Report to the Chairman, Committee on 

Finance, U.S. Senate 

United States Government Accountability Office

GAO 

STATE CHILDREN’S 

HEALTH INSURANCE 

PROGRAM 

CMS Should Improve 

Efforts to Assess 

whether SCHIP Is 

Substituting for 

Private Insurance 

February 2009 

GAO-09-252 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 2009

STATE CHILDREN’S HEALTH INSURANCE 

PROGRAM 

CMS Should Improve Efforts to Assess whether 

SCHIP Is Substituting for Private Insurance Highlights of GAO-09-252, a report to the 

Chairman, Committee on Finance, U.S. 

Senate 

Congress created the State 

Children’s Health Insurance

Program (SCHIP) to reduce the 

number of uninsured children in

low-income families that do not 

qualify for Medicaid. States have

flexibility in structuring their 

SCHIP programs, and their income

eligibility limits vary. Concerns 

have been raised that individuals 

might substitute SCHIP for private

health insurance—known as 

crowd-out. GAO was asked to 

examine the Centers for Medicare

& Medicaid Services’ (CMS) and 

states’ efforts to minimize crowdout and determine whether it 

should be a concern. GAO 

examined (1) CMS’s guidance to 

states for minimizing crowd-out 

and assessment of whether it

should be a concern and (2) states’ 

policies to minimize crowd-out and 

how they assess whether it should

be a concern. To do the work, GAO 

reviewed federal laws and

guidance, examined state annual

reports, and interviewed CMS 

officials. GAO also interviewed

SCHIP officials from nine states. 

What GAO Recommends

To improve information on 

whether crowd-out should be a 

concern in SCHIP, GAO

recommends that the Acting

Administrator of CMS ensure that 

states (1) collect and report

consistent information on the 

extent to which SCHIP applicants 

have private insurance available to

them and (2) take appropriate 

steps to determine whether 

available private health insurance 

is affordable for SCHIP applicants. 

CMS provided guidance to states about activities to minimize crowd-out in 

SCHIP, and the information it collected was of limited use in assessing the 

extent to which crowd-out should be a concern. Along with this guidance, 

CMS instituted specific requirements for certain program designs it identified

as being at greater risk of crowd-out, including programs with higher income 

eligibility thresholds. CMS said that among other sources, it used states’ 

SCHIP annual reports to assess the occurrence of crowd-out, and on this basis 

it believed that crowd-out was occurring. Yet each of the approaches CMS 

used was limited in providing information about the occurrence of crowd-out 

and thus the extent to which it should be a concern. CMS did not collect 

certain indicators of the potential for crowd-out in SCHIP annual reports, such 

as the extent to which private health insurance was available and affordable 

to families. States’ responses to CMS were inconsistent: GAO’s review of 

annual reports for 2007 found that less than half of the 50 states and the 

District of Columbia provided a percentage in response to CMS’s question on 

the percentage of applicants who dropped private health insurance to enroll in

SCHIP. 

In general, states implemented similar types of policies in their activities to 

minimize crowd-out, but not all states collected information adequate to 

assess whether crowd-out should be a concern. The majority of states used 

policies such as waiting periods—a required period of uninsurance before an 

applicant can enroll in SCHIP—to try to reduce incentives for dropping 

private health insurance. All 39 states with waiting periods offered 

exemptions for involuntary loss of private health insurance. These exemptions 

were mostly related to whether insurance was available rather than 

affordable. Not all states collected information that was adequate to assess

whether crowd-out should be a concern. For example, while all 50 states and

the District of Columbia asked SCHIP applicants if they were currently 

insured, 24 states asked applicants if they had access to private health 

insurance, which is important to understanding the potential for crowd-out. Of

the 9 states we interviewed, 5 states measured the occurrence of crowd-out, 

but they all used different methodologies to develop their estimates; the 

remaining 4 states did not measure crowd-out. None of the officials in the 9 

states viewed crowd-out as a concern, with most basing this assessment on a 

variety of factors, including the lack of available and affordable private health 

insurance for the SCHIP population in their state. 

Overall, CMS concurred with the report’s findings and recommendation, but 

raised concerns regarding the difficulty of measuring crowd-out, particularly 

assessing the affordability of private coverage. While GAO agrees that 

measuring crowd-out is complicated, the actions GAO recommends are an 

essential first step to better assessing whether concerns about crowd-out are 

warranted. 

