly eligible for those two programs. Over

time, however, as the states continue to expand their Medicaid coverage of children,

a growing proportion of children in families receiving the EITC will become eligible

for Medicaid.

Mrs. Johnson’s questioning, the percentage of uninsured vary so

Mr. JOHNSON of Texas. On a different subject, following up on

f

much from State to State. There is a bigger burden. I think you

indicated that, Mr. Purcell, in your study when you said the South

and Southwest had more, at least from your statistics, than the

rest of the country.

And she was asking about cities. You also made the comment

that New York City had a large percentage of them, too. So it

would follow, I think, that some of the major metropolitan areas

also would fall into that category, if they have low-income people

as part of their population. Would you agree with that?

Mr. PURCELL. In general, I think that is true.

I was surprised yesterday to look at some statistics for a city in

the Midwest and found that its rate of uninsured for the whole

metropolitan area was actually lower than the national average. I

think it varies a great deal from State to State, and whether you

are looking at the center city or the whole metro area, which includes the suburbs.

Mr. JOHNSON of Texas. Yes. Well, most States have already implemented some form of program to provide children with health

insurance. Do you think we are in danger of preempting the States

before we know what the States have done and what works best?

Mr. SCANLON. I think the States have been both innovative and

have responded very well to the problem of the uninsured. I think

we need to be careful in terms of crafting a Federal response, that

we do something that will be compatible with the variation that

goes on within the States. They are using different combinations of

Medicaid and non-Medicaid sources for insurance; and given the

amount of innovation and some of the successes they have had, it

would be regrettable to do something that dramatically hampered

some of those activities. I think you are right, that we need to be

careful about that.

Mr. JOHNSON of Texas. Thank you.

Also, Mrs. Johnson made the point that in the case of Tennessee,

I guess, they have a program which, according to her, and you

agreed, Tennessee does not have the problem; and yet you list 11.9

percent as the uninsured rate in Tennessee. Can you explain that?

Mr. SCANLON. Tennessee was able to reduce their uninsured rate

to about 5 percent when the program was initially introduced,

when they had an open enrollment period and were allowing anyone who had no insurance for a period of time to enroll. Since then,

they have not been able to have open enrollment periods. Therefore, as we note there, the number of uninsured has increased; and

the proportion of uninsured has increased as well.
60

Mr. JOHNSON of Texas. Are you all going to investigate those

States that have done programs like that with an attempt to try

to get us some statistics on it, as she requested?

Mr. SCANLON. We certainly will, yes.

Mr. JOHNSON of Texas. Thank you very much.

Thank you, Mr. Chairman.

Mr. ENSIGN. I would like to thank the panel very much. Very informative. And you are dismissed.

I would like to call the next panel up, which includes Jonathan

Gruber, associate professor of economics, Massachusetts Institute

of Technology, faculty research fellow, the National Bureau of Economic Research; Lisa Dubay, senior research associate with the

Urban Institute; and Richard Curtis, president, Institute for

Health Policy Solutions.

Chairman THOMAS [presiding]. Let me tell each of the panel

members that any written testimony you have will be made a part

of the record, and you may address it in any way you see fit in the

time that you have.

Mr. Curtis, why don’t you, notwithstanding the list of the panel

in a different order, just begin—no, let’s do it the way it is listed.

Because, in reading the material, you really do an overview of the

literature and include Dr. Gruber and Ms. Dubay’s testimony. Let’s

do it that way and keep it the way it is structured.

We will start with Dr. Gruber, go to Ms. Dubay; and Mr. Curtis,

you come back and clean up.

STATEMENT OF JONATHAN GRUBER, ASSOCIATE PROFESSOR

OF ECONOMICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY FACULTY RESEARCH FELLOW, NATIONAL BUREAU

OF ECONOMIC RESEARCH

Mr. GRUBER. Thank you. Thank you for allowing me to speak to

you today about the problems of uninsured children in the United

States.

There are currently 10 million children in the United States

without health insurance. This figure has risen relatively slowly

over the past decade, but this slow rise in the number of uninsured

children masks two important trends, a rapidly declining rate of

public insurance coverage and a correspondingly rising rate—a rapidly declining rate of private insurance coverage and a corresponding rising rate of public insurance coverage.

These trends correspond to a dramatic expansion of the Medicaid

Program, which provides insurance for low-income children. Traditionally limited to very poor children living in single female-headed

families, this program has been expanded to cover all children

under age 6 in families below 133 percent of the poverty line and

all children under age 13 in families below the poverty line.

By my estimates, fully one-third of all children in the United

States today are eligible for the Medicaid Program. In fact, the expansion of the Medicaid Program may be part of the root cause of

these trends in private and public insurance coverage, through the

crowdout mechanism we have been discussing.

The typical privately insured family pays roughly one-third of

their medical costs between copayments, deductibles, premiums,

and uncovered costs such as prescription drugs. But Medicaid is to-
61

tally free. There are no copayments, no deductibles, and many extras such as prescription drugs are covered in all or almost all

States. As a result, upon eligibility for Medicaid, many privately insured families may find it attractive to drop their insurance and

sign up for the public program.

In recent research with David Cutler of Harvard University, I investigated the magnitude of this crowdout phenomenon. Our results are striking. We find that for every two persons that joined

the Medicaid Program due to these expansions, one person dropped

private health insurance coverage, for a crowdout of 50 percent.

The mechanism for this crowdout does not appear to be employers dropping their insurance coverage when their employees become eligible for the program, however. Rather, it looks like it is

employees not taking up insurance where they must pay a share

of the cost, preferring instead to join the public program.

Now the existence of this crowdout does not mean that expanding Medicaid was a bad idea. In fact, in other research with Janet

Currie of UCLA, I found enormous health benefits to low-income

populations from expansion of this program. We found that the

Medicaid expansions dramatically increase health care utilization

among low-income populations. For example, becoming eligible for

Medicaid lowered the odds that a child went 1 year without a doctor’s visit by over 50 percent.

Correspondingly, we found striking health benefits from this expansion in insurance coverage. We found that the Medicaid expansions lowered the infant mortality rate by 8.5 percent, averting

nearly 4,000 infant deaths per year; and we found that it lowered

the child mortality rate by 4.5 percent, averting over 1,400 child

deaths per year.

Thus, despite the crowdout, expanded Medicaid yielded impressive benefits in terms of improved health of the low-income population.

The key point is that crowdout determines the cost at which

these benefits are achieved. Any expansion in Medicaid will provide

insurance to some insured children and, as a result, will have

health benefits. Crowd-out does not negate these accomplishments.

It just simply dictates how much they will cost. Thus, crowdout

acts to reduce Medicaid’s bang for the buck, the health benefits to

children per dollar of spending.

This concept is obviously an important one for thinking about the

future direction for policy in this area. Policy initiatives will have

the highest bang for the buck, if they can focus their action on the

populations that are likely to be uninsured as opposed to privately

insured.

This insight suggests that, clearly, the priority for Medicaid policy should be to increase takeup among existing eligibles, not neareligible populations. Currently, there are 10 million children living

below 133 percent of the poverty line who are not on the Medicaid

Program. Among those children, over one-half, or 5.4 million, are

uninsured. This is a population for which the bang for the buck is

likely to be quite high.

Contrast this with another population of interest, those living between 133 and 200 percent of the poverty line. There are currently

8.3 million children living in this income range that are not on the
62

Medicaid Program. Among these children, only 27 percent, or 2.2

million, are uninsured. This is a group for which the bang for the

buck will be much lower. That is, among the poorest children who

are not on Medicaid already, for every uninsured child you make

eligible, you make one insured child eligible. But among the higher

income group, for every uninsured child you make eligible, you

make three insured children eligible. This will increase crowdout

and lower the bang for the buck.

This implies that the first priority for the policy in this area has

to be to increase utilization of the Medicaid Program by those poor

children who are eligible but not currently enrolled. Policy initiatives in this area are relatively straight forward and involve outreach potentially through school-based programs.

But this discussion should not be taken to imply that we should

ignore families further up the income scale. In fact, I would argue

that the second priority for policy in this area should be a limited

expansion of the Medicaid Program up to 200 percent of poverty.

But expansions in this range face a larger crowdout problem, so the

goal here should be to minimize crowdout.

The core of the crowdout problem, if you think about it, is that

the Government is offering insurance that is free to people who are

paying for their insurance now. This problem can be mitigated by

reducing the generosity of Medicaid that is offered to higher income

families.

For example, a typical government policy in this area could be

to introduce income-related premiums. The program could be free

below 133 percent of the poverty, with a subsidy that phases out

up to 200 percent of the poverty line. This would impose a relatively limited cost on families but would likely minimize the

crowdout.

Let me just sort of conclude my comments by just highlighting

two points. First, insurance among children in the United States

is an important problem with real health consequences. Discussions of crowdout should not miss the essential point that, because

of the Medicaid Program, there are 4,000 fewer infants and 1,400

fewer children dying in the United States.

Nevertheless, combating uninsurance in a cost-effective manner

requires focusing on those populations where the bang for the buck

is likely to be highest, groups with a high rate of uninsurance. This

suggests the first priority for policymakers is to focus on eligibles

who are not taking up and then to worry about expanding up the

income scale.

Thank you very much. I am happy to answer any questions.

[The prepared statement follows:]

Statement of Jonathan Gruber, Associate Professor of Economics,

Massachusetts Institute of Technology Faculty Research Fellow, National

Bureau of Economic Research

Thank you for allowing me to speak to you today about the problem of uninsured

children in the U.S. There are currently 10 million children in the U.S. without

health insurance. This figure has risen relatively slowly over the past decade, But

this slow rise in the number of uninsured children masks two important trends: a

rapidly declining rate of private insurance coverage and a corresponding rising rate

of public insurance coverage. The share of children with private coverage has fallen

by 8 percentage points over the past decade, while public coverage has grown by

an offsetting 7 percentage points.
63

These trends correspond to a dramatic expansion of the Medicaid program, which

provides insurance for low income children. Traditionally limited to very poor children living in single female headed families, this program has been expanded to

cover all children under age 6 in families below 133% of the Federal poverty line,

and all children under age 13 below 100% of the Federal poverty line. By my estimates, fully one-third of all children in the U.S. today are eligible for the Medicaid

program.

In fact, the expansion of the Medicaid program may be part of the root cause of

these trends in private and public insurance coverage, through the ‘‘crowdout’’

mechanism. Privately insured individuals who become eligible for Medicaid may

find it attractive to drop their private coverage and join the Medicaid program. The

typical privately insured family pays roughly one-third of their medical costs, between copayments, deductibles, premiums, and uncovered costs such as prescription

drugs. But Medicaid is totally free: there are no copayments or deductibles, and

many extras such as prescriptions are covered. As a result, upon eligibility for Medicaid, privately insured families may find it attractive to drop their private coverage

and sign up for the public program.

In recent research with David Cutler of Harvard University, I have investigated

the magnitude of this crowdout phenomenon. Our results are striking: for every two

persons who joined the Medicaid program due to these expansions, one person lost

private insurance coverage, for a ‘‘crowdout’’ of 50%. The mechanism for this

crowdout does not appear to be employers dropping their insurance coverage when

their employees become eligible for the program. Rather, it is employees not taking

up insurance where they must pay some share of the costs, preferring instead to

join the public program.

The existence of crowdout does not mean that expanding Medicaid was a bad idea.

In fact, in other research with Janet Currie of UCLA, I have found enormous health

benefits to low income populations from the expansion of the Medicaid program. We

found that the Medicaid expansions dramatically increased health care utilization

among the low income population: becoming eligible for Medicaid lowered the odds

that a child went a year without a doctor’s visit by over 50%. Correspondingly, we

found striking health benefits from this expansion in insurance access: the Medicaid

expansions lowered the infant mortality rate by 8.5%, averting nearly 4000 infant

deaths per year. And they lowered the child mortality rate by 4.5% as well, averting

over 1400 child deaths per year. Thus, despite crowdout, expanding Medicaid yielded

impressive benefits for the health of children in the U.S.

The key point is that crowdout determines the cost at which these successes are

achieved. Any expansion in the Medicaid program will provide insurance to some

uninsured children, and as a result have health benefits; crowdout does not negate

those health benefits. What crowdout does is to raise the costs of these accomplishments, since along with these previously uninsured children who see improved

health, we also cover some previously insured children who see no health benefit.

That is, crowdout reduces Medicaid’s ‘‘bang for the buck’’: the health benefits to children per dollar of spending.

This concept is an important one for thinking about future direction for policy in

this area. Policy initiatives will have the highest bang for the buck if they focus on

populations which are likely to be uninsured, as opposed to populations that are primarily privately insured.

This insight suggests that the priority for Medicaid policy should be to increase

takeup among existing eligibles, rather than expanding the program up the income

scale. Currently, there are 10 million children living below 133% of the Federal poverty line who are not on the Medicaid program. Among these children, 53%, or 5.4

million, are uninsured. This is a population in which the bang for the buck is likely

to be quite high: there is relatively little private insurance coverage to be crowded

out.

Contrast this with another population of interest: those between 133% and 200%

of poverty. There are currently 8.3 million children living between 133% and 200%

of the Federal poverty line who are not on the Medicaid program. Among these children, 27%, or 2.2 million are uninsured. This is a group for which the bang for the

buck will be much lower. That is, among the poorest children who are not already

on Medicaid, for every uninsured child made eligible, you make one insured child

eligible. But among this higher income group, for every uninsured child made eligible, you make three insured children eligible. This will increase crowdout and lower

the bang for the buck.

This implies that the first priority for policy in this area should be to increase utilization of the Medicaid program by those poor children who are eligible but not currently enrolled. Policy initiatives in this area should include extensive outreach programs. A natural locus of such outreach would be schools. America has had fantastic
64

success with immunization among school age children, since almost all children

come in contact with our public and private school systems. Similar success could

perhaps be achieved with Medicaid takeup if we ensured that families of school children were informed of their eligibility for this valuable benefit.

This discussion should not be taken to imply, however, that we should ignore families further up the income scale. Indeed, the second priority for policy in this area

should be a limited expansion of the Medicaid program up to 200% of poverty. Expansions of the program in this range do face a larger crowdout problem, but

crowdout can be minimized by reducing the generosity of the program. The core of

the crowdout problem is that the government is offering insurance that is both more

generous than the typical private insurance policy, and cheaper, to a population that

is largely privately insured. This problem could be mitigated by reducing the generosity of the Medicaid policy that is offered to higher income families.

For example, the government could introduce income related premiums: the program could be free below 133% of poverty, with the subsidy then phasing out up to

200% of poverty, reaching (for example) a cost of $500 per child at 200% of poverty.

For a family with two children living at 200% of poverty, this would amount to less

than 3% of their family income. But a cost of $1000 would likely be enough to deter

privately insured families from dropping their coverage to join the program.

Income-related premiums are only one alternative for reducing generosity. Alternatives include introducing copayments or deductibles at the point of utilization, or

a continued shift to managed care; both of these policies would have the added virtue of increasing the efficiency with which medical care is delivered to the poor. The

key point is that policies such as these decrease the attractiveness of the program

to the privately insured, while maintaining its essential insurance features for those

who truly need coverage.

This discussion also has implications for non-Medicaid alternatives for covering

uninsured children. One popular alternative is tax credits for children’s insurance.

But tax credits are likely to have a particularly low bang for the buck, since most

children have private insurance coverage. Indeed, there are five insured children for

every uninsured child in the U.S. Thus, an unlimited tax credit would largely serve

to subsidize the insurance purchase of children who are already privately insured.

Moreover, it is doubtful that such a credit would have much impact on the current

set of uninsured children. There is currently no market for purchasing insurance for

children only. As a result, a subsidy to the insurance coverage of children would

probably only impact those families where the parent is already insured. But children in these families with at least one insured parent represent only 22% of uninsured children. The impact of this credit would also be limited unless it was refundable, as 40% of uninsured children live in families with no taxable income.

This discussion suggests that, should the tax credit approach be pursued, the

credit should be very tightly focused on the potentially uninsured population. For

example, a refundable credit for those with incomes up to $20,000 would apply to

8.3 million of the currently uninsured children, which is 78% of the total number

of uninsured children. But it would only apply to 16.9 million of currently insured

children, which is 33% of the total number of privately insured children.

In conclusion, I want to highlight two points. First, uninsurance among children

in the U.S. is an important problem with real health consequences, as witnessed by

the striking health benefits of the Medicaid expansions. Discussions of crowdout

should not miss the essential point that, because of Medicaid policy over the 1980s

and 1990s, there are 4,000 fewer infants and 1400 fewer children dying each year

in the U.S.

Nevertheless, combatting uninsurance in a cost effective manner requires focusing

on those populations where the bang for the buck is likely to be highest: groups with

a high rate of uninsurance. This suggests that the first priority for policy makers

is to increase enrollment in the Medicaid program among those low income children

who are already eligible. Additional steps, such as further expansions to higher income children or tax credits, should be limited in a manner which focuses their impact on the uninsured. This could be accomplished through income related premiums for Medicaid, and through relatively low income cutoffs for tax credits.

Ms. Dubay.

Chairman THOMAS. Well, thank you, Dr. Gruber.

f
65

STATEMENT OF LISA DUBAY, SENIOR RESEARCH ASSOCIATE,

URBAN INSTITUTE

Ms. DUBAY. I want to thank the Members of the Subcommittee

on Health for providing me with this opportunity to comment on

the issue of health insurance coverage for children.