To view the full product, including the scope 

and methodology, click on GAO-09-252. 

For more information, contact James C. 

Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

CMS Provided Guidance to States on Crowd-Out; Information It 

Collected Was of Limited Use in Assessing the Extent to Which 

Crowd-Out Should Be a Concern 13 

States Used Similar Types of Policies to Minimize Crowd-Out, but 

Not All Collected Adequate Information to Assess whether 

Crowd-Out Should Be a Concern 20 

Conclusions 28

Recommendation for Executive Action 29 

Agency Comments and Our Evaluation 29 

Appendix I Comments from the Centers for Medicare & 

Medicaid Services 32 

Appendix II GAO Contact and Staff Acknowledgments 35 

Tables 

Table 1: SCHIP Crowd-Out Estimates, by Study Type 9 

Table 2: Examples of Program Designs for Which CMS Provided 

Specific Guidance to States 15 

Table 3: States’ Responses to Annual Report Question on the 

Incidence of Crowd-Out 19 

Table 4: States’ Exemptions to Waiting Periods and the Conditions 

They Addressed 24 

Table 5: States’ Efforts to Verify Insurance Status 26 

Figures 

Figure 1: Estimates of the Percentage of Employed Households 

That Are Offered Individual or Family Health Insurance 

through Their Employers, by Percentage of FPL 11 

Figure 2: Estimated Average Annual Premiums Households Paid 

for Individual or Family Health Insurance, by FPL 12 

Figure 3: Estimated Percentage of Household Income Spent on

Individual or Family Health Insurance, by FPL 13 

Page i GAO-09-252 SCHIP and Private Insurance
Figure 4: States’ Policies to Minimize Crowd-Out 22 

Figure 5: States’ Waiting Period Lengths 23 

Abbreviations 

CMS Centers for Medicare & Medicaid Services 

COBRA Consolidated Omnibus Budget Reconciliation 

 Act of 1985 

FPL federal poverty level 

MEPS Medical Expenditure Panel Survey 

SCHIP State Children’s Health Insurance Program 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 

Page ii GAO-09-252 SCHIP and Private Insurance
United States Government Accountability Office

Washington, DC 20548 

 

February 20, 2009 

The Honorable Max Baucus 

Chairman 

Committee on Finance 

United States Senate 

The Honorable Max Baucus 

Chairman 

Committee on Finance 

United States Senate 

Dear Mr. Chairman: 

Congress created the State Children’s Health Insurance Program (SCHIP) 

in August 1997 with the goal of significantly reducing the number of lowincome uninsured children. SCHIP offers health insurance for children in 

low-income families that do not qualify for Medicaid and are not enrolled 

under a group health plan or under other health insurance.1

 The program 

enrolled over 7 million children at some point during fiscal year 2007. 

States that participate in SCHIP receive a larger share of federal funds—an 

enhanced federal matching rate—than what is offered under Medicaid.2

States have considerable flexibility in structuring their SCHIP programs 

and may use one of three basic options: (1) expanding Medicaid, 

(2) establishing a separate child health program, or (3) combining these 

two approaches. States also vary in the income eligibility limits that they 

have established for SCHIP. States’ inclusion of higher income eligibility 

levels—some at or exceeding three times the federal poverty level 

(FPL)3

—has increased concerns about the possible substitution of public 

health insurance under SCHIP for private insurance—a phenomenon 

Congress created the State Children’s Health Insurance Program (SCHIP) 

in August 1997 with the goal of significantly reducing the number of lowincome uninsured children. SCHIP offers health insurance for children in 

low-income families that do not qualify for Medicaid and are not enrolled 

under a group health plan or under other health insurance.

 

1

 The program 

enrolled over 7 million children at some point during fiscal year 2007. 

States that participate in SCHIP receive a larger share of federal funds—an 

enhanced federal matching rate—than what is offered under Medicaid.2

States have considerable flexibility in structuring their SCHIP programs 

and may use one of three basic options: (1) expanding Medicaid, 

(2) establishing a separate child health program, or (3) combining these 

two approaches. States also vary in the income eligibility limits that they 

have established for SCHIP. States’ inclusion of higher income eligibility 

levels—some at or exceeding three times the federal poverty level 

(FPL)3

—has increased concerns about the possible substitution of public 

health insurance under SCHIP for private insurance—a phenomenon 

1

SCHIP defines low-income in terms of the federal poverty level (FPL), which is a measure

used to establish eligibility for certain federal assistance programs, including SCHIP. 

SCHIP defines low-income children as those in families earning up to 200 percent of FPL, 

or 50 percentage points above a state’s existing Medicaid eligibility standard as of 

March 31, 1997. Therefore, states vary in their definition of low-income families. For 

example, Delaware’s SCHIP program covers children up to 200 percent of FPL, while 

Washington’s covers children up to 250 percent of FPL. 

2

Medicaid program expenditures are shared between states and the federal government

with each state’s share determined by a formula that compares a state’s per capita income 

to the national average. Federal matching rates for SCHIP are “enhanced”—they are

established under a formula that takes 70 percent of a state’s Medicaid matching rate and 

adds 30 percentage points, with an overall federal share that may not exceed 85 percent. 

Thus, a state with a 50 percent Medicaid match receives a 65 percent match under SCHIP. 

3

The FPL is updated annually to reflect changes in the cost of living and varies according to

family size. For example, 200 percent of FPL for a family of four was $42,400 in 2008. 

Page 1 GAO-09-252 SCHIP and Private Insurance
 

known as crowd-out.4 Under the SCHIP program, states must monitor 

crowd-out. In certain circumstances, states must also describe their 

policies to minimize crowd-out in their state plan for SCHIP, which must 

then be reviewed and approved by the Centers for Medicare & Medicaid 

Services (CMS), the agency responsible for administering SCHIP. 

Efforts to assess the potential for crowd-out vary in their methodological

approaches, definitions of crowd-out, and estimates of the extent to which 

it occurs.5

 For example, some studies measured crowd-out by including 

any decline in private health insurance within the population, while other 

studies did not count certain instances where insurance was not available 

to applicants—such as individuals who lost private health insurance 

because of job loss and took up SCHIP—in their measurement. 

Additionally, researchers varied in how they separated changes in private 

health insurance because of SCHIP from other confounding factors, such 

as changes in the economy. As a result, crowd-out estimates—the 

percentage of SCHIP enrollees who left private health insurance to enroll 

in SCHIP—have been as low as 0 percent and as high as 60 percent 

nationally.6

Uncertainty surrounding the extent to which crowd-out occurs has led to 

debates about how to ensure that children have access to health insurance 

while making certain that SCHIP does not crowd-out private health 

 4

In general, the issue of substitution of SCHIP for private health insurance arises primarily 

with regard to group health plans, which are employer-sponsored plans that provide health 

care benefits to employees. See 42 C.F.R. § 457.10. We use the term private health 

insurance to denote health care benefits provided by group health plans. 

5

See, for example, J. Gruber and K. Simon, “Crowd Out Ten Years Later: Have Recent 

Public Insurance Expansions Crowded Out Private Health Insurance?” National Bureau of 

Economic Research Working Paper 12858, January 2007; and T. T. Alteras, Understanding 

the Dynamics of “Crowd-out”: Defining Public/Private Coverage Substitution for Policy 

and Research Working Paper 12858, (Washington, D.C.: Academy for Health Services 

Research and Health Policy, June 2001). 

6

Precise crowd-out estimates vary according to their definition and chosen parameters. For 

example, some studies estimate crowd-out as the change in the number of individuals with 

private health insurance relative to the change in those publicly insured. A crowd-out

estimate of 30 percent, for instance, would mean that 30 out of 100 children enrolling in 

SCHIP dropped private health insurance to enroll in the program. For a summary of studies 

on SCHIP crowd-out, see S.S. Limpa-Amara, A. Merrill, and M. Rosenbach, SCHIP at 10: A 

Synthesis of the Evidence on Substitution of SCHIP for Other Coverage, Final Report 

(Cambridge, Mass.: Mathematica Policy Research, Inc., September 2007). 

Page 2 GAO-09-252 SCHIP and Private Insurance
 

insurance. SCHIP was reauthorized on February 4, 2009, and concerns 

about crowd-out remain.7

To help Congress understand crowd-out, you asked us to examine CMS’s 

and states’ efforts to minimize crowd-out and how they assess whether 

crowd-out should be a concern. 

In this report, we examine (1) CMS’s guidance to states aimed at 

minimizing crowd-out and the agency’s efforts to assess whether crowdout should be a concern and (2) states’ policies to minimize crowd-out in 

their SCHIP programs, including how states assess whether crowd-out 

should be a concern. 