Today, I am going to talk about the lessons we have learned from

the Medicaid expansions for pregnant women and children that

have been unfolding over the past decade and how these lessons

are relevant for today’s policy debate. In particular, I will be addressing the issue of crowdout, that is the substitution of public

coverage for private coverage that may occur when new public programs are implemented.

I am going to organize my talk around four main questions and

draw on research that I conducted with Genevieve Kenney at the

Urban Institute, and I should say that the opinions I will be expressing today are my own, and they do not represent the views

of the Urban Institute or its sponsors.

The first question is, Can programs that subsidize health insurance coverage for children reduce the number of uninsured? And

the answer is, Yes, they can.

In our research, we examined the impact of the Medicaid expansions on changes in insurance coverage of low-income children and

pregnant women using the current population survey. We found

that without the Medicaid Program, more than 3 million more children would have been uninsured. However, we found that the program participation rates were low, even though Medicaid offered

coverage at a 100-percent subsidy. We found that only 69 percent

of the children and 44 percent of the pregnant women eligible

under the expansions and without employer-sponsored coverage enrolled in the Medicaid Program.

The second question is, Will the new programs that provide subsidies for health insurance coverage displace private coverage?

The answer is, Yes, they will; but the magnitude of this effect depends on, among other things, the income eligibility threshold of

the program.

We estimated the amount of crowding out that occurred with the

expansions and found that only 17 percent of the increase in Medicaid enrollment of young children and 14 percent of the increase

in enrollment of pregnant women was attributable to crowdout.

And I should note that these effects are much lower than those just

presented by Jonathan Gruber, but they are much higher than the

two other studies that have found no displacement effect.

But the insight that comes out of our work is that we found there

is no evidence of crowding out for pregnant women below poverty

and very little crowding out for children below poverty. We did find

crowdout effects above poverty, and these effects were higher for

pregnant women than for children because pregnant women are

covered up to 185 percent of poverty and children were only covered up to 133 percent of poverty.

Based on these findings, we conclude that programs that limit

coverage to lower income groups will find that a relatively small

percentage of new public dollars will be replacing employer and individual contributions; and programs that offer coverage to children
66

at higher incomes could potentially see a large share of public dollars replacing private dollars.

The third question is, What can be done about crowding out?

Well, we really don’t know; and, unfortunately, many of the solutions may create new equity problems.

Given current Federal budget constraints, it is important that

new public programs that subsidize health insurance coverage of

children be appropriately targeted. What can be done to prevent

crowdout? We can limit eligibility to individuals who have been uninsured for a period of time or to those who do not have an offer

of employer-sponsored coverage.

The problem is that we don’t know how effective these strategies

would be at minimizing crowdout. Moreover, these types of initiatives might also mean that families that lost their employersponsored coverage for reasons beyond their control or who face

premium contributions that represent a large financial burden,

could not participate, thus creating new equity issues.

Sliding-scale premium contributions could also reduce such substitution. However, smaller subsidies are also likely to deter uninsured families from participating in the program.

The fourth and final question is, What should policymakers do?

And the answer depends on how much we are willing to spend to

reduce the number of uninsured children.

The conundrum facing policymakers today is how to cover a substantial number of uninsured children without also covering children who would otherwise be insured. On the one hand, other research indicates that subsidies will have to be large in order to

achieve significant reductions in the number of uninsured children.

At the same time, concern about the substitution of public coverage

for private coverage is a real issue from a budget perspective; and

it is not clear how to prevent it.

The fact that uninsured children are not concentrated at the low

end of the income distribution makes this a very challenging problem. Covering children under poverty is a win-win option—there

will be almost no crowding out—but these children do not constitute a large percentage of the uninsured. New programs that

subsidize coverage for children in families with incomes up to 185

percent of poverty may produce acceptably low levels of crowdout

but will still leave 46 percent of uninsured children uncovered, and

the majority of new dollars will go to covering children who are uninsured.

In contrast, programs that include children in families with incomes up to 300 percent of poverty would make more than 80 percent of all uninsured children eligible. Yet, under such programs,

the share of participants that previously had private coverage will

likely be large unless mechanisms to limit the substitution of public for private coverage are effective.

But even if a significant number of working families do drop

their private coverage and take advantage of the new program, this

may have important benefits to children, such as providing them

with greater insurance security and more comprehensive coverage

and offering financial relief to their families.

Therefore, in order to ensure that more children in this country

have health insurance coverage, it may be necessary to accept a
67

* The research presented in this statement was funded by the Robert Wood Johnson Foundation and the Health Care Financing Administration. This statement represents the views of the

authorities alone and not of the Urban Institute, its sponsors or its trustees. We are grateful

for helpful comments from our colleagues John Holahan and Stephen Zuckerman. Beth Kessler

provided outstanding research assistance for this testimony. 1These bills include: the Children’s Health Coverage Act (S. 13, Daschle, D–SD); the Health

Assurance Act (S. 24, Spector, R–PA); the Healthy Children’s Pilot Program Act (S. 435, Spector,

R–PA); the Healthy Start Act (H.R. 560, Stark, D–CA): the Children’s Health Insurance Act

(H.R. 561, Stark, D–CA); the Child Health Insurance and Lower Deficit Act (Hatch, R–UT, Kennedy, D–MA). In addition the Family and Child Health Assurance Act (Gramm, R–TX and

Coverdell, R–GA) will be introduced and the President’s FY 1998 budget addresses health insurance coverage for children.

greater public role in financing health insurance coverage for children.

[The prepared statement and attachments follow:]

Statement of Lisa Dubay,* Senior Research Associate, Urban Institute; and

Genevieve Kenney,* Senior Research Associate, Urban Institute

I. INTRODUCTION

Extending health insurance coverage to more children is currently of considerable

policy interest as evidenced by the number of bills so far introduced in the 105th

Congress.1 These legislative initiatives propose a range of mechanisms for reducing

the number of uninsured children including: tax credits and vouchers for families

to assist them in purchasing insurance coverage for their children, grants to states

to design and finance new health insurance coverage programs, and a new entitlement program. The motivation behind these initiatives is the belief that providing

health insurance coverage to uninsured children will improve access to and use of

health care which will in turn lead to improved health. In addition, these initiatives

seek to provide some financial relief to working uninsured families.

While only one of the legislative initiatives on child health insurance coverage

proposes expansions of the Medicaid program, the experience of the Medicaid expansions for children and pregnant women is relevant for today’s policy debate. The

Medicaid expansions provided full subsidies for the health insurance coverage of certain low-income children. Many of the proposed initiatives would provide full or partial subsidies of health insurance coverage for children who live in families with incomes that exceed current Medicaid eligibility thresholds, with the more generous

including families up to 300 percent of poverty. The expansions provide important

lessons regarding the ability of programs that provide health insurance coverage to

reach their target population and reduce the number of uninsured children. In addition, they can shed light on the amount of ‘‘crowding-out’’ that can be anticipated.

Crowding-out is a phenomenon whereby new public programs or expansion of existing public programs designed to extend coverage to the uninsured prompt some

privately insured persons to drop their private coverage and take advantage of the

expanded public subsidy. The issue of crowding out can be important because it may

lead to fewer improvements in access to care and greater program costs than expected.

Our testimony today will provide information on the extent and nature of the population of children without health insurance and describe the lessons learned from

the expansions in Medicaid coverage for children and pregnant women that occurred

over the last decade. We will also identify areas where more information is needed

in order to make informed policy choices.

Our testimony can be summarized by the following six conclusions:

• Policy solutions aimed at reducing the number of uninsured children must take

a multi-pronged approach. This type of approach is necessary because about a quarter of uninsured children are currently eligible for Medicaid but not enrolled, older

children living in poverty will not all be covered by Medicaid until 2002, and the

remainder, almost three quarters of all uninsured children, live in families with incomes above poverty.

• New programs that provide public subsidies for health insurance coverage will

result in some crowding out of private coverage. The magnitude of this effect will

depend on the income eligibility level of the program, the success of the attempts

made to minimize the substitution of public coverage for private coverage, the magnitude of premium cost-sharing for employer-sponsored coverage faced by those eligible for the new program, and the generosity of the benefit package under the new

program relative to under employer-sponsored coverage.
68

• Programs that limit coverage to lower income groups will find that a relatively

small percentage of new public dollars will be replacing private employer and individual payments. Programs that offer coverage to children at higher incomes could

potentially see a large share of public dollars replacing employer and individual contributions thus affecting the distribution of who pays for health insurance coverage.

• In an era of scarce resources, it is important to reduce the incentives to substitute public dollars for private dollars. While mechanisms to reduce this crowdout

effect are important, it is difficult to prevent substitution without creating inequities

in access to coverage.

• While programs that phase out subsidies as income increases will discourage

the substitution of public coverage for private coverage, they may also discourage

families with uninsured children from purchasing insurance for their children.

Without large subsidies, the ability of a new program to reduce the number of uninsured children may be compromised.

• In order to assure that most uninsured children receive health insurance coverage, we may need to accept a shifting of the distribution of who pays for such coverage from the private to the public sector as part of the cost of this coverage.

II. THE PROBLEM

According to 1994 estimates from the Current Population Survey (CPS), more

than seven million children lack health insurance coverage. Uninsured children

come from all income and age groups (see Table 1). Altogether 54 percent of uninsured children live in households with income less than 185 percent of the federal

poverty line and almost 23 percent of uninsured children live in households below

the federal poverty line.

Table 1.—The Composition of uninsured Children, 1994

[By Income]

Percentage of Poverty Total (Millions) 0–5 6–12 13–18 All

0–99% ............................... 1.67 20.55% 21.51% 25.78% 22.73%

100–133% ......................... 0.88 9.83% 13.52% 12.31% 12.07%

134–185% ......................... 1.46 18.94% 20.85% 19.51% 19.85%

186–299% ......................... 2.02 29.88% 27.21% 25.95% 27.52%

300%+ ............................... 1.31 20.81% 16.91% 16.44% 17.84%

All ..................................... 7.35 28.05% 37.20% 34.75% 100.00%

[By Age]

Age Total

(Millions) 0–99% 100–133% 134–185% 186–299% 300%+ All

0 to 5 ............. 2.06 25.36% 22.85% 26.77% 30.46% 32.73% 28.05%

6 to 12 ........... 2.73 35.21% 41.69% 39.07% 36.77% 35.25% 37.20%

13 to 18 ......... 2.55 39.42% 35.46% 34.16% 32.77% 32.02% 34.75%

All ................. 7.35 22.73% 12.07% 19.85% 27.52% 17.84% 100.00%

Source: Urban Institute tabulations from the TRIM2 edited version of the March Current Population Survey, 1995.

Note: Percentages may not sum to 100 because of rounding. The population excludes the elderly, the institutionalized and families with an active military member. ‘‘Other’’ coverage covered through groups include the

non-elderly Medicare, VA, CHAMPUS, and military health.

The distribution of insurance coverage for children varies by household income

and age of child (Table 2). The risk of being uninsured increases with the age of

the child, particularly in poorer families. Overall, children age 13 to 18 are a third

more likely than those under 6 to lack health insurance. In households with incomes

below the federal poverty line, older children were three times as likely to lack

health coverage relative to the younger children. For children of all ages, lower rates

of uninsurance occurred at the very bottom and top of the income ranges; living in

households with incomes between 133 and 185 percent of the federal poverty level

puts children at the greatest risk of not having health insurance coverage.
69

Table 2.—Insurance Coverage of Children, 1994

[All Children through Age 18]

Poverty Level Total (millions) Employer Sponsored Medicaid Private and

Other Uninsured

0–99% ........... 16.33 15.96% 72.09% 1.73% 10.23%

100–133% ..... 5:51 39.06% 41.37% 3.49% 16.09%

134–185% ..... 7.72 58.83% 17.21% 5.07% 18.89%

186–299% ..... 15.36 76.13% 4.92% 5.78% 13.17%

300%+ ........... 71.85 62.69% 22.95% 4.14% 10.23%

All ................. 71.85 62.69% 22.95% 4.14% 10.23%

[0 to 5]

Poverty Level Total (millions) Employer Sponsored Medicaid Private and

Other Uninsured

0–99% ........... 6.76 13.68% 78.76% 1.30% 6.27%

100–133% ..... 2.01 38.15% 50.04% 1.74% 10.07%

134–185% ..... 2.64 56.04% 25.75 3.43% 14.78%

186–299% ..... 4.86 74.70% 7.33% 5.31% 12.67%

300%+ ........... 7.67 87.55% 1.81% 5.50% 5.59%

All ................. 23.95 56.46% 31.34% 3.59% 8.61%

[Children Age 6 to 12 Years]

Poverty Level Total (millions) Employer Sponsored Medicaid Private and

Other Uninsured

0–99% ........... 5.96 17.50% 71.27% 1.35% 9.87%

100–133% ..... 2.07 41.22% 38.28% 2.68% 17.83%

134–185% ..... 2.94 61.45% 13.84% 5.35% 19.36%

186–299% ..... 6.05 78.17% 4.21% 5.32% 12.30%

300%+ ........... 9.78 90.11% 1.17% 3.99% 4.73%

All ................. 26.80 64.34% 21.70% 3.75% 10.20%

[Children Age 13 to 18 Years]

Poverty Level Total (millions) Employer Sponsored Medicaid Private and

Other Uninsured

99% ............... 3.62 17.70% 60.94 3.14% 18.21%

100–133% ..... 1.43 37.20% 33.62% 7.14% 22.04%

134–185% ..... 2.14 58.69% 11.31% 6.70% 23.30%

186–299% ..... 4.45 74.94% 3.23% 6.93% 14.90%

300%+ ........... 9.48 89.88% 1.04% 4.65% 4.43%

All ................. 21.10 67.65% 15.01% 5.25% 12.10%

Source: Urban Institute tabulations from the TRIM2 edited version of the March Current Population Survey,

1995.

Note: percentages may not sum to 100 because of rounding. The population excludes the elderly, the institutionalized and families with an active military member. ‘‘Other’’ coverage groups include the nonelderly covered through Medicare, VA, CHAMPUS, and military health.

Patterns of insurance coverage are influenced by Medicaid eligibility policies

which offer protection to all poor children under 14 years of age. In response to evidence indicating declining health status for low-income children and growing disparities in access to health care between the insured and the uninsured, Medicaid

coverage for children was expanded in the late 1980s. Congress permitted and eventually mandated states to provide phased-in Medicaid coverage for children up to

age six in families with incomes up to 133 percent of the federal poverty level and

to all children born after September 30, 1983, in families with incomes at the poverty line or below. Under the phase-in, all children under age 18 living in households beneath the federal poverty line will be eligible for Medicaid by the year 2002.
70

2 In addition, using other provisions of Medicaid law (Section 1902(r)(2) and Section 1115),

some states have chosen to offer coverage to children in households with higher income levels

than specified in the expansions. 3Dubay and Kenney use 1991 data for their analysis of pregnant women and 1992 data for

their analysis of children as their post-expansion period.

States were also given the option to cover infants with family incomes up to 185

percent of poverty.2 These expansions represented a dramatic change from the past,

when children qualified for Medicaid only if their families’ incomes were below

AFDC thresholds (which had averaged only about 50 percent of the poverty level

prior to the expansions).

III. WHAT DID WE LEARN FROM THE MEDICAID EXPANSIONS FOR PREGNANT WOMEN

AND CHILDREN?

The expansions in Medicaid coverage for pregnant women and children that took

place in the late 1980s and early 1990s provide important lessons regarding the

ability of programs that subsidize health insurance coverage to enroll eligible children and reduce the number of uninsured children, as well as the amount of crowding-out that can be anticipated under such programs.

The intent of the Medicaid expansions was to reduce the number of uninsured

children and pregnant women, increase access to health care, and thus, improve

children’s health. Between 1988 and 1993, the number of children receiving Medicaid-covered services grew by 10.7 to 16.5 million a 54 percent increase (unpublished

tabulations of HCFA Form 2082 data). The number of births financed by Medicaid

also increased substantially (Sing, Gold, and Frost, 1994).

Over the same period, which also witnessed an economic recession, employersponsored insurance coverage was declining (Holahan, Winterbottom, and Rajan,

1996; Peat Marwick, 1994), and the number of uninsured children grew (Dubay and

Kenney, 1996). The simultaneous decline in employer-sponsored coverage and increase in Medicaid coverage of children, coupled with the increase in uninsured children has led some observers to suspect that the Medicaid expansions for children

and pregnant women ‘‘crowded-out’’ employer-sponsored coverage. To try to identify

whether, and if so how much, the expansions crowded out private coverage, researchers at the Urban Institute conducted the following analysis.

The Dubay-Kenney Study

In the this study, we examined changes in health insurance coverage for children

and pregnant women using CPS data edited by the Urban Institute’s Transfer Income Model (TRIM2) and representing 1988 and 1991/1992.3 We focused our analysis on the target population of poor and near poor pregnant women and children

ages 10 and under. Our overall approach in assessing the impact of the expansions

on insurance coverage was to examine aggregate changes in health insurance coverage separately for pregnant women and children 10 years old and younger by income group.

We first assessed the extent to which the expansions were covering the target

population. We found participation rates for expansion eligible children and pregnant women to be less than that under the traditional Medicaid program where over

90 percent of those eligible enroll. Only 44 percent of pregnant women eligible for

the expansions who did not have employer-sponsored insurance enrolled in Medicaid. Sixty-nine percent of the children eligible under the expansions who did not

have employer-sponsored coverage enrolled in the Medicaid program. Whether the

lower participation rates for the expansion population are due to lack of knowledge

about the new eligibility rules, unwillingness to enroll in Medicaid, or persisting

problems with the Medicaid eligibility determination process is unclear. The fact

that such a large percentage of uninsured children are Medicaid eligible suggests

that large inroads into the problem could be made by increasing Medicaid participation rates and illustrates the importance of understanding why the participation

rate is so low.