To determine CMS’s guidance to states and the agency’s efforts to assess 

whether crowd-out should be a concern, we reviewed relevant SCHIP 

legislation and CMS guidance, interviewed CMS officials, and reviewed 

2007 SCHIP annual reports from all 51 states.8

 To determine states’ 

policies to minimize crowd-out and their efforts to assess whether crowdout should be a concern, we reviewed state documents from all 51 states, 

including SCHIP annual reports, state SCHIP plans, and SCHIP 

applications from 2007. We sent the information from our review to SCHIP 

officials from all 51 states for verification.9

 We also conducted a literature 

review to determine the effect of activities to minimize crowd-out. To 

further understand CMS’s guidance, states’ activities to minimize crowdout, and assessments of whether crowd-out should be a concern, we 

selected a sample of 9 states (California, Georgia, Missouri, New Jersey, 

New Mexico, New York, North Dakota, Oklahoma, and Oregon) and 

interviewed SCHIP officials from those states. To select the 9 states, we 

considered SCHIP program structure, SCHIP eligibility level, total SCHIP 

program enrollment, and geographic variation. Together, the states in our 

sample represented approximately 40 percent of all SCHIP enrollees in 

2007. 

 7

See Children’s Health Insurance Program Reauthorization Act of 2009, Pub. L. No. 111-3, 

_Stat. _. In general, the amendments made by this Act are effective April 2009. 

8

In this report, we use the term state to refer to the 50 states and the District of Columbia. 

9

We received complete verification from 46 of 51 states; 3 states did not respond and 2 

states provided incomplete responses. We contacted states by phone and sent information 

by e-mail about GAO’s review and how to verify information. We used information 

identified through our review of state documents if a state did not respond or provided an

incomplete response. 

Page 3 GAO-09-252 SCHIP and Private Insurance
 

For our analysis, we considered an individual’s access to private health 

insurance to consist of two main factors—availability and affordability. In

this report, private insurance is said to be available to individuals if their 

employers offered health insurance and if these individuals and their 

families were eligible for this benefit.10 Affordability refers to the capacity 

of low-income families to purchase available private health insurance.11

For purposes of this report, we did not further define levels of availability 

or affordability.12

We defined crowd-out as the substitution of SCHIP for private health 

insurance. Crowd-out can occur when employers drop, decrease, or 

decide not to offer private health insurance to employees because SCHIP 

is available. Crowd-out can also occur when individuals either drop private 

health insurance or do not enroll in private health insurance because 

SCHIP is available. We did not include in our definition of crowd-out the 

substitution of SCHIP for Medicaid. We included information as reported 

by states but did not conduct interviews with employers or insurers to 

corroborate it. We conducted this performance audit from July 2008 

through February 2009 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

CMS provided guidance to states regarding activities to minimize crowdout in SCHIP, and the information it collected was of limited use in 

assessing whether crowd-out should be a concern. In issuing guidance to 

states, CMS instituted specific requirements for program designs that the 

agency identified as being at greater risk of crowd-out, including programs 

with higher income eligibility thresholds. For example, the agency 

required separate child health programs at all eligibility thresholds to 

monitor crowd-out, and it required states with SCHIP income eligibility 

Results in Brief 

 10See Social Security Act § 2102(b)(3); 42 C.F.R. §§ 457.800-.810(2008). 

11If available insurance is not affordable, families may decline such insurance regardless of 

SCHIP, and by definition, crowd-out would not occur.

12For example, other considerations that could apply to assessments of crowd-out include 

analyzing the value or type of insurance offered, for example, whether available insurance

is creditable. 

Page 4 GAO-09-252 SCHIP and Private Insurance
 

levels from 201 to 250 percent of the FPL to monitor crowd-out and take

action if levels of crowd-out reached an agreed-upon threshold. CMS 

reported reviewing states’ SCHIP annual reports, analyzing national trends 

in public and private health insurance, and commissioning studies on 

SCHIP, and on this basis believed crowd-out was occurring. However, 

each of the approaches CMS used provided limited information on the 

occurrence of crowd-out and thus on the extent to which it should be a 

concern. CMS did not collect certain indicators that could improve 

assessments of the potential for crowd-out in the SCHIP annual report, 

such as the extent to which private health insurance was available and

affordable to SCHIP-eligible children. Moreover, states did not provide 

CMS with consistent responses in their annual reports. For example, our 

review of SCHIP annual reports for 2007 found that less than half of the 51 

states provided a percentage in response to CMS’s question on the 

percentage of applicants who dropped private health insurance to enroll in 

SCHIP. 