We then estimated the extent to which the expansions crowded out employersponsored insurance. We compared the declines in employer-sponsored coverage for

children and pregnant women to the declines for men ages 18–44—a group unlikely

to be affected by the expansions. We did this to control for the portion of the decline

in employer-sponsored coverage for children and pregnant women that would have

occurred in the absence of the expansion. The difference between the decline in

employer-sponsored coverage for children and pregnant women and that for men is

the amount of the decline in employer-sponsored coverage for children and pregnant

women attributable to crowdout. We then divided this decline by the increase in
71

4 Authors’ computations of the percentage change in average monthly employee contributions

towards health insurance premiums between 1989 and 1993 in medium and large firms. From

the Bureau of Labor Statistics’ Employer Benefits Survey, U.S. Department of Labor, Bulletins

2363 and 2456.

Medicaid enrollment. This provides our estimate of how much of the Medicaid enrollment increase resulted from crowdout.

About 14 percent of the increase in Medicaid enrollment of pregnant women and

17 percent of the increase in enrollment of young children was attributable to

crowdout, according to our estimates. These estimates represent the degree to which

public funds substituted for private funds over the period. We find no evidence of

crowding out for poor (that is, below the poverty line) pregnant women and very little crowding out for poor children. For pregnant women and children with household

incomes above the poverty line (that is, 100–185 percent of poverty for pregnant

women and 100–133 percent of poverty for children) we find the crowdout effect to

be 45 and 21 percent respectively. The higher crowdout estimate for pregnant

women suggests that more crowding out occurs as income eligibility thresholds increase. We also found that more than 75 percent of the increase in Medicaid enrollment

over the expansion period was for children and pregnant women who would otherwise have been uninsured or would have lost their insurance as a result of secular

declines in employer-sponsored coverage. This means that, without the Medicaid

program, an additional 3 million children would have been uninsured in 1992.

Study Limitations. Using men ages 18–44 is not a perfect control for how the

health insurance coverage of children and pregnant women would have changed in

the absense of the expansions. For example, if the secular declines in coverage were

greater for children and pregnant women than for men, we may over-estimate the

extent of crowding out. In fact, there is evidence to suggest that this is the case:

between 1989 and 1993, employee health insurance contributions rose by twice as

much for family coverage as for individual coverage, providing a much more substantial disincentive to continue employer-sponsored coverage of dependents.4

It has also been claimed (Culter and Gruber 1997) that we underestimate the

Medicaid crowdout effect by failing to count the spillover effect within families. This

effect comes about when a family drops employer-sponsored coverage because some

of the family members (pregnant mother and younger children) are eligible for, and

choose to take advantage of, the Medicaid expansion—leaving the ineligible family

members (older children) without insurance. Since these family members are ineligible for Medicaid, we do not consider this a crowdout effect. However, even with

a broader interpretation of crowdout, the spillover effect is likely to be small. In

work that we are currently doing, we find that less than 3 percent of the children

living in families with Medicaid-covered children are uninsured. This 3 percent estimate is an upper bound on the spillover effect since some of these uninsured children would have been uninsured even in the absence of the expansions.

This research, and much of the other literature on crowdout, uses the Current

Population Survey which is a cross-sectional database. A definitive analysis of the

crowdout issue requires the use of a longitudinal database to shed light on the dynamic nature of health insurance coverage. In other words, in order to understand

changes in insurance coverage over time, we want to be able to observe the transitions between one type of insurance coverage and another. When cross-sectional

data are used, the movement of one group out of employer-sponsored coverage and

into the uninsured category combined with another group moving from the ranks

of the uninsured into Medicaid might appear to be a movement from employersponsored coverage into Medicaid.

In order to eliminate this problem, a new Urban Institute study by Blumberg,

Dubay and Norton, is using the 1990 panel of the Survey of Income and Program

Participation—a data base that follows the same households over a 2 and a half

year period—to examine health insurance coverage transitions for poor and near

poor children over the expansion period. The results of this analysis will be released

in the near future.

IV. WHAT LESSONS ARE RELEVANT FOR TODAY’S POLICY WORLD?

As mentioned previously, some of the legislative initiatives currently in Congress

propose to provide full or close to full subsidies to purchase health insurance coverage for children in families with incomes up to some specified level. In this way,

the initiatives are similar to the Medicaid expansions and some lessons can be easily applied. At the same time, there are aspects of the initiatives that are unlike

the expansions. For example, income eligibilty for many of the proposed programs
72

would be substantially higher than under the Medicaid expansions and those with

higher incomes would receive only partial subsidies.

Four lessons stand out as important for today’s policy discussion regarding federal

programs to subsidize the costs of health insurance coverage for children. • Programs that subsidize health insurance coverage for children will reduce the

number of uninsured children. • Even when the entire cost of health insurance coverage for children is subsidized, some eligible children will remain uninsured. • Subsidizing insurance coverage for children in poor households will result in

very little substitution of employer-sponsored coverage, in large part because this

population has very little insurance coverage to begin with.

• The higher the income-eligibility cutoff, the greater will be the crowdout effect.

This is because as income increases, the prevalence of employer-sponsored coverage

increases and the proportion of households without insurance decreases. Therefore,

even if only a small percentage of families substitute private for public coverage and

participation by the otherwise uninsured is relatively high, as the income eligibility

cutoff for a new program increases, the percentage of entrants into that program

will increasingly come from those who previously had private coverage.

These are important lessons. There are also a number of limitations in the applicability of these analyses to the types of health insurance programs currently being

considered by Congress.

1. Since the expansions were limited to children and pregnant women with incomes below 133 and 185 percent of poverty respectively, there is no evidence on

how much public coverage would substitute for private coverage in programs with

higher income eligibility levels.

2. Since the expansions fully subsidized the costs of health insurance coverage,

there is also no evidence from this literature regarding how premium cost-sharing

would affect either participation in the program or the dropping of employersponsored coverage.

3. The dynamics of family participation in a health insurance programs other than

Medicaid may be quite different from those driving Medicaid participation, particularly if the stigma associated with the program is lower, the eligibility determination process is different, or the benefit package under the program is less comprehensive.

4. There is little evidence that employers responded to the expansions by reducing

their offers of and contributions to health insurance coverage (Cutler and Gruber

1996). The proposed initiatives that cover children up to 300 percent of poverty

would make 60 percent of all children eligible for the program. Such large-scale initiatives could alter employer behavior, potentially further reducing employer contributions for dependent health insurance coverage.

5. Finally, none of the studies tells us why those individuals who dropped their

private insurance over this period did so. For example, it may be that the families

who substituted Medicaid for private coverage were those with policies that had

high deductibles and co-payments, covered only catastrophic illness, or did not cover

preventive services. For some low-income families, the movement into the Medicaid

program may have represented access to coverage that they did not previously have.

Similarly, those families that dropped their private coverage may have faced premium contributions that represented large financial burdens.

V. WHAT CAN BE DONE TO APPROPRIATELY TARGET NEW PROGRAMS AND LIMIT THE

EXTENT OF CROWDING OUT?

Given the current federal budget constraints, it is important that new public programs that subsidize health insurance coverage of children be appropriately targeted in order to get the most ‘‘bang for the buck.’’ What do we know about the effectiveness of strategies to reduce the substitution effect? States have implemented

a number of strategies designed to prevent crowding-out when they expanded insurance coverage (either through their Medicaid Section 1115 waivers or though their

state-only health insurance programs). These strategies have included limiting eligibility to individuals a) who have been uninsured for a period of time, b) who do not

have an offer of employer-sponsored coverage, or c) who face premium cost-sharing

greater than 50 percent for their employer-sponsored coverage. However, these programs are relatively new and the effectiveness of these mechanisms at reducing

crowdout has not been assessed. States have also found these types of mechanisms

administratively complex (Wooldridge et al 1997) making them difficult to implement.

Moreover, these types of initiatives could also prevent families who lost their employer-sponsored coverage for reasons beyond their control, such as job loss or reduc-
73

5 Assuming full participation.

tions in employer contributions to premiums, from taking up the new program.

Thus, they potentially create inequities in who is eligible for the subsidy.

Each of the bills introduced in Congress this year would require that some families contribute to the costs of health insurance coverage under the new program and

would vary the subsidy based on family income. Families for which the offered subsidy is less than the cost sharing they currently face (including differences in benefit

packages, co-payments, deductibles, and premium contributions) will be unlikely to

substitute public coverage for private. Thus lower subsidies would tend to reduce

the crowdout effect. However, the subsidy schedule will also affect the extent to

which families with uninsured children will participate in the program. According

to research by Marquis and Long (1995), in order for low-income working families

to purchase insurance, subsidies must be quite high.

VI. CONCLUSIONS

The conundrum facing policy makers today is how to cover a substantial number

of uninsured children without also covering children who would otherwise be insured. On the one hand, evidence suggests that subsidies will have to be large in

order to achieve significant reductions in the number of uninsured children. At the

same time, concern about substitution of public coverage for private coverage is a

real issue from a budget perspective and it is not clear how to prevent it.

The fact that uninsured children are not concentrated at the low end of the income distribution makes this a very challenging problem. Covering children under

poverty is win-win option—there will be almost no crowding out—but these children

do not constitute a large percentage of the uninsured. New programs that subsidize

coverage for children in families with incomes up to 185 percent of poverty may

produce acceptably low levels of crowdout, but will still leave 46 percent of uninsured children uncovered.5 And, the majority of new dollars would go to covering

children who are uninsured.

In contrast, programs that include children in families with incomes up to 300

percent of poverty would make more than 80 percent of all uninsured children eligible. Yet, under such programs the share of participants that previously had private

coverage will likely be large unless mechanisms to limit the substitution of public

for private coverage are effective. But even if a significant number of working families drop their private coverage and take advantage of the new program, this may

have important benefits to children, such as providing them with greater insurance

security and more comprehensive coverage, and offering financial relief for their

families.

Therefore, in order to assure that more children in this country have health insurance coverage, it may be necessary to accept a greater public role in financing

health insurance coverage for children.

REFERENCES

Blumberg, Linda, Lisa Dubay and Stephen Norton. 1996. ‘‘Did the Medicaid Expansions for

Children Displace Private Insurance?’’ Presented at the 18th Annual Conference of The Association for Public Policy Analysis and Management, Pittsburgh, PA, November 2, 1996.

Cutler, David, and Jonathan Gruber. 1996. ‘‘Does Public Insurance Crowd Out Private Insurance?’’ The Quarterly Journal of Economics, May.

Cutler, David, and Jonathan Gruber. 1997. ‘‘Medicaid and Private Insurance: Evidence and

Implications.’’ Health Affairs (16:1) January/February.

Dubay, Lisa and Genevieve Kenney. 1996. ‘‘Revisiting the Issues: The Effects of Medicaid Expansions on Insurance Coverage of Children.’’ The Future of Children 6:1 (Spring 1996).

Dubay, Lisa and Genevieve Kenney. 1997. ‘‘Did the Medicaid Expansions for Pregnant Women

Crowd-Out Private Insurance?’’ Health Affairs 16:1 (January/February).

Holahan, John. Forthcoming. ‘‘Expanding Insurance Coverage for Children.’’ Urban Institute

Monograph.

Holahan, John, Colin Winterbottom, Shruti Rajan. 1995. ‘‘A Shifting Picture of Health Insurance Coverage.’’ Health Affairs 14:4 (Winter).

KPMG Peat Marwick. 1993. Health Benefits in 1993. Newark, NJ:KPMG Peat Marwick.

Marquis, M.S., and S.H. Long. 1995. ‘‘Worker Demand for Health Insurance in the Non-group

Market. Journal of Health Economics 14:1 (May).

Wooldridge, Judith, Leighton Ku, Teresa Coughlin, Lisa Dubay, Marilyn Ellwood, Shruti

Rajan, Sheila Hoag. 1996. ‘‘Implementing State health Care Reform: What Have We Learned

from the First Year ? The First Annual Report of the Evaluation of Health Reform in Five

States.’’ Submitted to Office of Research and Demonstration, Health Care Financing Administration, December.
f

74

Chairman THOMAS. Mr. Curtis.

STATEMENT OF RICHARD E. CURTIS, PRESIDENT, INSTITUTE

FOR HEALTH POLICY SOLUTIONS

Mr. CURTIS. Mr. Chairman, I appreciate the opportunity to summarize findings of our study.

As the two previous speakers’ testimony has indicated, their findings, while the magnitude is different, are consistent in the following way: Both found that above poverty, especially, there was

crowdout of private coverage due to Medicaid expansions, and that

the farther you go up the income stream the higher the degree of

crowdout.

This might be viewed as somewhat ironic since, in 1990, Congress enacted a provision that was intended to prevent this by requiring State Medicaid Programs to, when it is cost effective to do

so, pay the employee’s share of coverage when employer coverage

is available to the Medicaid applicant.

I want to emphasize, as have the other panelists, that many

modest-income working families need assistance to afford coverage,

and that we should do what we can to help them get it. In fact,

do what we can to cover uninsured children. But we need to do it

cost effectively.

Medicaid expansions in 1988 and 1989 seemed very sensible because only 7.6 percent of uninsured poor and near-poor children at

that time had a parent with employer-based coverage. I might note

that today it is similarly emphasized that four out of five parents

of uninsured kids are themselves uninsured. But we need avoid the

same mistake we made then and be careful to look at how many

of these children in the target income ranges are actually already

covered under employment-based coverage.

In 1995, 77 percent of children with family incomes between 200

and 399 percent of poverty had employer-sponsored coverage. I believe between 150 and 200 percent, the number is 55 percent. Dr.

Gruber’s and Dr. Dubay’s findings do confirm that unless we are

very careful in how we craft further expansions, there will be further crowdout, given these numbers.

Now, why was it that at the State level, we did not succeed in

avoiding crowdout? Well, unfortunately, the reasons are very, very

complex. They do relate to the basic nature of Medicaid, as Dr.

Gruber indicated, as an all-or-nothing program. So, very often people have been faced with a choice of free Medicaid or an employee

contribution to obtain coverage. And, most States only were looking

at high-cost diagnostic categories, a very limited number of people,

for instance, with AIDS, and pursuing employer coverage only for

those people. This meant that the vast majority of children with

available employer coverage were really pursued.

But where States attempted to do so, it got to be extraordinarily

difficult. It was very difficult for them to get basic information on

the availability of employer coverage, the benefit structure of that

coverage, the employer contributions, and so forth. And there are

a range of reasons that that is true. Our report goes into some of

that.
75

When States were able to get that information, eligibility period

restrictions for private employer coverage often meant they could

not avail the Medicaid eligible populations of that coverage. Then,

further—and this is not a small item—it is very burdensome administratively, too, to get information for each individual applicant

on whatever the benefit structure happens to be for that particular

individual’s employer, and then look at the employer’s contribution

policy and try to determine whether or not it is cost effective to pay

the employee’s share versus cover them under Medicaid. And in

many States, as you know, just as at the Federal level, the dollars

to expand administrative staff just are not there.

So, for all of those reasons, it has not really worked very well.

But as we move up the income stream and consider further expansions of uninsured children, certainly we can do better. And while

I think it is true to say there will be some degree of crowdout no

matter what we do, certainly what you do specifically will have a

large influence on how much crowdout there is and, as Dr. Gruber

indicated, how good the bang for the buck is.

Some proposals before Congress basically would exclude children

who are or have recently been eligible for sizable employer contributions. Our analysis is that that kind of approach would be

both unfair and counterproductive in the longer run. It would be

unfair because many of these children’s parents are faced with very

sizable contribution requirements. In fact, 30 percent of low-wage

employees working for firms offering coverage in 1993 faced $2,400

or more in contribution requirements; and people in that income

range simply cannot afford such outlays in most cases.

It would further be counterproductive because it would basically

place firms who offer coverage at a disadvantage relative to competing firms that pay the same wages but whose workers’ coverage

is financed by the public sector. The net result would be that over

time more and more businesses would not finance family coverage.

The population eligible for and receiving public subsidies under the

new program would grow.

In short, I think we all have to anticipate and certainly the Medicaid experience suggests this, that people in the market will respond to the incentives established by large national programs.

This would also suggest that it would be better to structure financial incentives as a way to encourage continued private contributions while providing evenhanded assistance to individuals in families who require it whether or not they have employer-based coverage available to them. And your notions of looking at current tax

policy and redistributions of current tax expenditures certainly

have as much potential to do that as any other I have heard of.

The one other point I would like to make—and several of the

Members of your Subcommittee have made a similar point—is that

families are not well served by programs which force them to have

different family members in different health plans and to change

health plans every time their job status or income changes. And

the degree to which we can avoid that and allow families to easily

access one plan—they only have to learn one set of rules and only

have to learn how to access one network of providers—will certainly be better for them. I think, more importantly, create better
76

incentives for health plans to provide cost-effective, preventive, and

primary care service.

It is a well-known problem in Medicaid that often HMOs do not

have those incentives because of the high degree of turnover in the

enrolled population. They never realize the benefits of preventive

care because the patient has moved on to another plan or to become uninsured.

Thank you.

[The prepared statement follows:]

Statement of Richard E. Curtis, President, Institute for Health Policy

Solutions

Mr. Chairman and members of the committee, I am Richard E. Curtis, President

of the Institute for Health Policy Solutions, a not-for-profit, non-partisan education

and research organization that does not advocate specific legislation. The Institute

was established to objectively analyze and develop approaches to solve health system problems, and brings special expertise and interest to policy approaches that

complement or harness private sector roles to achieve goals that are in the public

interest.

We appreciate the opportunity to present our observations and findings regarding

children’s access to health coverage. These findings are presented in our report entitled Extending Health Care Coverage for Modest-Income Children and Pregnant

Women: Public & Employer-Financed Coverage Lessons.

While the details and methodologies vary, the research findings of Lisa Dubay

and Genevieve Kenney as well as of David Cutler and Jonathan Graber both indicate that of the children and women above poverty who were newly brought into

Medicaid coverage, a sizable portion would otherwise have been covered through

employer plans.

The possibility of this outcome was not entirely unanticipated. In fact, in 1990

Congress enacted a requirement that state Medicaid programs pay the employee

share of costs for group coverage for a Medicaid-eligible worker or a worker with

Medicaid-eligible dependents when it would be cost-effective to do so—that is, when

the cost of buying into the employer coverage is less than the expected cost of providing equivalent Medicaid benefits.

But this provision has clearly not had its intended effect of preventing the

‘‘crowdout’’ of private coverage that has been reported. For a variety of reasons,

most states have not aggressively pursued implementation of this provision, and

those states which have face a number of hurdles that impede effective implementation.

Many modest-income working families need assistance to afford coverage for their

children. But the experience with Medicaid indicates that better approaches for coordinating low-income subsidies with employer-financed private coverage are needed

if available public dollars are to be efficiently used to cover additional children in

need. Lessons can also be drawn to design policies which better afford access and

continuity of care for children.

As we note in the report, Medicaid expansions were a sensible strategy to reach

uninsured low-income children at the time of their adoption. Only 7.6% of poor and

near poor children in 1989 had a parent with employer-based insurance. Similarly,

it is often noted today that 4 out of 5 parents of uninsured kids are themselves uninsured.

But it is also critically important to observe that as one ascends the income scale

to 150% of poverty and beyond, an increasing majority of children are eligible for

employer coverage. In 1995 over 77% of children with family incomes between 200%

and 399% of poverty had employer-sponsored coverage.

Research findings such as those by Dubay and Kenny confirm that unless carefully crafted, public coverage expansions will increasingly substitute for existing private employer coverage as groups with somewhat higher incomes are targeted. For

example, their estimates for the share of pregnant women covered under Medicaid

enrollment increases who would otherwise be covered under employer plans are 0%

for those beneath poverty, 27% for those from 100 to 133% of poverty, and 59% for

those from 134% to 185% of poverty. It is interesting to note that for the 100% to

133% of poverty range, they found a similar ‘‘crowdout’’ percentage for children

(22%) and pregnant women (27%). This may suggest that if Medicaid income thresholds were increased to 185% of poverty for children, it could similarly cause a much

higher rate of ‘‘crowdout’’ of employer financed coverage for children.
77

The reasons this occurred (despite a general federal policy to the contrary) are

varied and complex. Our report identifies and assesses a number of these factors.

They include a lack of clarity regarding cost-effectiveness across applicable populations, states’ difficulty in identifying and getting information on employer plans,

eligibility period restrictions even when such coverage was identified, and agencies’

reluctance or inability to undertake the administrative burden of assessing such individual applicant’s unique employment situation and verifying benefit plans.

And the basic ‘‘all or nothing’’ structure of Medicaid makes it particularly difficult

for states to design a sensible and efficient interface with employer-financed coverage. Many modest-income working parents (of Medicaid eligible children) and

pregnant women are faced with a choice of free Medicaid or substantial contributions to obtain employer-sponsored coverage. Even when employer-sponsored benefits are generous and states pay the employee share of premium, states are faced

with requirements to also enroll recipients in traditional Medicaid to obtain coverage for Medicaid benefits which are often broader than those offered under their

employer’s plan. States are also faced with administrative difficulty of coordinating

Medicaid benefits with myriad different employer benefit plan variations. The Medicaid policies behind these requirements are clearly sensible, and to many of us desirable, for poor and near-poor persons. However, as we move up the income stream

to reach more uninsured children, it will be important to consider alternative approaches that can better create a complementary relationship between public and

private financing of coverage.

In response to the Medicaid ‘‘crowdout’’ experience, some have suggested that any

new expansions of children’s coverage should simply exclude children who are, or

have recently been, eligible for sizable employer contributions. Our analysis is that

such an approach would be both unfair and counterproductive in the longer run. As

the data in our report show, 30% of low-wage employees who work for firms that

offer coverage would, if eligible, face $2,400 or more in annual employee contribution requirements to obtain family coverage. Without subsidies, most low-income

families simply cannot afford such outlays, at least not without sacrificing other necessities. And subsidy policies that strongly favored families without access to employer coverage would also indirectly favor businesses who don’t offer coverage.

On the most basic and obvious level, government would be sending a message

that it does not support employer contributions to dependent coverage, and in fact

favors employers who do not. But beyond the obvious sentinel effect, such policies

could create counterproductive economic incentives. Firms offering coverage could be

placed at a disadvantage relative to competing firms that pay the same wages but

whose workers’ coverage is financed by the public sector. Such firms could afford

to pay higher wages while firms that have traditionally offered coverage to employees would be incented to move to the use of contractual arrangements for workers

without health coverage in lieu of direct employment. The net result would be that

profits, jobs and employees would shift toward businesses that do not finance family

coverage. And the population eligible for and receiving public subsidies would grow.

Effects of this kind may seem merely hypothetical: outside the abstract realm

where economists dwell, would millions of people immediately change their employment for a relatively small economic benefit? Would many businesses offering coverage fail while competing firms and start-ups that did not finance coverage grow

quickly? Would a number of employers drop coverage and offer temporary wage increases to offset employee costs during any ‘‘waiting period’’ required between employer coverage and eligibility for public subsidies? Possibly not, at least in the short

term. Over time, however, people do change jobs, and businesses do thrive or fail

based on their response to economic incentives. In short, it must be expected that

the market will respond to the incentives established by large national programs.

If there is no advantage to workers who receive part of their compensation in the

form of health benefits, the structure of compensation will change and public outlays for such programs would escalate.

If the intent is to rely and build on parallel public and private financing and systems, erecting a wall between them will not work. People are going to shift from

one kind of coverage to another as their circumstances change. And both employers

and employees will find ways to respond to economic advantages given to some businesses and employee groups over others. The Medicaid ‘‘crowdout’’ experience would

suggest that it would be better to structure financial incentives in such a way as

to encourage continued private contributions while providing even-handed assistance to individuals and families who require it. But if a related goal is to optimize

the use of public subsidies to achieve access to needed medical care, it will also be

important to encourage the use of health coverage vehicles that have relatively low

administrative costs and that do not magnify average per person or total public

costs through risk selection. Simply subsidizing purchases through the traditional
78

individual health insurance market could easily see a high proportion of public outlays going to insurance overhead while leaving those needing it the most unable to

afford coverage.

In addition, children and their families would be well served by policies which facilitated their ability to retain coverage through one health plan over time, rather

than forcing a change in coverage source when their financial status changes. Shifts

from employer to publicly sponsored plans often force a change in providers as well

as a change in myriad benefit details and access rules. Further, health plans do not

have positive incentives for the provision of even cost-effective preventive care if

turnover rates mean they usually won’t realize the benefits. We are hopeful that lessons drawn from the Medicaid ‘‘crowdout’’ experience can lead to coverage expansions for children that are more cost-effective for government, and are better for

children and their families.

Frankly, one of the reasons—your last comment, Mr. Curtis, that

Chairman THOMAS. I want to thank all of you.

f

some of the managed care programs for the Medicaid group I think

holds such great promise is if you can set up a structure which allows for an ongoing preventive care structure and try to deal with

the product in a nonstigmatized way.

You folk heard some of our earlier comments, and it carries

through on your information. I guess I am less interested Dr.

Gruber, Ms. Dubay, as to who is right, whether it is a 50-percent

crowdout or a 25-percent crowdout. I can’t believe literature was

initially adopted that said there was no crowdout. That, to me, is

illogical.

I noticed also that the focus was in the 185- to 200-percent level.

I guess if I said, What is your opinion of legislation that deals with

a 300-percent poverty level, Ms. Dubay notwithstanding, the benefit of having the public program, that you would agree it begins to

get fairly significant in terms of a public payment access question

versus the private. Or would you like the 300 percent?

Ms. DUBAY. What I would say is that we have no evidence of

what would happen above 185 percent of poverty. I would also say

that I think the potential for crowdout above 185 percent of poverty

there is enormous because such a large percentage of that population has private coverage. And so if a small percentage of those

that have private coverage drop it and participation rates by the

uninsured that are high, we may get a program where more dollars

are going toward substitution of coverage than to new coverage.

Chairman THOMAS. And whether we like it or not, there is a

clear relationship in terms of moving up the income level to people

who pay attention to what programs they have, what benefits they

get, the dollar amounts they are paying, the budgeting in terms of

their family at that level, I begin to get concerned about the public

policy of providing to a group of people a subsidized health care

package that is clearly a better package than what is available to

those folks who are trying to pay for it themselves and pay taxes

to provide that package to others.

So the crowdout becomes important to me because that is the

area in which we have to be most creative in terms of providing

options for people that either does not wind up in terms of a subsidy for some which draws them toward that subsidy that would

otherwise not be the case or go back to some of the older tax credit
79

approaches which, frankly, I don’t think get you much for your

money, and we have seen in the past don’t work as well.

But I am also concerned that the subsidy-nonsubsidy tends to be

a government employer access debate. If it is a subsidy, it is government, if it is done out in the private sector, you get it from your

employer.

Have you looked at the question of purchasing pools? Now,

schools were mentioned, but that creates the problem of separating

the children from the parents in an insurance structure. But some

States are offering insurance purchasing pools for small employers.

I am wondering if you had any examination of alternate insurance

packaging structures that might get us off of this employergovernment access?

Mr. GRUBER. I think some States have tried voluntary pools. I

think voluntary small business pools have not been very successful,

if anything on a very, very limited scale, because of the adverse selection problems that were mentioned. It is difficult but a voluntary

skill to make them work. So I think, at least my sense, maybe the

other panelists know more about this, my sense is voluntary pools

have not really gotten very far in terms of——

Chairman THOMAS. My problem is when we talk about adverse

risk selection, I can’t think of which is a worse one which does not

necessarily do it in a traditional insurance sense but in which the

people choose the public insurance versus the private because it is

free versus expenses in the other. That is a very perverse structure.

Mr. GRUBER. I agree. In fact, I think the important point you

brought out is not to forget the tax subsidy, which is a large public

expenditure that certainly shouldn’t fall out of this debate.

Chairman THOMAS. I do want to focus on that. Mr. Curtis mentioned it in his paper only as a concern; as we move forward that

wouldn’t be an academic one. But I am wondering why it couldn’t

be part of the policy decisionmaking, because I think that is where

the current incentives create a maldistribution on the exclusions

and deductions, and everybody just assumes that is a given and

that is the way the world works. So, we have got to adjust it between the crowdout range that you are looking at. I am wondering

why we don’t look at the total public expenditure and talk about

a redistribution.

Interestingly enough, Senator Kennedy and the labor unions do

this when they talk about income, and they want a progressive income tax for redistribution of wealth. But I have not heard them

talk about a redistribution of the benefits in terms of the Tax Code,

and that is because in large part unions get a significant benefit

dealing with corporations, in my opinion, as to why they have not

laid that in front of us.

But I think, from a public policy point of view, to take a look at

who currently is getting benefits on a percentage basis of income

shows there is an enormous maldistribution. And we are arguing

in an area in which there are clear, as you indicated, Mr. Gruber—

notwithstanding your crowdout argument, there are clear benefits

to make sure people have this insurance and utilize it. But I have

a very difficult time looking at the current maldistribution and say-
80

ing we will not look at that as part of the solution as we try to figure out how to deal with the people on the margin.

Mr. GRUBER. I mean—I very much agree. I think there are a

number of problems with the tax subsidy. I think the only resolved

questions the academics are still struggling with is that if you limited the tax subsidy, what would that do to employment-based

pools? Would that break down employment-based pools? Which

employment-based pools have a number of advantages?

And what we don’t know is to what extent is the tax subsidy the

glue that holds them together and to what extent would they hold

together otherwise because of other pooling benefits. Absent that

issue, I think you are exactly right. There is no reason why we

should be subsidizing at an increasing rate as taxes go up health

insurance for high-income purchasers and worrying about crowding

at the bottom.

Chairman THOMAS. Well, I would like to eventually get to your

question. My problem is that with current cafeteria plans and others where you have more and more two-income households, that

the decision of which spouse carries the insurance and what kind

of an insurance program is offered by the employer and how you

can up the other benefits under an open-ended fringe benefit package, to me are games that are being played at the higher income

levels which get a disproportionate share of the writeoff in the first

place.

Again, that kind of a policy decision ought to be looked at by

folks who are concerned about it in other areas; and I am just

amazed that that seems to be a given without discussion on it.

That is part of my concern about moving public dollars. If you

are talking about bang for the buck, we have a lot of restructuring

to do to make sure that the people at the lower end get a fair

share. And it is not just looking at new public programs to move

new public dollars into, but to reassess how our current public dollars are being spent to create a fair and equitable system.

Thank you very much.

Mr. Stark.

Mr. STARK. Thank you, Mr. Chairman.

I want to thank the witnesses for an interesting presentation. It

seems to me, Dr. Gruber, that you have testified before us at some

point in the past.

Mr. GRUBER. Yes.

Mr. STARK. So, I probably told you then that even though MIT

flunked me out before you were born, I hold no grudge. But I would

like to know——

Mr. GRUBER. Toward him personally?

Mr. STARK. Or the rest. Because I later got a degree out of them.

But there is a battle between Lester Thurow and whom?

Mr. GRUBER. Paul Krugman.

Mr. STARK. Who do you sign up with?

Mr. GRUBER. I am with Paul Krugman.

Mr. STARK. All right. I don’t know what difference that makes,

but I just read that article recently. Is that destroying the program?

Mr. GRUBER. Is that what?

Mr. STARK. Is that really causing real problems?
81

Mr. GRUBER. No, not really.

Mr. STARK. OK. I am really going to ask each of the three of you,

do you know—whatever we call it——

Mr. GRUBER. Crowd-out.

Mr. STARK. Crowd-out and the fact that we might have to tax

somebody or might have to do a variety of things notwithstanding.

If, in fact, each of you today had to figure out a way to insure the

10 million kids by the end of the year, what would you do? And

nothing is not acceptable.

But then, before we do that, I wanted to ask Dr. Gruber if he

ever included Jonathan Swift in his research?

Mr. GRUBER. I don’t understand that context.

Mr. STARK. Well, you did a paper; and you discussed the value

of saving an adult life; but you say that for kids it ain’t so clear

because we have not invested a lot in the children. So, therefore,

little children might not be worth as much. And I would commend

to you Jonathan Swift’s modest proposal. You haven’t read it?

Mr. GRUBER. No, I have not. I must admit I am impressed you

have read my research so carefully.

Mr. STARK. Well, please do; and you will see why I suggested it,

and you may get a chuckle out of it. But I just wanted to add that.

Jonathan Swift’s modest proposal.

Mr. GRUBER. I will take a look.

Mr. STARK. I would like to know if that figures into your proposal.

And then, also for my colleagues, what you are saying is that if

we expand health insurance for poor women and children, that this

is going to expand marriage. Is that right? Didn’t you say that?

Mr. GRUBER. Yes.

Mr. STARK. OK. What I am saying is that not only will we insure

these kids, but we are going to decrease the level of illegitimacy,

because so many people will not stay unmarried to keep the benefits of Medicaid.

MR. GRUBER. This is something that has not come up in the

hearing, but one thing that economic researchers paid a lot of attention to in the last couple of years, expanding Medicaid to other

benefits besides health, it gets people off the welfare program because now they don’t have to stay on welfare to get their health

insurance.

Mr. STARK. We are going to need all the help we can get, and

that might get us a vote or two.

Now the real question for each of you—Ms. Dubay, Dr. Gruber,

Dr. Curtis—if we were to do it tomorrow, real quick, how would

you expand? How would you do it? Expand Medicaid? Subsume

Medicaid into Medicare? Do it all through private health insurance

and have a tax credit? What would you do? Ms. Dubay—in 25

words or less.

Ms. DUBAY. I think, obviously, there are a lot of options. I would

start by making some real efforts to increase Medicaid participation rates. I would phase in the coverage of older kids up to 100

percent of poverty immediately, and I would extend Medicaid up to

133 percent of poverty for those kids that are 6 to 18, and that

would cover 61 percent of uninsured children.

Mr. STARK. How would we deal with the other 39 percent?
82

Ms. DUBAY. There are a range of options. There are certainly six

or seven plans that have been introduced in Congress. I think there

are many ways to cover the remaining uninsured children. What

the different plans deal with are different mechanisms for financing and administration; and I think all of them have their pluses

and minuses.

Mr. STARK. Which one has the least minuses? Income relating to

subsidy?

Ms. DUBAY. I think income related subsidies are essential, if we

want to ensure children have health insurance coverage.

Mr. STARK. Dr. Gruber.

Mr. GRUBER. I would do three things. I would make every effort

to sign up the eligibles who aren’t taking up, particularly focusing

in schools. I would extend Medicaid to all children below 133 percent of poverty up to age 18, and I would make it available to up

to 200 percent of poverty but increase premiums so that by 200

percent of poverty, they pay the actual average per child premium,

which I think is still—if you look at—if you call that $500 per kid,

a family of twice poverty, that is less than 3 percent of their family

income. If they have two kids, they can insure two kids for less

than 3 percent of their family income and pay the average cost.