In general, states implemented similar types of policies in their activities to 

minimize crowd-out, but not all states collected information adequate to 

assess whether crowd-out should be a concern. The majority of states 

implemented policies, such as waiting periods—a required period of 

uninsurance before an applicant can enroll in SCHIP—and premiums, with 

the aim of reducing incentives for individuals to drop private health 

insurance. All 39 states with waiting periods offered exemptions designed

to account for instances where a child involuntarily lost private health 

insurance. These exemptions were mostly related to the availability of 

insurance rather than the affordability of it. Officials from our sample of 

9 states generally believed that the policies they implemented were 

effective in minimizing crowd-out, but they provided little support for this 

assessment. Not all states collected information that was adequate to 

assess whether crowd-out should be a concern. For example, while all 

51 states asked SCHIP applicants if they were currently insured, 24 states 

asked applicants if they had access to private health insurance through 

their employers, which is important to understanding the potential for 

crowd-out. Within our sample of 9 states, 5 states measured the 

occurrence of crowd-out, but they developed their estimates differently; 

the remaining 4 states did not measure crowd-out. None of the officials 

from the sample states viewed crowd-out as a concern, with most basing

this assessment on a variety of indicators, including the lack of available 

and affordable private health insurance for the SCHIP population in their 

state. 

Page 5 GAO-09-252 SCHIP and Private Insurance
 

To improve information on whether crowd-out should be a concern in 

SCHIP, we recommend that the Acting Administrator of CMS ensure that 

states (1) collect and report consistent information on the extent to which 

SCHIP applicants have private insurance available to them and (2) take 

appropriate steps to determine whether available private health insurance 

is affordable for SCHIP applicants. 

Overall, CMS concurred with the report’s findings, conclusions, and 

recommendation; however, it identified several items of concern that it 

addressed in written comments. CMS stated that the issue of crowd-out is 

complicated and that trying to measure it is difficult because of variations

in definition and methodological approaches. In particular, CMS raised 

concerns about collecting and assessing information to determine whether 

health insurance was affordable for those who had access to private 

coverage. We agree that measuring crowd-out—particularly in terms of 

assessing affordability of coverage—is complicated. However, as noted in 

our report, some states already make such designations in their 

assessments of an individual’s access to private health insurance. 

SCHIP is a federal-state program that, in general, allows states to provide 

health insurance to children in families with incomes of up to 200 percent

of FPL, or 50 percentage points above states’ Medicaid eligibility limits 

that were in place as of March 31, 1997.13 States submit plans for their use 

of SCHIP funds to CMS. The agency reviews and approves these plans and 

monitors their implementation. Within broad federal guidelines, states 

have considerable flexibility in designing their SCHIP programs in terms of 

establishing eligibility guidelines, the scope of benefits, and administrative 

procedures. A number of states have made use of this flexibility by 

expanding SCHIP eligibility to children in families with income levels as 

high as 350 percent of FPL.14

Background 

 13See Pub. L. No. 105-33, §§ 4901, et. seq., 111 Stat. 251, 552, codified at 42 U.S.C. 

§ 1397aa(a), 1397jj. 

14As of July 31, 2008, 21 states reported providing SCHIP for children in families with 

incomes above 200 percent of FPL. The state with the highest FPL is New Jersey, which 

provides SCHIP for children in families earning up to 350 percent of FPL, or $74,200

annually for a family of four. 

Page 6 GAO-09-252 SCHIP and Private Insurance
 

States’ choices in structuring their SCHIP programs have important 

programmatic and financial implications. States have three basic options 

for structuring their SCHIP programs: (1) a Medicaid expansion program, 

(2) a separate child health program, or (3) a combination program that 

includes both a Medicaid expansion and a separate child health program. 

A Medicaid expansion program allows a state to expand eligibility levels 

within the state’s existing Medicaid program and requires the state to 

follow Medicaid rules, including those on eligibility determination, 

benefits, and cost sharing.15 States that operate Medicaid expansions 

continue to receive federal funds at the regular Medicaid matching rate 

after they have exhausted their SCHIP funds.16 In contrast, a separate child

health program may depart from Medicaid rules, including introducing 

limited cost sharing and creating waiting lists for enrollment. A separate 

child health program only receives a defined SCHIP allotment from the 

federal government, and the state can limit its own annual contribution 

and or enrollment once funds for SCHIP are exhausted. Even programs 

with the same structure do not always operate in the same way. For 

example, Medicaid expansion programs can operate under a section 1115 

demonstration waiver, which allows states to implement policies that do 

not follow traditional Medicaid rules.17 Similarly, separate child health 

programs can operate as “Medicaid look-alike” programs, generally 

following Medicaid rules but maintaining limited funding. 