Mr. STARK. I think we can only get the cost that low if the program were mandated to do so and there was no adverse selection.

Mr. Curtis, how would you do it?

Mr. CURTIS. I, too, would probably expand Medicaid up to 133

percent of poverty. Beyond that I would go with a program with

somewhat less generous benefit structure, with sliding scale contributions that made it affordable to people who do not have employer coverage available and that benefited people who do have

employer contributions available. That is, the more the employer

contribution is, the less the net amount the individual would pay;

and, therefore, you would be encouraging employer contributions.

In addition, and we have been doing this over the last couple

months, I would work with small employer purchasing pools and

with States on a more elegant interface between private and public

coverage. And I also believe these kind of purchasing pool approaches have substantial potential as a vehicle to combine multiple employer contributions where you have a two-worker family

with contributions available from both employers but not adequate

enough from either to make coverage affordable.

Mr. STARK. One final question. Maybe you could each comment

on this.

In the past, we have had some agreement on both sides of the

aisle about the idea of subsuming Medicaid into a Medicare or

Medicare Program for kid care, and keep the trust funds and everything separate from the seniors’ Medicare. And with the

changes in block grants and all the implications that welfare reform might have on eligibility, would any of you answer any differently if we, in effect, did away with Medicaid for kids and made

it a Medicare? Because then, basically, what we are getting almost

all children into it?

Ms. DUBAY. I think there are some advantages to that concept.

Medicare is a program that is very well received, very well liked

in this country.
83

Mr. STARK. And can you buy private insurance with it or go into

managed care?

Ms. DUBAY. As much as the Medicaid Program provides an important safety net for poor children, there are clear access problems

within the program; and I think a Medicare Program—a Medicarelike program could potentially solve some of these access issues.

Mr. STARK. Since Chairman Thomas gets jurisdiction, that is not

a significant factor in this.

Anybody else?

Mr. GRUBER. I think if you were going to do that, it would be a

great opportunity to fix the things that are wrong with Medicare,

that are hard to deal with for the existing Medicare Program, do

things like increasing use of managed care and other beneficial

things. It might be a good—starting fresh might be a good time to

fix those things if you are going to deal with kids. With that, I sort

of agree with what Lisa said.

Mr. CURTIS. I would leave the children’s population with expanded Federal financing, whether it is redistributed tax dollars or

others at the State level, for the following reasons: For the children

without a connection to the work force, approaches through school

systems make sense. Those are State and local. Children’s families

are often changing job status and income; and it just makes sense,

if we are interrelated with the private sector employer-based coverage, that it is just far easier to do that at the State and local

level.

If we are going to expand Medicare to cover some populations

now under Medicaid, I would pick up the SSI supplemental population, the elderly and disabled. I always felt that is screwy to operate that program at the State level rather than the Federal level.

Mr. STARK. Thank you. Thank you, Mr. Chairman.

Chairman THOMAS. The gentlewoman from Connecticut.

Mrs. JOHNSON of Connecticut. How much do you know about

where the uninsured live?

Ms. DUBAY. I personally have not looked at that. My impression

is that they live everywhere.

Mrs. JOHNSON of Connecticut. Well, certainly they do live everywhere to some extent, no question about that. But, obviously, any

information you can give us I think would be very important. Because just as the Medicaid population is concentrated, there may

be concentrations that would help us at looking at where the answers lie in this issue.

I would like to have your best effort on where these kids are and

also what they are getting now. How many of them actually do participate in the school-based health care plans? How many are in

community health centers, community health center programs?

How many are emergency room care people? You must be able to

find out something about the care that the uninsured children are

currently getting. Because unless we know that, we don’t know

what funds to redivert.

Mr. GRUBER. I don’t have the facts on the geographical distribution, but your comments actually raise a very important point

which I think is largely ignored in this debate. The debate is focused on what economists call the demand side. Let’s get these people insurance. There is a supply side out there which is a lot of doc-
84

tors won’t see Medicaid patients. One-third of doctors will not see

Medicaid patients, and one-third only see a very limited subset.

Only about one-third of doctors will see Medicaid patients.

Mrs. JOHNSON of Connecticut. And why is that, Dr. Gruber?

Mr. GRUBER. One main reason is the low fees. Medicaid pays

typically one-half or less what private insurance pays, and in some

research I have done we actually found there is a lot——

Mrs. JOHNSON of Connecticut. But we are also beginning to go

down that track with Medicare as well.

Mr. GRUBER. True.

Mrs. JOHNSON of Connecticut. I think it is important to see

where they are being seen now. Why are voluntary vaccine programs not working? We need to know why what we are doing now

to reach these kids is not working, because otherwise we—the

crowding out problem is real; but I think it is only going to get bigger. Because I think once you get into there and small employers

figure out, Hey, I don’t have to cover these guys, that you are going

to get massive reaction.

But, more importantly, even if you cover them, if physicians

won’t treat them—we had the discussion with the preventive

panel—if you drop the reimbursement for some of the preventive

studies so low and it is only a certain kind of office physicians that

provides that preventive study, then you catch that physician between giving millions of preventive tests for which he essentially

gets no reimbursement or seeing a person that really has a serious

disease, needs a lot of attention, and for which he will get reimbursement.

So I think you have got to be careful about—there are a number

of aspects about the crowding out issue that we are not looking at

when we just look at the data about small employers versus Medicaid.

But Mr. Curtis, you made a very interesting comment. You said

you would recommend a stripped-down Medicaid package. This is

an aspect of the crowding out issue that reverses the role we have

not talked about, and that is that the Medicaid benefit package is

far richer than most small employers offer. So what impact—if we

really go at this, what impact is that going to have on crowding out

in a sense for legitimate reasons because you can get better health

care for your children?

Mr. CURTIS. Well, actually, it relates to crowding out in another

important way; and that is, under current law, even where a State

identifies and buys into employer-sponsored coverage, they also

have to enroll them in traditional Medicaid for any service covered

to any degree beyond what the employer package covers, even if it

is a high option HMO package. That is very, very difficult administratively, as you can imagine, doing that benefit package by benefit

package with myriad employers’ plans; and it has been a big impediment to States even trying to coordinate.

So beyond the obvious incentives of a more generous benefit

package here versus a somewhat less generous benefit package

over there, there is that administrative impact as well.

I believe Medicaid’s coverage policies are very well structured for

poor and near poor children. I think as you move up the income

stream, parents can afford modest cost-sharing requirements and
85

the other kinds of modest limitations in a typical HMO benefit

package from a typical employer, and that they would not be impediments to children’s access to preventive and primary care.

Mrs. JOHNSON of Connecticut. Do you think we should amend the

1990 law to make it far easier to administer at the same time that

we look at the issue that you pointed to with the need to help small

employer groups and States integrate those Medicaid and small

employer options?

Mr. CURTIS. In retrospect, we certainly could have done much

better in designing the 1990 law.

Mrs. JOHNSON of Connecticut. I read your testimony as if it is basically nonfunctional.

Mr. CURTIS. There are a few States that are doing everything

they can; but even those only get, for example, responses back from

a small minority of employers they inquire of.

Mrs. JOHNSON of Connecticut. For national law, if a few States

do it to a limited degree, I don’t consider that success.

Mr. CURTIS. No, it is clearly not a success.

Mrs. JOHNSON of Connecticut. But this was an idea that you are

saying has some merit, and I would like to have your help in looking at that. Because I think small employer groups are very important, and I think this interface with Medicaid and small employer

groups has got to be looked at much more realistically.

But I would ask you—see, community health centers can offer

that whole package of Medicaid benefits, which is a broader package. Are you aware of any effort to use that as a delivery vehicle

because it is also a setting in which managed care and the benefits

of managed care can be offered?

Mr. CURTIS. I am not familiar with that, but I would point out

a couple of related factors. Most children with employer-sponsored

coverage available through their working parent have a parent

working for a larger employer, not a smaller employer, first.

Second, as we are looking at extending coverage to children moving up to, let’s say, 200 or 300 percent of poverty, many of these

working families do not live in areas that most traditional Medicaid clients reside in; and I have to imagine that they are in many

cases not proximate to a community health center for similar reasons. These are modest income, working, middle-class families.

Mrs. JOHNSON of Connecticut. I agree, Mr. Curtis. That is why

I want to understand who lives where and what. Because we have

no idea, really, what percentage of these could be served by a modest expansion of the community health centers.

In Hartford, Connecticut, in working with the community health

centers a few years ago, with two community health centers, they

felt they could cover the whole low-income population of Hartford.

Now, we didn’t allow that, so they have not done that.

But I think we have to look at what kind of infrastructure investment would we have to make to make that available, and then how

do we get employers involved in helping their employees participate in that, which isn’t as expensive as insurance. So I think there

is some—we need to know where people live, because we need to

know what access they are going to have. Because you can give

them insurance, and if there is nobody that takes Medicaid, they

still have no access.
86

Mr. CURTIS. That sounds reasonable. The only hesitation I

have—and it is a significant one—is, again, I believe we should

find ways for families to be in the same access and coverage vehicle

so that they do not have to figure out a different way of accessing

needed care for every member of the family. I think that is unnecessarily burdensome.

Mrs. JOHNSON of Connecticut. I think that is a very good point.

Thank you.

Thank you, Mr. Chairman.

Chairman THOMAS. Gentleman from Georgia wish to inquire?

Mr. LEWIS. Thank you, Mr. Chairman. Mr. Chairman, I will be

very brief.

I want to thank the members of the panel for being here. I know

between the three of you there is not any debate or conflict about

the number of uninsured children. I think you tend to agree that

the number is about 10 million. Is there any conflict, any debate

there?

And I know something about your background and your history.

You are very smart. You spend a great deal of time looking at the

whole issue of health care for children, the question of providing

insurance for children.

I guess where I am at this point, this is 1997; and we are moving

toward the 21st century in our country, on this world, on this little

planet; and I guess I want to see a revolution in this whole area.

I don’t want to be patient. And I guess the question I want to ask

here, What else can we do as a nation, as a Congress, in a short

time, in a very dramatic fashion, to bring in the children that have

been left out, left behind into Medicaid? What can we do?

Mr. GRUBER. Well, I think one place that we can all get behind

that, presumably it will be quick and presumably not that expensive, is we have these 3 million kids out there that are eligible for

this program and who, for some reason we don’t quite understand,

are not taking it up. And the experience of some States like New

York and I think to some extent Florida to take effective advertising, effective use of schools, something we can do in a relatively

short time that is not that expensive and presumably not that controversial, that can have a dramatic impact. After all, we are talking about 30 percent of the number of uninsured kids that can

have a dramatic impact in a very short time. I think that has obviously got to be the first step.

Ms. DUBAY. Part of the problem is that we do not know why they

are not enrolling. We don’t know if it is because the Medicaid eligibility determination process is very difficult. We don’t know if they

don’t know about the program. It is really the parents of these children acting as agents for the children; and we don’t really know

why they are not enrolling their children in Medicare. Until we figure that out, we can’t find a solution to the problem. And I think

that is probably the first step, trying to figure out why children are

not enrolling.

And I think Jonathan’s point is good, there are some States

working through the schools to make eligibility determinations

there for Medicaid coverage, and I think that that is an important

way to reach many of these kids.
87

Mr. CURTIS. My understanding is that in Florida their program—

piggybacks eligibility on the school lunch programs. So it is very

simple. People know if they are eligible or not. And, of course, they

are reaching them through the schools rather than the welfare offices, which is a good way to reach most of these people, we think.

Mr. LEWIS. Is there something you would recommend to the Congress that we can do that would not cost a lot of money in terms

of involving the private sector in a major media-type campaign in

an effort to educate and to open the lines of communication to the

American people to enroll their children, saying to the American

people that if we don’t take care of our children on the front end

we are going to pay more on the back end?

Ms. DUBAY. I think that in some local areas, particularly with

the Medicaid expansions for pregnant women, there were some

public-private partnerships where private dollars were leveraged to

do that sort of outreach campaign; and in some places they were

very effective.

Mr. LEWIS. Thank you.

Thank you, Mr. Chairman.

Chairman THOMAS. Thank you.

Does the gentleman from California wish to inquire?

Mr. Becerra.

Mr. BECERRA. Let me ask the panel the same question I asked

the first panel, and that is the trend of seeing employers providing

less options of health coverage to their employees. Do you believe

that the trend will continue where we see fewer and fewer employers providing health insurance—meaningful health insurance coverage to their employees?

Mr. GRUBER. I think there are two points.

First of all, one place that both Lisa and I agree is that the majority of that trend is not due to Medicaid. Even though crowdout

is large, by my estimation over 830 percent of that trend is not due

to Medicaid. Over 830 percent of that trend is due to other factors

in the economy, and I see no reason for those factors to reverse.

It has been going on a decade or more. Now we see this rapid deadline, and I see no reason for those—regardless of what government

policy is on Medicaid, I see no reason for those other factors to reverse.

Ms. DUBAY. One thing I would like to mention——

Mr. BECERRA. If I could followup with Dr. Gruber before I get to

you, Ms. Dubay.

We see both employers reducing coverage and we see employees

through this crowdout phenomena also perhaps leaving their employers to try to go to the public sector?

Mr. GRUBER. Yes, I think both are going on. I think if you look

at the time series that the majority is not Medicaid, the majority

is—both employers and also employees are not taking it up. It can

be very expensive, particularly for dependents, even if they don’t

move on to public programs, just choose to not have their kids insured rather than paying the cost.

Ms. DUBAY. The point I was going to make—and I think it really

illustrates what was going on over the period of Medicaid expansions—was that between 1989 and then 1992—employee contributions for individual policies rose by 25 percent, while employee con-
88

tributions for family policies rose by 50 percent. So we were seeing

a much faster decline in the dependent coverage.

I think that is part of what was going on with the displacement

we are seeing, was that individuals were dropping their employersponsored coverage in response to these increased employee shares

of premiums. And there is no evidence that suggests that this increase in premium contributions is going to decline or stop.

Mr. CURTIS. I feel compelled to point out that the erosion in employer contributions to family coverage which was dramatic in the

late eighties and very early nineties has not continued. At least

there is not consistent evidence from the employer surveys from,

say, 1991 to the present.

In fact, the Foster-Higgins survey shows virtually no erosion in

employer contributions to family coverage during that period; and

it makes some intuitive sense because, of course, health plan premiums stabilized. Employers weren’t facing rising premiums. There

is evidence now that premiums are rising again, and I expect we

will see some of that erosion again.

But in addition to responses to rising health care costs, we have

seen far more aggressive action by employers to avoid cross-subsidizing other employers. And there has been some understandable

but unfortunate gaming going on by either reducing contributions

to family coverage or—and this is the kind of thing that does not

show up in any of the surveys—making it beneficial to the employees to not take advantage of employer coverage when other coverage is available, either through flexible spending accounts or

through things like a smaller firm increasing a person’s wages who

doesn’t take the health benefits. Large employers became painfully

aware that a lot of small employers that do not offer coverage were

doing so at the expense of the larger employers who employed their

spouse, and a number larger employers decided that was not fair

and responded accordingly.

Frankly, my guess would be what we see in the way of erosion

in family contributions over the next 5 or 6 years will directly reflect what happens with health insurance premium prices. I think

those other factors have probably played out now.

Mr. BECERRA. Let me ask you then this question. Unless we get

a total grip on the cost of health care, we are going to continue to

see employers brought to the margin in terms of being able to provide coverage to the employees and employees’ families; and so we

will probably see some diminished capacity by the employers in the

Nation to provide good coverage.

We have that pool of poor individuals, and even if we take into

account the three or so million children that we already know are

eligible for Medicaid, say we get them all covered, we still have a

pool of poor or fairly poor individuals who don’t have coverage.

The more we make an effort to try to cover those very poor, in

other words, go up the ladder to provide coverage for the very poor,

the more we end up with this dynamic where folks are going to be

pulled by that magnet of having public health care to stay away

from the employer type of coverage, or the employer deciding it is

better for me not to provide it. So that there will be a constant pull

to have the public sector do it.
89

But you are always going to seem to have that in between population of people that do not qualify as poor, can’t afford the employer based. And every time policymakers are going to be asked

to try to resolve the problems for that in between population, we

are going to have to constantly drive up the public sector cost.

It seems to me, from everything I keep hearing, that means the

private sector is going to be pushed away from trying to meet that

need itself as well, which means ultimately we are going to have

to go toward a public sector solution to try to get some form of universal coverage for all these folks out there, whether poor, modestly

poor, middle income, or otherwise. Ultimately, doesn’t it just boil

down to the whole issue of how do we get to universal health care?

Mr. GRUBER. I think ultimately it comes down to whether health

care costs can just continue to rise at the rate they are. Many, in

some instances, for some reason, will stop, because we cannot

imagine spending one-third of our economy on health care. But ultimately it depends on what happens there.

I think that, incrementally, the first step is to try to fix the inefficiencies that we know are wrong with the private market, like the

employer tax subsidy, which leads to inefficiently high, generous

health insurance coverage and potentially contributes to rising

health care costs. I think that is the first step you would want to

think about taking.

Mr. BECERRA. But everything we have been saying—crowdout,

cost for employers to provide coverage to competition, where some

employers are financing their costs and others are not and they

have that competitive advantage, those that do not provide it—in

essence, what we are talking about is the fact that some people

have coverage, whether it is employer financed or public sector financed or private pocket financed, ultimately, that means employers providing enough for them to privately pay for it, or it is publicly financed totally by government.

But we have a gap, and the reason we have a problem is because

there is this disparity, someone is paying for someone else. And

whether it is crowdout or other issues, you are not going to resolve

crowdout or anything else until you get to the point where someone

wouldn’t be put at an imbalance compared to someone else, whether it is the employer or employee. Which means until you provide

everyone with access to the coverage, you are always going to have

that competition.

Should an employer provide health care coverage, which means

more cost to the employer when another employer is not doing it?

Ultimately, it seems to me you get to that point where you have

to resolve that issue. We have got a middle population that does

not have coverage because it can’t afford it, but we are not willing

to provide it.

Ms. DUBAY. In a lot of ways I think you do make a really good

point. And in terms of thinking about this problem, I really have

struggled with this. Because if you really want to get these children covered, to get them insurance coverage, you are ultimately

going to commit more public dollars to do it. And if your goal is

to get these children covered, that is probably what you are going

to end up having to do.

Mr. BECERRA. At someone’s expense though.
90

Ms. DUBAY. At someone’s expense.

Mr. BECERRA. If you continue to have the population that won’t

get the coverage.

Ms. DUBAY. There are people that will drop their private coverage. However, they may drop for good reasons. The dropping may

not be just the substitution of coverage. It may be obtaining coverage that they do not have access to now—for instance, if they

have plans that are catastrophic or that don’t offer preventive coverage. So that shifting from private to public coverage may not be

a bad thing, and it may get children the kind of coverage that we

really care about them having. But it will cost us money.

Mr. BECERRA. Mr. Chairman, you have been gracious with the

time. I appreciate it.

Chairman THOMAS. The gentleman’s point is precisely the one

that we have to grapple with. Because if we do not have an appropriate phaseout, you will be chasing the public subsidy right up to

the top of those people who don’t take insurance because they are,

in essence, self-insured by the basis of their own wealth.

That is why we have been trying to put the focus on the nexus

of how you create a phaseout, an increased contribution, a mix of

options at that phase point to allow for the private sector to continue to pay. Because it is simply an enormous amount of money

that we are talking about. We already are putting in enormous

amounts of money. I think people who pay are willing to put in a

bit more to get those below the poverty level covered. But as we

move toward managing better health care plans in the public sector

than those who can pay for it themselves who are also paying for

the public sector, you have got a very, very serious problem.

Mr. BECERRA. If I could almost ask the Chairman a question to

pose to the panel as well. Won’t there still—even in that scenario,

if we are able to find some fantastic way to provide a phaseout

scheme, won’t we still have the same thing in play, people balancing the interest?

Chairman THOMAS. Of course, but our concern now is at the margin rather than at the bulk, as the gentleman from Georgia has indicated the concern. That is why I think our first priority here is

to get the three million children who are supposed to be covered

covered.

I think we may learn some lessons about how we package a product and how we communicate a product which will serve us well

as we move forward. Because it is just hard for some of us, as the

gentleman from Nevada indicated, to understand why, when this

is available, people don’t utilize it. It is obviously a question about

education, the way in which it is packaged, where and how it is

packaged. And those lessons, I think, will serve us well at minimum dollars, or most bang for the buck, as Mr. Gruber says, those

lessons, and then those lessons we can apply.

That is why I am concerned about these all-in-one solutions before we have really looked at and fully understand who the folk

are, where they are, and how we might best serve their needs. So,

in this sense, I do believe in the long run we will be serving everyone’s interest if we move incrementally. It doesn’t mean we can’t

make some real big jumps fairly quickly at the low end of the scale

and then be a bit more precise as we move forward.
91

So I guess I would ask just a final question. In terms of the President’s plan, where he is willing to spend $20 billion, more

than half of it is in this short-term coverage of temporarily unemployed. I guess I will start with Dr. Gruber, who is most concerned

about bang for the buck. Is this where you would spend 50 percent

of your available dollars to meet the children’s insurance needs?

Mr. GRUBER. I am not particularly familiar with the details of

the plan. I think clearly the unemployed, some of them had access

to health insurance through COBRA, so those people do have access to purchasing health insurance. I think there is a need among

those people to maintain their children’s coverage.

But I think for most of what we are worried about with kids is

preventive care. If you go a month or two without preventive care,

it is not the end of the world. What we are really worried about

is these kids who go a year or two without preventive care. So I

guess I share your concern. The real problem with kids especially

is going long stretches of time where they are not getting the preventive care that they need.

I do not know whether one-half or less than one-half is the right

amount to spend in the short-term groups, but clearly you want to

worry about—with kids especially where it is less acute and more

preventive, we want to focus our energies, I agree, on the longer

term population.

Chairman THOMAS. Any other reactions?

Mr. CURTIS. Well, if the question is, Is that the lowest cost way

to cover uninsured kids, I think the clear answer is, no, if the focus

is solely kids.

One advantage of the approach is it does keep families together in terms of coverage. But $20 billion a year would be at least double or maybe triple what you need to finance coverage for all 10

million uninsured kids.

Chairman THOMAS. And that probably brings to a conclusion this

Subcommittee, because it is a dilemma. We do want to provide coverage. How you cover it, I believe, is the current debate, not whether or not, especially those below the poverty level or somewhere between 100 and 200 percent of poverty should be covered.

I want to thank the panel for its testimony. I am sure we will

get back to you as we move forward on this issue.

I want to thank the Members.

The Subcommittee is adjourned.

[Whereupon, at 1:10 p.m., the hearing was adjourned.]

[Submissions for the record follow:]
92

Statement of American Academy of Child and Adolescent Psychiatry,

Lawrence A. Stone, M.D., President

The American Academy of Child and Adolescent Psychiatry (AACAP) thanks you

for holding hearings on access to health care for children. Many of the 10 million

American children currently without health insurance are children with mental illnesses. These are children who suffer from childhood schizophrenia, depression,

attention-deficit/hyperactivity disorder, obsessive compulsive disorder and conduct

disorder.

The Academy, representing over 6,000 child and adolescent psychiatrist, urges

you to support non-discriminatory coverage for mental illness treatment in any related legislation. The treatment of childhood disorders represents a major public

health concern. Chronic mental illnesses respond well to treatment but lifelong access to the health care system is necessary. Successful diagnosis and treatment is

a wise investment, given the pain, long-term disadvantages, and financial costs associated with untreated childhood behavioral and emotional disorders.

Health care reform proposals directed toward universal access for children and

adolescents can result in a comprehensive change to a new benefit and payment system, or it can reform the existing system of public and private insurers. Whether

there is a move to an expanded Medicaid program, a tax-based incentive program

for employers or a subsidy program for parents and guardians, we ask that children

and adolescents with mental illnesses be assured nondiscriminatory coverage.

RECOMMENDATIONS FOR HEALTH CARE REFORM 1997: CHILD AND ADOLESCENT

PSYCHIATRIC SERVICES

The following three recommendations will support appropriate, quality care under

any health care reform system:

Access and Nondiscrimination

1) Children and adolescents have no access to insurance on their own. Provision

should be made to include access for all children and adolescents, regardless of their

family’s status or income level. Access to psychiatric services should be provided on

a nondiscriminatory basis integrated with other necessary medical services. • Child and adolescent psychiatrists are the most highly trained professionals in

the service-delivery team.

Trained to assess the biopsychosocial dimensions of most childhood disorders, they

should not be excluded because of their unique training nor should it be assumed

that other, lesser-trained physicians or health care providers, can treat serious psychiatric illnesses and have the same outcomes at a lower cost. • Services provided by child and adolescent psychiatrists should not be discriminated against because of misperceptions regarding cost or length of treatment. Excluding physicians who have acquired special training in order to treat children and

adolescents is counter productive and not cost effective. Managed care contracts for

medical services should not discriminate against physicians or hospitals by forcing

unrealistic limits on reimbursement and skewing patients to less skilled persons.

Errors in diagnosis and treatment are costly. For children this can mean developmental delays. Appropriate, quality care will be cost effective; artificial limits on

who can treat or where and for how long treatment can take place raise questions

of liability and quality of care. • Diagnoses included in the DSM–IV should be reimbursable. Discrimination by

insurers against select diagnoses is unacceptable, especially when illnesses are

excluded for cost-containment reasons. Numerous insurers across the country

have decided that conduct disorders, Tourette’s disorder, or attention-deficit/hyperactivity disorder are not reimbursable. There is no reason for denying treatment for

these serious illnesses except to control costs or because of a lack of understanding

about the seriousness of these illnesses.

Range of Services

2) Services provided should include a wide range of treatment options—including

but not limited to preventive interventions, early identification, assessment and diagnosis, case management, outpatient treatment, partial hospitalization, homebased services, detoxification and inpatient treatment. Treatment for children requires that services involve both the child or adolescent and family as well as appropriate collaboration with other significant care givers, teachers, physicians or providers of other needed services.

• Reimbursement for a range of services to treat psychiatric illnesses has increased slowly. Innovations in treatment are inhibited by some reimbursement limitations. The system has tended to favor the most expensive treatment, such as hos-
93

pitalization and not to include partial hospitalization, or, in the case of residential

treatment, shift from including to excluding it with no explanation and no addition

of other services. • The use of inpatient services, like hospitalization and residential care, should

not be discriminated against or unfairly capped because of misperceptions about cost

or effectiveness. These are necessary treatments for children and adolescents with

severe disorders. Community resources are often limited to inpatient services, which

has contributed to inappropriate care. A reform proposal must support expansion of

community services and adequate reimbursement for providing those services. • Medicaid is designed to provide mental health services (to eligible children and

adolescents). Medicaid’s mandatory services for children and adolescents with psychiatric illnesses cover outpatient hospital services, including partial hospitalization,

inpatient hospital and physician services, and services under the Early Periodic

Screening, Diagnosis and Treatment (EPSDT) program. In 1989, Medicaid was

amended to require the provision of treatment and follow-up services for problems

identified through EPSDT screening even if the state does not normally cover such

services through Medicaid.

Most states have not been able to comply with the expanded Medicaid requirements, primarily for economic reasons that impede the training of screening personnel, the establishment of referral protocols, and the inability to reimburse for professional services at any more than a minimal level; however, the language of the law

reflects a reliable model for both prevention and treatment of serious emotional disorders.

Cost containment

3) Incentives should encourage the use of the earliest of interventions, the level

of treatment necessary, treatment and management by an appropriately trained

physician, and the most appropriate treatment setting possible, all of which would

best serve the child’s clinical goals in an economically prudent manner. • Managed care, when used for cost containment, should not be equated with

minimum care. Competition for contracts can lead to mental health benefit packages

that discriminate solely because of the stigma of the illnesses involved. Children and

adolescents with psychiatric illnesses often require complex diagnostic processes.

Comorbidity is high in diagnoses such as conduct disorder or attention-deficit/hyperactivity disorder, and adjustments in the treatment plan may be necessary. Inflexible packages obstruct even standard treatment plans for children and adolescents.

Diagnoses of comorbidity require trained child and adolescent psychiatrists. To miss

a diagnosis and leave it untreated, lengthens the treatment and adds to the cost

of the illness. • The use of managed care to control medical services must be regulated. The

managed care industry’s practices vary widely in organizational structure and quality. Reform measures will be compromised if regulation and oversight are not included. Improper utilization review can grossly compromise the treatment and significant psychiatric or physical harm may result. Too often, child and adolescent

psychiatrists find that reviewers do not have enough knowledge about treating

young patients. Even medical directors, unless trained in child and adolescent psychiatry, make treatment plan review recommendations based on adult practice

guidelines.

• Case management is essential to mental health care reform. Negotiating with

agencies, resources, providers, and specialists is difficult and frustrating, and delays

in treatment can result. Case managers must be trained to access a wide range of

services and be appropriate in referring to those services.

Child and adolescent psychiatrists are physicians who are trained to treat the

psychiatric illnesses of children, adolescents and adults. Their skills incorporate the

broadest range of treatment skills available for treating the biopsychosocial facets

of mental illnesses. Access to care by a child and adolescent psychiatrist should not

be excluded or limited because of discrimination, stigma or misperceptions about

cost and effectiveness.

Conclusion

The American Academy of Child and Adolescent Psychiatry thanks you for your

consideration of children and adolescents with mental illnesses. Child and adolescent psychiatrists treat youngsters with serious mental illnesses and understand the

problems of inadequate health insurance. When treatment is delayed, families suffer, financial burdens expand, and social services are overwhelmed. AACAP urges

you to support health insurance coverage for all children and adolescents with mental and physical illnesses. Children must have access to the appropriate treatment

and services needed to develop into productive and independent adults.
f

94

Statement of American Academy of Pediatric Dentistry, Chicago, Illinois

To the surprise of many policy maker’s, America’s low-income children continue

to experience high levels of dental disease and disability, and restricted access to

dental services while their counterparts in middle-and upper-income households

enjoy unparalleled dental health. • Afflicted children experience pain, infection, distraction from learning, and over

1.1 million days sick-in-bed and nearly 500,000 missed school days from acute dental conditions each year. • In spite of repeated evidence from national surveys demonstrating that low-income children continue to experience significant levels of dental caries (tooth decay),

a recent report from the DHHS Office of the Inspector General (OIG) indicates that

only 1 in 5 Medicaid-eligible children receive required dental services annually. • HCFA data demonstrate a wide disparity between utilization of EPSDT services

provided by dentists (18%) for Medicaid-eligible children and those provided by physicians (67%).

Medicaid has mandated pediatric dental coverage for nearly 30 years but has universally failed to make good on legislated assurances that children can access care. • Currently HCFA expends only about 1/2 of 1 percent of Medicaid dollars on children’s dental care. • 42USC 1396r–7 enacted in 1989 assured access to care for children and specifically directed HCFA to assure access for medical but not dental services. As a result

nearly 4 in 5 children obtain medical care while only 1 in 5 obtains any dental care.

Existing federal programs designed to meet the dental care needs of low-income

children fail to do so because of inadequate Congressional oversight. Newly proposed

federal programs to extend health coverage to additional low-income children must

incorporate provisions that will ensure essential basic and preventive dental services to address this highly prevalent and most common of childhood diseases. • Provisions that were enacted as part of P.L. 101–239 (42USC, Chapter 7, Subchapter XIX, 1396r–7) to promote access to pediatric services must be extended to

include providers of EPSDT dental services. • Adequately funded and properly structured commercial health care coverage, in

conjunction with adequate consumer protection measures, can be an effective mechanism for expanding access to pediatric dental services, and should be considered

as an adjunct or alternative to traditional Medicaid programs.

ACCESS AND UTILIZATION OF DENTAL SERVICES BY LOW-INCOME CHILDREN

Access to dental services remains a common and serious problem for millions of

low-income American children. In spite of repeated evidence from national surveys 1 2 demonstrating that low-income children continue to experience significant

levels of dental caries (tooth decay), several sources including a recent report from

the DHHS Office of the Inspector General 3 (OIG) and data from the Health Care

Financing Administration 4 (HCFA) indicate that only 1 in 5 Medicaid-eligible children receive required dental services annually (Appendix I). HCFA data demonstrate a wide disparity between utilization of EPSDT services provided by dentists (18%) for Medicaid-eligible children and those provided by physicians (66–71%)

(Appendix II).

EXTENT OF DENTAL CARIES IN LOW-INCOME CHILDREN

Dental caries remains a common, significant childhood problem in the United

States, especially for low-income infants, children and adolescents. Recent national

survey findings 1 demonstrate that approximately 13–32% of 2-to 4-year-old children, depending on race and ethnicity, experience caries. Prevalence rates increase

with age such that nearly 50% of non-Hispanic White and Black children between

the ages of 5 and 9 years, and 65% of Mexican-American 5–9 year olds experience

caries in their primary dentition. Overall, rates of untreated decay in 2–9 year olds

range from slightly over 40% for non-Hispanic Whites to roughly 60% for non-Hispanic Blacks and Mexican Americans.

Caries affecting permanent teeth also is a common problem for school-age children. Nearly 70% of 12–17 year olds examined in the Third National Health and

Nutrition Examination Survey 1 (NHANES III) had active caries or dental restorations (fillings), with non-Hispanic Blacks and Mexican-Americans having higher

rates of unfilled decayed teeth. A quarter of the children and adolescents aged 5–

17 with at least one permanent tooth accounted for approximately 80% of the caries
95

found in permanent teeth. Previous national surveys have demonstrated similar disproportionate levels of disease burden in low-income children and adolescents.2 Afflicted children experience pain, infection, distraction from learning, and over 1.1

million days sick-in-bed and nearly 500,000 missed school days from acute dental

conditions each year.5

OIG FINDINGS CONCERNING CHILDREN’S ACCESS TO DENTAL SERVICES UNDER

MEDICAID

A recent inspection conducted by the DHHS Office of the Inspector General 3 confirmed HCFA data 4 demonstrating that only 1 in 5 (4.2 million out of 21.2 million)

eligible Medicaid children received preventive dental services in 1993. This was a

slight decrease from the 1992 data as shown in the following table:

Percent of EPSDT Children Who Received Preventive Dental Services by Age Group, 1992 and 1993

Year All Ages <1 Year 1–5 Years 6–14 Years 15–20 Years

1992 22.0 0.3 18.1 33.7 22.2

1993 19.7 0.4 16.0 30.0 19.5

The extent of the problem varies significantly from State to State. (See Appendix

I for a State-by-State breakdown of 1993 data). The OIG report noted that in 1993,

three-fourths of the States provided preventive services to fewer than 30 percent,

and none of the States provided them to more than 50 percent of all eligible children.