Federal law requires states to implement policies to minimize the potential 

for crowd-out. The SCHIP statute defines a “targeted low-income child” as 

one from a family that does not qualify for Medicaid and is not covered 

under a group health plan or under other health insurance.18 To help 

 15Federal regulations do not allow SCHIP programs operating as Medicaid expansion 

programs to apply eligibility-related substitution prevention provisions, because such 

eligibility conditions are inconsistent with the Medicaid statute. Examples include 

provisions related to establishing waiting periods of uninsurance for individuals who are 

enrolled in private health insurance. 

16A Medicaid expansion creates an entitlement by requiring the states to continue providing

services to eligible children even when states exceed their SCHIP allotments. At that point, 

states with Medicaid expansion programs continue to receive federal matching funds—but 

at the Medicaid matching rate rather than the enhanced match that SCHIP provides. 

17Section 1115 of the Social Security Act allows waivers to many of the statutory 

requirements of Medicaid or SCHIP in the case of experimental, pilot, or demonstration

projects that promote program objectives. For example, SCHIP programs operating under a

section 1115 waiver may have eligibility-related substitution prevention provisions. 

18Pub. L. No. 105-33, § 4901, 111 Stat. at 569. 

Page 7 GAO-09-252 SCHIP and Private Insurance
 

minimize crowd-out, states are required to implement policies that would 

discourage a family from dropping other private health insurance, and 

states must coordinate eligibility screening with other health insurance 

programs, such as Medicaid.19

CMS has provided general guidance to the states regarding activities to 

minimize and monitor crowd-out. In 1998 and 2001, CMS outlined the 

types of activities states would need to implement to minimize and 

monitor crowd-out, and gave states flexibility in choosing specific 

activities. In August 2007, CMS issued additional guidance for states that 

wished to expand eligibility to children in families with effective income 

levels at or above 250 percent of FPL.

Most research efforts describe crowd-out as the movement of individuals

from private to public health insurance.20 However, among these research 

efforts there is no universally accepted method to measure the extent of 

crowd-out, and as a result, estimates vary widely. One reason for this 

variation is differences in study type. Broadly, researchers have used 

population-based, enrollee-based, and applicant-based studies to measure 

crowd-out. Population-based studies measure crowd-out by estimating any 

decline in private health insurance within a population. Enrollee-based 

studies estimate the number of SCHIP enrollees who had insurance within 

a specified time frame, accounting for specific losses of private health 

insurance because of job loss or other circumstances. Applicant-based 

studies use state application data to identify the number of applicants 

declined for having current or prior health insurance. (See table 1.) Instead 

of providing a measure of crowd-out, applicant-based studies estimate the 

amount of crowd-out averted because of a state’s eligibility determination 

process. 

 19See 42 U.S.C. §§ 2105(c)(3), 2102(b)(3). 

20L.A. Blewett and K.T. Call, “Revisiting Crowd-Out,” Robert Wood Johnson Foundation

Synthesis Project, September 2007, 1; A. Sommers, et al., “Substitution of SCHIP For 

Private Coverage: Results from a 2002 Evaluation in Ten States,” Health Affairs, vol. 26, 

no. 2 (2007), 529; S.S. Limpa-Amara, A. Merrill, and M. Rosenbach, SCHIP at 10: A 

Synthesis of the Evidence on Substitution of SCHIP for Other Coverage, Final Report, and 

M. Rosenbach, et al., National Evaluation of the State Children’s Health Insurance 

Program: A Decade of Expanding Coverage and Improving Access, Final Report

(Washington, D.C.: Mathematica Policy Research, Inc., September 2007), 34. 

Page 8 GAO-09-252 SCHIP and Private Insurance
 

Table 1: SCHIP Crowd-Out Estimates, by Study Type

Characteristic

Population-based

studiesa

Enrollee-based

studiesb

Applicant-based

studiesc

Area of focus National examination 

of trends in public and 

private health 

insurance 

Multistate or statespecific examination of 

SCHIP recipients 

State-specific review 

of applicant data 

Crowd-out 

estimate 

0 to 60 percent 0.7 to 15 percent 0 to 17 percent

Description of 

crowd-out 

estimate 

Compares change in

private health 

insurance relative to 

change in public

insurance 

Estimates the 

percentage of children 

enrolled in SCHIP who 

had private health 

insurance within a 

specified time frame. 

Estimates the 

percentage of 

families that applied 

for SCHIP but were 

declined because of 

existing or prior 

private health 

insurance 

Sources of data Current Population 

Survey, Medical 

Expenditure Panel 

Survey, and Survey of 

Income and Program 

Participationd

Telephone and mail 

surveys 

State administrative 

data from 

applications 

Source: GAO analysis of research, as of November 2008. 

Note: GAO’s analysis is similar to that conducted by Mathematica Policy Research, Inc. See S.S.

Limpa-Amara, A. Merrill, and M. Rosenbach. Last accessed on December 4, 2008, at:

http://www.mathematicampr.com/publications/redirect_pubsdb.asp?strSite=pdfs/SCHIPsubstitution.pdf. 

a

For an example of this type of study, see J. Gruber and K. Simon, “Crowd-Out Ten Years Later: 

Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” 

b

For an example of this type of study, see L.P. Shone, et al., “Crowd-Out in the State Children’s 

Health Insurance Program (SCHIP): Incidence, Enrollee Characteristics and Experiences, and 

Potential Impact on New York’s SCHIP,” Health Services Research, vol. 43, no. 1, Part II (February 

2008). 

c

For an example of this type of study, see S.S. Limpa-Amara, A. Merrill, and M. Rosenbach. 

d

The population-based studies reviewed used data from a variety of surveys that differed according to 

sample size, study type (for example, longitudinal versus cross-sectional), population characteristics 

(for example, applying different income levels), and insurance information collected.

Assessments of the potential for crowd-out must take into account an 

understanding of the extent to which private health insurance is available 

and affordable to low-income families that qualify for SCHIP. With regard 

to the availability of private health insurance, the extent to which private 

firms offer health insurance to their employees varies by state. According

to the 2006 Medical Expenditure Panel Survey (MEPS), 55.8 percent of 

private sector firms offered insurance—either individual or family health

insurance—to their employees. Across the states, the percentage of 

private sector firms offering individual or family health insurance to their

Page 9 GAO-09-252 SCHIP and Private Insurance
 

employees ranged from 89.6 percent of firms in Hawaii to 40.1 percent of

firms in Montana.21 Smaller firms were less likely to offer individual or 

family health insurance to their employees than larger firms. For example, 

35.1 percent of firms with fewer than 10 employees offered individual or 

family health insurance, while 98.4 percent of firms with 1,000 or more 

employees offered individual or family health insurance to their 

employees. There is some evidence suggesting that the availability of 

private health insurance for families is declining. For example, a recent 

study found that from 2003 through 2007, the percentage of low-income 

employees offered individual insurance through their employers did not 

change, but the percentage of low-income employees offered family health

insurance decreased from 71.1 percent to 63.6 percent.22

With regard to affordability, MEPS looks at the amount that individuals 

paid annually in order to obtain private health insurance.23 The national 

average annual premium—which includes both employee and employer 

contributions—for a single employee was $4,118 and for a family was 

$11,381. Premiums also showed some variation by state, ranging from 

$3,549 in Hawaii to $4,663 in Maine for an individual, while premiums for 

family health insurance ranged from $9,426 in Hawaii to $12,686 in New 

Hampshire.

When viewed by household income level, households at higher income 

levels were more likely to be offered health insurance—either individual 

or family health insurance—through their employers. For example, 

employed households with incomes less than 300 percent of FPL were less 

likely to be offered health insurance than households earning more than 

300 percent of FPL. (See fig. 1.) 

 21MEPS is a set of large-scale surveys of families and individuals, their medical providers, 

and employers across the United States. MEPS collects data on the specific health services 

that Americans use, how frequently they use them, the cost of these services, and how they 

are paid for, as well as data on the cost, scope, and breadth of health insurance held by and 

available to U.S. workers. 

22P. Cunningham, S. Artiga, and K. Schwartz, The Fraying Link Between Work and Health 

Insurance: Trends in Employer-Sponsored Insurance for Employees, 2000-2007, 

(Washington, D.C.: Henry J. Kaiser Family Foundation, Kaiser Commission on Medicaid 

and the Uninsured, November 2008). 