The OIG report found that 80% of the States attribute the low utilization rates

to a shortage of dentists who are willing to accept Medicaid patients. In many communities, families and EPSDT staff have difficulty getting timely dental appointments for Medicaid children. They often have to wait 6 to 8 weeks or travel long

distances. Even among the 9 States reporting an adequate supply of dentists, 5 provided preventive services for fewer than 20% of eligible children. Although shortages

are usually more severe in rural areas or isolated locations, 13 States report statewide shortages.

DENTAL SERVICES OMITTED FROM OBRA ’89 CHANGES TO IMPROVE CHILDREN’S

ACCESS TO MEDICAID SERVICES

Section 1905(r) of the Social Security Act, created by the Omnibus Budget Reconciliation Act of 1989 (OBRA ’89), details the basic requirements for the Early and

Periodic Screening, Diagnosis and Treatment (EPSDT) program. It specifies that, in

addition to mandated screening by a dental professional according to professionally

developed periodicity schedules and as medically necessary, dental services must include those for ‘‘the relief of pain, infections, restoration of teeth, and maintenance

of dental health.’’ These services include diagnostic, preventive, therapeutic and

emergency services for dental disease.6

OBRA ’89 (P.L. 101–239; 42USC 1396r–7 7) also mandated several changes aimed

at improving problems concerning access to pediatric services under Medicaid. Included in the general provisions concerning Medicaid were requirements for States

to submit annually proposed Medicaid payment rates for pediatric services and

other such data that would assist the Secretary of DHHS in determining whether

such rates are sufficient to ensure that pediatric services are at least as available

to Medicaid beneficiaries as they are to the general population. The legislation also

required States to immediately revise rates determined to be insufficient. However,

instead of specifying the scope of services to be covered by this legislation according

to Early and Periodic Screening, Diagnosis and Treatment guidelines for mandated

services, the legislative language defined ‘‘pediatric services’’ by categories of providers. Dentists were not included, thereby effectively eliminating the requirement that

States reimburse dentists for mandated services at rates comparable to those found

in local markets. The impact of that omission undoubtedly is reflected in the fact

that nearly 4 out of 5 Medicaid-eligible children now obtain medical care while only

1 in 5 obtains any dental care.

EFFECT OF PAYMENT RATES ON ACCESS TO SERVICES FOR LOW-INCOME CHILDREN

Numerous examples of the effect of reimbursement rates on access to health care

services exist. A recent study published by the Agency for Health Care Policy and

Research 8 examined the effects of physician fees on children’s use of preventive and
96

illness-related ambulatory physician services under the Medicaid program. Using

data from the 1987 National Medical Expenditure Survey, the authors examined the

effects of Medicaid fee generosity on physician service use and overall ambulatory

physician spending. The results indicated that more generous fees are associated

with a greater likelihood of having a doctor’s office as a usual source of care and

a higher number of preventive visits at office-based sites of care. Interestingly, having a doctor’s office as a usual source of care was associated with lower overall ambulatory physician expenditures.

Relative fees also have been shown to be a major determinant of overall Medicaid

provider supply and of dentists’ participation in Medicaid.9 10 11 A recent evaluation

of a public-private partnership program which provided commercially available

health care coverage (including dental benefits) to low-income children in Western

Pennsylvania found that within 12 months of enrollment, the percentage of children

with unmet dental needs was reduced from 43% to 10%.12 The same study demonstrated a 25% increase in the number of children with a regular source of dental

care 12 months after enrollment in the program.12

SUMMARY AND RECOMMENDATIONS

Children covered by the Medicaid program continue to experience high levels of

dental disease and restricted access to dental services compared to their counterparts in the general population. Failure to enact policies that ensure reimbursement

for dental services based on prevailing market rates undoubtedly contributes to the

gap between coverage and access to much-needed dental services under Medicaid.

• Provisions that were enacted as part of P.L. 101–239 (42USC, Chapter 7, Subchapter XIX, 1396r) to promote access to pediatric services need to be extended to

include providers of EPSDT dental services.

• Adequately funded and properly structured commercial health care coverage, in

conjunction with adequate consumer protection measures, can be an effective mechanism for expanding access to pediatric dental services, and should be considered

as an alternative to traditional Medicaid programs.

REFERENCES

1 Kaste LM, Selwitz RH, Oldakowski RJ, et al. Coronal caries in the primary and permanent

dentition of children and adolescents 1–17 years of age: United States, 1988–1991. J Dent Res

1996;75(Spec Iss):631–641.

2 Brunell JA. National Institute of Dental Research, Epidemiology and Oral Disease Prevention Program. Oral health of United States children: The National Survey of Dental Caries in

US School Children: 1986–1987. NIH Pub. No. 89–2247, 1989.

3 Department of Health and Human Services, Office of the Inspector General. Children’s dental services under Medicaid: access and utilization. OEI–09–93–00240, April, 1996.

4 Department of Health and Human Services, Health Care Financing Administration. Table

4: Medicaid recipients by type of service. Available from: URL: http//www.hcfa.gov/medicaid/

495.htm. April 7, 1997.

5 National Center for Health Statistics. Current estimates from the National Health Interview

Survey United States 1986. Hyattsville, MD: Department of Health and Human Services, DHHS

Pub. No. (PHS) 87–1592. Vital and Health Statistics, Series 10, No. 164, 1987.

6 U.S. Department of Health, Education and Welfare, Health Care Financing Administration

in cooperation with the American Society of Dentistry for Children and the American Academy

of Pedodontics. A Guide to Dental Care for the Early and Periodic Screening, Diagnosis, and

Treatment Program (EPSDT) Under Medicaid, February 1980.

7 United States Code. Title 42—The Public Health and Welfare. Chapter 7—Social Security,

Subchapter XIX—Grants to States for Medical Assistance Programs, Section 1396r–7, 1994.

8 Agency for Health Care Policy and Research. Medicaid Physician Fee Levels and Children’s

Access to Care. AHCPR Publication Number 95–R003, 1995.

9 Damiano PC, Brown ER, Johnson JD, et al. Factors affecting dentist participation in a state

Medicaid program. J Dent Educ 1990;54:11.

10 U.S. Congress, Office of Technology Assessment. Children’s Dental Services under the Medicaid Program. Washington, DC: U.S. Government Printing Office, October 1990.

11 Venezie RD, Vann WF. Pediatric dentists’ participation in the North Carolina Medicaid

program. Ped Dent 1993;15:3.

12 Caring Foundation for Children, Inc. An impact study of the Caring Program for Children

and BlueCHIP of Pennsylvania: preliminary results, selected findings: characteristics and impact before and after enrollment in programs providing free and low-cost health care coverage

to children. Pittsburgh, PA: 1997.
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Appendix I—Number and Percent of Children Who Received EPSDT Preventive Dental Services in 1993, by

State *

State No. of EPSDT Eligible Children

No. Who Received

Preventive Services Percent of Eligibles

Connecticut ........................................ 193094 52543 27.2

Maine ................................................. 106828 36819 34.5

Massachusetts ................................... 404857 139414 34.4

Rhode Island ...................................... 66136 21003 31.8

New Hampshire ................................ 40011 17905 44.8

Vermont ............................................. 52251 17636 33.8

Region I Total .................................... 863177 28532 33.1

New Jersey ........................................ 447272 101410 22.7

New York ........................................... 1585786 283453 17.9

Region II Total .................................. 2033058 384863 18.9

Delaware ............................................ 50585 6283 12.4

Maryland ........................................... 229146 33129 14.5

Pennsylvania ..................................... 880017 185289 21.1

Virginia .............................................. 328090 64718 19.7

District of Columbia .......................... 73837 11800 16.0

West Virginia .................................... 135594 41452 30.6

Region III Total ................................. 1697269 342671 20.2

Alabama ............................................. 279138 31369 11.2

Florida ................................................ 1355013 222493 16.4

Georgia ............................................... 643424 161496 25.1

Mississippi ......................................... 470032 56843 12.1

Kentucky ............................................ 293083 27604 9.4

North Carolina .................................. 550567 75794 13.8

South Carolina .................................. 302471 37876 12.5

Tennessee .......................................... 534231 129886 24.3

Region IV Total ................................. 4427959 743361 16.8

Illinois ................................................ 1027303 214810 20.9

Indiana ............................................... 345751 144005 41.6

Michigan ............................................ 823052 215885 26.2

Minnesota .......................................... 291466 73539 25.2

Ohio .................................................... 948612 216584 22.8

Wisconsin ........................................... 342664 77103 22.5

Region V Total ................................... 3778848 941926 24.9

Arkansas ............................................ 207085 35062 6.9

Louisiana ........................................... 498389 128199 25.7

New Mexico ....................................... 133524 8290 6.2

Oklahoma .......................................... 162598 30949 19.0

Texas .................................................. 1330465 160284 12.0

Region VI Total ................................. 2332061 362784 15.6

Iowa .................................................... 169516 56210 33.2

Kansas ............................................... 113286 40106 35.4

Missouri ............................................. 403702 86619 21.5

Nebraska ............................................ 102285 34267 33.5

Region VII Total ................................ 788789 217202 27.5

Colorado ............................................. 210749 44305 21.0

Montana ............................................. 57019 5119 9.0

North Dakota .................................... 32799 2625 8.0

South Dakota ..................................... 47702 8543 17.9

Utah ................................................... 123966 19186 15.5

Wyoming ............................................ 34976 15157 43.3

Region VIII Total 507211 94935 18.7

Arizona ............................................... 413100 1153 0.3

California ........................................... 3583936 601451 16.8

Hawaii ................................................ 68008 503 0.7

Nevada ............................................... 34845 5010 14.4
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Appendix I—Number and Percent of Children Who Received EPSDT Preventive Dental Services in 1993, by

State *—Continued

State No. of EPSDT Eligible Children

No. Who Received

Preventive Services Percent of Eligibles

Region IX Total ................................. 4099889 608117 14.8

Alaska ................................................ 51691 14468 28.0

Idaho .................................................. 71269 14967 21.0

Oregon ................................................ 206524 71661 34.7

Washington ........................................ 304257 89128 29.3

Region X Total ................................... 633741 190224 30.0

TOTAL ........................................ 21162002 4171403 19.7

* This table is based on data from the HCFA–416 performance report on EPSDT program indicators for fiscal year 1993.

Source: Department of Health and Human Services, Office of the Inspector General. Children’s dental services under Medicaid: access and utilization. OEI–09–93–00240, April, 1996.

Appendix II—Table 4.—Medicaid Recipients by Type of Service

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Type of Service

Recipients (Millions) % of Recipients Receiving

1993 1994 1995 1993 1994 1995

TOTAL ................................................................. 33.4 35.1 36.3 .......... .......... ..........

GENERAL HOSPITAL ....................................... 5.9 5.9 5.6 18% 17% 15%

MENTAL HOSPITAL ......................................... 0.1 0.1 0.1 0% 0% 0%

NURSING FACILITIES ..................................... 1.6 1.6 1.7 5% 5% 5%

ICF MENTALLY RETARDED ........................... 0.1 0.2 0.2 0% 0% 0%

PHYSICIAN SERVICES ..................................... 23.7 24.3 23.8 71% 69% 66%

DENTAL SERVICES .......................................... 6.2 6.4 6.4 18% 18% 18%

OTHER PRACTITIONER ................................... 5.2 5.4 5.5 16% 15% 15%

OUTPATIENT HOSPITAL ................................. 16.4 16.6 16.7 49% 47% 46%

CLINIC SERVICES ............................................ 4.8 5.3 5.3 14% 15% 15%

LAB & X–RAY ..................................................... 13.0 13.4 13.1 39% 38% 36%

HOME HEALTH 1.1 1.3 1.6 3% 4% 5%

PRESCRIBED DRUGS ....................................... 23.9 24.5 23.7 71% 70% 65%

FAMILY PLANNING .......................................... 2.5 2.6 2.5 8% 7% 7%

EPSDT 5.9 6.5 6.6 18% 18% 18%

RURAL CLINIC HEALTH ................................. 1.0 0.9 1.2 3% 3% 3%

OTHER CARE ..................................................... 8.1 9.9 11.4 24% 28% 31%

UNKNOWN ......................................................... 0.0 0.0 0.0 0% 0% 0%

SOURCE: HCFA, BDMS, OSM, DIVISION OF PROGRAM SYSTEMS

STATEMENT ON

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CHILDREN’S DENTAL HEALTH

The American Academy of Pediatric Dentistry believes that all children have a

right to quality health care and that oral health is an integral part of total health.

The majority of U.S. children have access to highly effective services for the prevention, early diagnosis and treatment of major dental diseases. Tragically, however,

we and others continue to observe a sizable and growing disparity between the oral

health of children who have access to quality dental care and the millions of American children who do not. The failure to provide adequate access to dental services

through federal and state programs is viewed as a major contributor to the high levels of dental disease, pain and dysfunction that persist in low-income children and

children with special health care needs.

We endorse the following principles:

1. Assuring access to quality basic health care, including dental care, for all U.S.

children.

• We support retaining EPSDT oral health care standards for all Medicaid-eligible children and children with special health care needs.
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2. Including oral health as a component in all programs that seek to improve general health.

3. Maintaining access to quality dental care for children who now have it.

• Deductibility of dental benefits by employers is a key to maintaining access for

middle class children.

• Coverage for medically necessary adjunctive services, including anesthesia and

hospital charges, that enable the timely delivery of appropriate dental care must be

assured.

4. Including provisions for children with special health care needs in all program

planning.

5. Assuring an adequate supply of pediatric dentists by providing educational support through primary care training programs.

We invite comment as we work to fulfill this agenda.

Statement of Stanley B. Peck, Executive Director, on Behalf of American

The vision of the AAPD is optimal oral health for all children!

The American Dental Hygienists’ Association (ADHA) is the largest national orgaDental Hygienists’ Association

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nization representing the professional interests of the approximately 100,000 dental

hygienists across the country. Dental hygienists are preventive oral health professionals, licensed in dental hygiene, who provide educational, clinical and therapeutic

services that support total health through the promotion of optimal oral health.

ADHA is pleased to share its views with regard to children’s access to health coverage. In particular, we urge that any children’s health legislation include measures

to improve access to oral health care services. This is important because the Institute of Medicine estimates that fifty percent of Americans do not receive regular

dental care. This figure is likely far higher for the population that children’s health

initiatives seek to cover.

ANY CHILDREN’S HEALTH INITIATIVE SHOULD INCLUDE MEASURES TO PREVENT ORAL

DISEASE

Because ADHA feels strongly that all Americans should have access to affordable

quality health care services, including oral health care services, ADHA is pleased

with the significant level of interest and commitment in the 105th Congress to increase health insurance coverage among our nation’s 10 million uninsured children.

We are committed to participating in this process to ensure improved access to costeffective quality health care coverage, including, at a minimum, preventive oral

health services. Oral health is a part of total health; therefore oral health must be

included in any children’s health care initiative.

THE NATION’S ORAL HEALTH

Oral health is fundamental to total health. As former Surgeon General C. Everett

Koop noted, ‘‘if you don’t have oral health, you’re not healthy.’’ Despite recent advances in preventing oral disease and maintaining oral health, oral diseases still afflict 95% of all Americans. Oral Health America/America’s Fund for Dental Health

reports that 9 million school days are lost annually because of oral health problems.

COST-SAVINGS ASSOCIATED WITH PREVENTIVE ORAL HEALTH CARE

In contrast to most medical conditions, the three most common oral diseases—

dental caries (tooth decay), gingivitis and periodontitis (gum and bone disease)—are

proven to be preventable with the provision of regular oral health care. This proven

ability translates into huge cost savings. Each $1 spent on preventive oral health

care yields $8–$50 in savings. Because of this, increased access to preventive oral

health services will likely result in decreased oral health care costs per capita and,

more importantly, improvements in children’s oral and total health.

Preventable oral diseases currently afflict the majority of our nation’s children.

Dental caries (tooth decay), gingivitis and periodontitis (gum and bone disorders)

are the most common oral diseases. In fact, the Public Health Service reports that

fifty percent of all children in the United States experience dental caries in their

permanent teeth and two-thirds experience gingivitis. If untreated, gum disease

causes bone deterioration and eventual loss of teeth, pain, bleeding, loss of function,

diminished appearance, and possible systemic infections. Each of these oral health
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1 Children’s Dental Services Under Medicaid: Access and Utilization, U.S. Department of

Health and Human Services, Office of the inspector General, April 1996, (OEI–09–93–00240) at

page 6. 2 Id. at page 7. 3 Research shows that the presence of bacteria known as mutans streptococci leads to dental

caries in children. This decay causing bacteria is typically transferred from primary caregivers

to young children between 22–26 months of age.

disorders—dental caries, gingivitis and periodontitis—can be prevented through regular preventive care.

All American children should have access to oral health coverage as one way to

support total health. Ideally, every child should have access to diagnostic, preventive, restorative and periodontal care, as well as emergency care to treat pain. At

a minimum, however, preventive services should be available as an investment for

long-term savings.

Additionally, any effort to revamp the present Medicaid and Medicare health care

delivery systems or to advance incremental health care reform legislation should

embody as one of its goals increased access to preventive oral health care services.

A 1996 U.S. Department of Health and Human Services (HHS) report on Children’s Dental Services Under Medicaid indicated that, despite the provision for oral

health benefits under Medicaid’s Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program, only 1 in 5 (4.2 million out of 21.2 million) eligible Medicaid children actually received preventive oral health services in 1993.1 This represents a slight decrease from 1992 data. The 1996 HHS report attributes the low

utilization rate for preventive oral health services to ‘‘the shortage of dentists who

are willing to accept Medicaid patients.’’ 2 Clearly, this trendline must be reversed.

Dental hygienists can, and should, play a larger role in the delivery of oral health

services to underserved populations, including Medicaid-eligible children. The nation’s health care system must be reoriented to focus on preventive and primary

care services including those provided by dental hygienists.

CHILDHOOD IMMUNIZATIONS SHOULD INCLUDE MEASURES TO PREVENT DENTAL

DISEASE

ADHA urges that any children’s health initiative improve access to the known

benefits of preventive oral health care services. The increased access to oral health

care for children that ADHA advocates can be achieved through the inclusion of

dental sealants and fluoride in any definition of childhood immunizations. While research to develop a vaccine against dental caries (tooth decay) continues, we can

today effectively guard against tooth decay—which is an infectious, transmissible

disease—with the combined use of dental sealants and fluoride.3 These services protect children against tooth decay just as vaccines immunize against certain medical

diseases.

DENTAL SEALANTS

Pit and fissure adhesive sealant protection for the eight permanent molars (6-year

and 12-year molars) is needed when the crevices in these teeth are deep. Sealants

are thin plastic coatings that seal crevices in the teeth and act as a physical barrier

to prevent oral bacteria from collecting and creating the acid environment essential

to the initiation of oral disease. No discomfort is involved in sealant applications,

which cost approximately $20–35 in private settings, and even less in public health

settings. When properly applied, sealants are virtually 100 percent effective in preventing tooth decay in the pits and fissures of molars.

The National Institutes of Health (NIH) and former Surgeon General C. Everett

Koop endorse the use of sealants. One of the objectives in Health People 2000, the

national health promotion and prevention agenda, is to increase to at least 50 percent the proportion of children who have received protective sealants.

FLUORIDE

Appropriate use of fluoride can reduce smooth surface tooth decay in children. Optimal availability of fluoride from multiple sources, such as community water fluoridation, self-applied fluorides, and professionally applied fluorides, are effective in

preventing dental decay.

EFFECTIVENESS

Together, dental sealants and fluoride are virtually 100 percent effective in protecting children against tooth decay and its physical, financial, academic, emotional,
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and social consequences. Accordingly, ADHA urges that any definition of immunization include dental sealants and fluoride.

CONCLUSION

Preventable oral diseases still afflict most of our nation’s children, compromising

their health and unnecessarily adding to health care costs. ADHA urges this Subcommittee—and all Members of Congress—to ensure that any children’s health initiative promote access to quality, cost-effective preventive oral health care services.

Ideally, all American children should have access to diagnostic, preventive, restorative and periodontal care, as well as emergency care to treat pain. But, at a very

minimum, children need access to basic preventive oral health care, including education in self care, routine teeth cleaning, provision of fluorides and sealants, periodontal maintenance and routine x-rays.

ADHA stands ready to work with the nation’s policymakers to improve children’s

access to preventive oral health services, which will achieve savings of billions of

health care dollars and improve children’s oral health, a fundamental part of total

health.

ADHA appreciates this opportunity to submit its views. For further information,

please contact our Washington Counsel Karen S. Sealander of McDermott, Will &

Emery (202–778–8024).

Statement of Donald G. Dressler, CAE, on Behalf of Association Healthcare

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Coalition

My name is Don Dressler, and I am President of Insurance Services for Western

Growers Association, headquartered in Newport Beach, California. I am submitting

this statement for the record on behalf of The Association Healthcare Coalition

(TAHC), of which I am immediate past president and current chairman of the legislative committee. TAHC is a nationwide coalition of over 75 trade and professional

associations formed for the purpose of maintaining and improving the ability of associations to provide health care benefits to their members.

TAHC greatly appreciates the opportunity to submit a written statement with regard to the problem of children in the United States who do not have health insurance, and possible federal policy responses to this issue. I propose that the most effective method of expanding health insurance to children who are currently uninsured is to strengthen existing Association Health Plans (‘‘AHPs’’), operated by bona

fide trade and professional associations. Moreover, I believe that strengthening associations, which have been providing affordable health insurance for over 50 years,

will prove to be far more effective in reducing the problem of uninsured children

than by creating new government programs or spending initiatives at either the federal or state level.

AFFORDABILITY IS THE KEY TO THE PROBLEM OF UNINSURED CHILDREN

First, I want to commend Chairman Thomas for calling this timely hearing. The

problem of the uninsured in America, and especially that of our children who do not

have health coverage, is one of the great social issues facing our nation today. Congress and the Clinton Administration took the first step towards addressing health

insurance concerns by enacting the Health Insurance Portability and Accountability

Act last year. This new law will be beneficial to millions of American workers, and

Chairman Thomas and the members of the Subcommittee are to be commended for

their leadership in enacting this legislation.

Unfortunately, the final version of the portability legislation did not address the

issue of affordability in health insurance, despite the passage of provisions by the

House to accomplish this objective. In order to reduce the number of uninsured children in America, the issue of affordability must be addressed in a comprehensive

manner. TAHC urges Congress to pass legislation which addresses the affordability

issue in 1997.

THE PROBLEM OF UNINSURED CHILDREN IS A SMALL BUSINESS ISSUE

If one looks closely at the problem of uninsured children, it becomes clear that

conventional health insurance is just too expensive for many working Americans

with families. The Subcommittee’s press release announcing this hearing states that

‘‘over 80% of uninsured children have parents who work at least part-time, and

nearly 60% have parents who work full time.’’ Moreover, the majority of working
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families with uninsured children are employed by small businesses or are selfemployed. The percentage of uninsured persons working in companies with less

than 100 employees increased from 24% in 1993 to 27% in 1995, a 12.5% increase

in just two years. The reason for this is the continuing trend of rapidly rising health

costs for small businesses.

In contrast, workers employed by large corporations, and their families, enjoy

nearly universal health coverage today. Thus, it is apparent that workers employed

in small businesses are much more likely to be uninsured themselves, or to be able

to insure their families, than those who work for large and medium-sized organizations. As such, any effort to extend health insurance to uninsured children must address the underlying cause of why small businesses have greater difficulty in providing health insurance than do larger companies.

Why this disparity between workers employed in large and small businesses? One

reason is that larger employers enjoy economies if scale which allow them to reduce

administrative costs, obtain volume discounts, and take other measures which dramatically reduce the cost of health insurance per person. In addition, many of the

larger organizations operate under ERISA, which allows them to self-insure their

employees. Under ERISA, companies which self-insure avoid the costs imposed by

state government mandated benefits, insurance premium taxes, and vastly different

regulatory requirements from state to state. Indeed, administrative costs for larger

employers operating under ERISA can be 30% lower than for small businesses, and

health insurance premiums for large employers can also be 30% lower than those

for small businesses.

THE SMALL BUSINESS RELATIONSHIP TO UNINSURED FAMILIES MUST BE ADDRESSED

TAHC believes that any legislation to make health insurance more affordable for

children must strengthen the role of Association Health Plans (‘‘AHPs’’). AHPs are

the key to providing access to affordable health coverage for small businesses.

AHP’s already have begun to fill the niche represented by small business in the

health insurance market. At Western Growers Association, we provide coverage to

over 90,000 individuals, including approximately 40,000 children. Thousands of

these children would not have any health coverage now without WGA’s health

plans. At WGA, we are able to provide coverage to families because we offer a wide

variety of health plan options that are specifically designed to meet the health and

financial needs of our members, their workers, and their worker’s families.

For example, WGA’s basic family plan for agricultural workers costs about $220

per month. In contrast, the least expensive alternative, the California State smallgroup plan, is well over $300 per month. Moreover, there is no traditional insurance

company in the nation with any interest in serving the workers and children covered by WGA. Indeed, WGA and similar AHP’s across the nation exist because they

are meeting the needs, at an affordable price, of the small business market niche.

If it were not for AHP’s like WGA and others across the nation, the problem of uninsured children would be far worse than it is today.

Unfortunately, AHP’s currently face challenges which are making it more difficult

to provide affordable health coverage to working families. As such, Congress should

pass legislation which would: (a) prevent the erosion of the ability of AHP’s to continue providing affordable health coverage; and (b) enhance and expand the ability

of AHP’s to offer affordable coverage. Such legislation would ultimately enable millions of currently uninsured children to obtain the health coverage they so desperately need.

A LEGISLATIVE PROPOSAL TO EXPAND AFFORDABLE COVERAGE TO WORKING FAMILIES

TAHC is working with Members of Congress on legislation to achieve these objectives. This legislation would establish a regulatory framework that further facilitates the ability of small businesses to obtain affordable health coverage through

AHP’s. By taking a market-oriented approach, this legislation ultimately would reduce the numbers of uninsured children without any new federal spending or taxes.

More specifically, this legislation would ensure that current AHP’s are not jeopardized by future regulatory actions at the state level. For example, the health coverage of thousands of families covered by WGA could be threatened by new mandates imposed on businesses or AHPs by state governments. While WGA currently

abides by a California law setting requirements for AHP’s, this law sunsets in 2001.

Depending on the political climate of the future, it is difficult to discern what type

of regulatory structure may take the current law’s place, or what types of new government mandates may be imposed. By providing greater certainty through uniform

regulation at the federal level, Congress would eliminate the current uncertainty,
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thus protecting and enhancing the ability of AHP’s to provide affordable coverage

to families.

Providing a more certain, uniform regulatory environment would also allow greater numbers of bona fide trade and professional associations to offer AHP’s. This

would expand access to affordable coverage for low-and medium-income workers employed in small businesses. Ultimately, the resulting expansion of AHP’s to serve

this market niche would result in hundreds of thousands of children obtaining

health coverage.

THE ERISA APPROACH HAS PROVEN TO BE SUCCESSFUL

How can we be so sure that legislation to strengthen AHPs would be successful

in expanding health coverage to children? Because this approach has already been

tested, and it has been proven to work. Since its inception in the early 1970s,

ERISA has become the foundation of employer-sponsored health insurance, enabling

large corporations to provide working families with affordable health coverage.

TAHC believes strongly that it makes perfect sense to extend the successful ERISA

framework to that portion of the population which has not enjoyed its benefits.

Moreover, it is our view that this is absolutely necessary if we are to be successful

in extending affordable coverage to uninsured children over the long run.

UNFOUNDED CRITICISMS

I would like to address several criticisms which have been leveled at our marketoriented approach to the health insurance market. First, some critics contend that

our approach does not respect the role played by state governments in regulating

health insurance. As such, our legislation will contain a number of provisions to ensure that many state regulatory functions remain intact. However, we acknowledge

that our approach protects small businesses from government mandates imposed by

states, the chief cause of escalating health insurance costs. We believe that state

government mandates are no better than President Clinton’s ill-fated employer

mandate for health insurance proposed at the federal level. The choice for Congress

in how to expand health coverage to the uninsured is clear in this regard; market

forces or state government mandates.

With respect to the issue of state mandates, I would note the recent comments

of Bill Gradison, president of the Health Insurance Association of America, an organization which has been one of the most strident critics of associations. In a recent

interview, Gradison indicated that the current trend towards federal regulation of

health insurance is likely to continue, and he also noted that the continued need

for insurance companies to comply with 50 different sets of regulations increases the

cost of insurance.

In this context, it is also interesting to note the comments of Kansas Insurance

Commissioner Kathleen Sebelius, speaking on behalf of the National Association of

Insurance Commissioners, another vocal critic of Association Health Plans. In a recent statement before the Senate Labor Committee on March 6th, Ms. Sebelius stated that the NAIC would favor ‘‘federal standards’’ if they were based on the NAIC’s

five model acts and included federal enforcement resources. It appears that even the

NAIC recognizes the need for effective federal standards for AHPs.

Another criticism that AHP’s have endured is that they avoid bad risks, thus leaving out less healthy individuals and driving up their insurance costs. This criticism

also is completely without merit, and I urge the Subcommittee members to reject

it. First, I am not aware of any reputable, empirical evidence which supports this

claim. Second, a study by the respected healthcare consulting firm Lewin-VHI found

no significant difference between the risk characteristics of fully-insured and selfinsured populations. Finally, in an effort to ‘‘go the extra mile’’ to assure critics on

this issue, our legislation will contain a number of requirements that will prevent

any so-called ‘‘anti-selection’’ among AHP’s in the healthcare marketplace.

Finally, it should be pointed out that our proposal would implement effective consumer protections against fraud and abuse which currently do not exist in many

states. By enacting a uniform federal system of solvency standards and other safeguards, in contrast to dozens of different sets of state regulations, Congress would

be taking immediate action to protect those currently covered by AHPs, and at the

same time enhance the ability of bona fide associations to continue providing affordable health coverage to working families.

CONCLUSION

TAHC believes that any legislation considered by Congress to extend coverage to

children must strengthen the role of AHP’s in providing affordable health coverage
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1Perinatal services include material and infant care beginning before conception and continuing through the first year of an infant’s life. 2The Effects of Patient Volume and Level of Care at the Hospital of Birth on Neonatal Mortality, Journal of the American Medical Association, Volume 276, No. 13, october 2, 1996, p. 1054. 3One Out of Three: Kids Without Health Insurance 1995–1996, Families USA Foundation,

Washington, D.C. 1997, p. 1. 4 Infants At Risk: Solutions Within Our Reach, Greater new York March of Dimes/United Hospital Fund of New York, 1991, p. 28.

to small businesses. Associations are already a vital source of health care coverage

for American workers, and have been serving their members in this manner for over

50 years. We look forward to working with Chairman Thomas and the Subcommittee Members towards this objective.

Statement of Susan Erickson, President, Council of Women’s and Infants’

The Council of Women’s and Infants’ Specialty Hospitals (CWISH) is a group of

Specialty Hospitals

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eight of the largest freestanding subspecialty perinatal hospitals dedicated to the delivery of high risk obstetrical and neonatal care to mothers and their infants.1

CWISH is pleased to present its views with regard to children’s access to health coverage.

Because access to risk-appropriate prenatal care is known to improve the outcome

of pregnancy, inclusion of health insurance coverage for pregnant women in any

children’s health initiative will contribute to the goal of improved health for the nation’s children. Accordingly, CWISH urges that health insurance coverage for pregnant women be included in any children’s health initiative.

Further, children’s health legislation must specifically assure access to quality,

cost-effective high risk obstetrical and neonatal care for both pregnant women and

infants. Access to high risk obstetrical and neonatal services is critical because studies show that premature and low-birthweight infants born in large Level III subspecialty hospitals—such as CWISH hospitals—fare better than high risk deliveries

in other settings without increased cost.2 Moreover, a healthy pregnancy and delivery bolsters the chances for a healthy childhood and can avert expensive acute and/

or long-term care.

CWISH SUPPORTS EXPANDED MEDICAID OUTREACH

CWISH is pleased with the significant level of interest and commitment in this

Congress to increase health insurance coverage among our nation’s ten million uninsured children, including the three million children eligible for, but not receiving,

Medicaid benefits. CWISH is well aware of Medicaid’s importance to the health of

pregnant women and infants. Indeed, CWISH is a significant participant in the federal Medicaid program, with Medicaid payments constituting up to sixty-five percent

of the care provided by our hospitals.

As Congress undertakes to reform the Medicaid program, we urge this Subcommittee—and all Members of Congress—to facilitate outreach and other programs

to ensure health care coverage of all Medicaid eligible pregnant women and infants

and to ensure that CWISH and other subspecialty perinatal hospitals will be able

to provide quality cost-effective high risk obstetrical and neonatal services to pregnant women and infants in their communities, regardless of economic need.

IMPORTANCE OF RISK-APPROPRIATE CARE FOR PREGNANT MOTHERS AND INFANTS

Lack of health insurance often results in lack of timely care, which too often results in costly acute and/or long-term care. U.S. Census Bureau data reveals that

one of three children lacked health insurance for one or more months during 1995–

1996.3 Many of these uninsured children are members of families where one or both

parents are working, but simply cannot afford insurance. Clearly, we must do better.

Appropriate prenatal care for expectant mothers is a major determinant of good

pregnancy outcome. In fact, prenatal care, especially among poor, minority and

other high-risk women, reduces the risk of low-birthweight threefold and results in

lower infant mortality rates and healthier infants. Numerous studies have also

shown that women who receive no prenatal care are far more likely to have babies

with health problems that could have been prevented or reduced had they received

the appropriate perinatal care.4 According to the American Hospital Association,
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leading the list of barriers to this important care is inadequate or total lack of

health insurance.

Identification of high risk pregnancies and subsequent referral and appropriate

treatment by specialists is critical. As cited earlier, the recent study reported in the

Journal of the American Medical Association confirms that high risk deliveries in

large level III neonatal intensive care units (NICUs)—such as those in CWISH hospitals—fare better than high risk deliveries in other settings without increased cost.

Because the major decline in infant mortality over the past 25 years is largely attributable to better access to the subspecialty services provided at hospitals such as

ours, access to these high risk obstetrical and neonatal services must be included

in any children’s health initiative. Indeed, the Finance Committee expressly recognized the importance of access to specialty perinatal care in its fiscal year 1997 reconciliation recommendations.

In conclusion, CWISH strongly advocates access for all pregnant women and infants to cost-effective quality risk-appropriate health care. Such care should specifically include high risk obstetrical and neonatal services provided in Level III regional specialty hospitals.

CWISH appreciates this opportunity to submit its views. For further information,

please contact our Washington Counsel Karen S. Sealander of McDermott, Will &

Emery (202–778–8024).

Statement of Vencor, Inc., Louisville, Kentucky

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106
107
108

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