23Considerations of the affordability of private insurance could also be based on the share

of income one spends on health insurance, as well as on such factors as income level and 

cost of living. 

Page 10 GAO-09-252 SCHIP and Private Insurance
 

Figure 1: Estimates of the Percentage of Employed Households That Are Offered

Individual or Family Health Insurance through Their Employers, by Percentage of 

FPL 

0 20 40 60 80 100

400 and above

Below 400

Below 300

Below 227

Source: GAO analysis of the 2006 Medical Expenditure Panel Survey.

Percentage of FPL

Percentage of households that are offered insurance

92.4%

69.3%

64.5%

58.3%

Notes: Offers of health insurance include offers of both individual and family health insurance. The 

standard error rate for the estimates in this figure is within +/- 3 percentage points. 

The 227 percent of FPL represents the national average income level for the SCHIP population in 

2006, or about $45,400 for a household or family of four. This average was weighted by the FPL and

enrollment levels of each state.

In addition to employers offering health insurance, the costs of such 

insurance play an important role in the extent to which individuals accept

such insurance. Based on an analysis of MEPS, lower-income households

paid less for insurance premiums—either individual or family health 

insurance—than did households with higher incomes (see fig. 2). 

However, the estimated premiums paid by lower-income households 

constituted a larger percentage of the total income for these households 

(see fig. 3).24

 24The estimated premiums paid do not include other out-of-pocket costs that insured 

individuals could face, such as co-payments and deductibles. Additionally, the extent to 

which private health insurance policies were equivalent in terms of benefits, out-of-pocket 

costs, or other features is not known. 

Page 11 GAO-09-252 SCHIP and Private Insurance
 

Figure 2: Estimated Average Annual Premiums Households Paid for Individual or 

Family Health Insurance, by FPL

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

< 227 227–299 300–399 400+ 

Source: GAO analysis of the 2006 Medical Expenditure Panel Survey.

Estimated average premium (in dollars)

Percentage of FPL

$3,354 $3,416

$2,671

$2,118

Notes: The estimated average annual premiums paid do not include other out-of-pocket costs that 

insured individuals could face, such as co-payments and deductibles. These percentage of income 

estimates include spending for both individual and family health insurance premiums. The standard 

error rate for the estimates in this figure is within +/- $608. 

The 227 percent of FPL represents the national average income level for the SCHIP population in 

2006, or about $45,400 for a household or family of four. This average was weighted by the FPL and

enrollment levels of each state.

Page 12 GAO-09-252 SCHIP and Private Insurance
 

Figure 3: Estimated Percentage of Household Income Spent on Individual or Family

Health Insurance, by FPL

0

1

2

3

4

5

6

7

8

< 227 227–299 300–399 400+ 

Source: GAO analysis of the 2006 Medical Expenditure Panel Survey.

Percentage of income

Percentage of FPL

2.9%

5.2% 5.2%

7.3%

Notes: The estimated average annual premiums paid do not include other out-of-pocket costs that 

insured individuals could face, such as co-payments and deductibles. These percentage of income 

estimates include spending for both individual and family health insurance premiums. The standard 

error rate for the estimates in this figure is within +/- 1.1 percentage points. 

The 227 percent of FPL represents the national average income level for the SCHIP population in 

2006, or about $45,400 for a household or family of four. This average was weighted by the FPL and

enrollment levels of each state.

CMS provided guidance to states regarding activities to minimize crowdout in SCHIP, and the information it collected was of limited use in 

assessing the extent to which crowd-out should be a concern. In issuing 

guidance to states, CMS instituted specific requirements for program 

designs the agency identified as being at greater risk of crowd-out, 

including programs with higher income eligibility thresholds. CMS officials 

told us that they reviewed states’ SCHIP annual reports, analyzed national 

trends in public and private health insurance, and commissioned studies 

on SCHIP, and on this basis believed crowd-out was occurring. However, 

each of the approaches CMS used was limited in providing information on 

the occurrence of crowd-out and the extent to which it should be a 

concern. In particular, CMS did not collect certain indicators in the SCHIP 

annual report—such as whether applicants’ employers made private 

CMS Provided 

Guidance to States on 

Crowd-Out; 

Information It 

Collected Was of 

Limited Use in 

Assessing the Extent 

to Which Crowd-Out 

Should Be a Concern 

Page 13 GAO-09-252 SCHIP and Private Insurance
 

health insurance for families available and at what cost to the applicant—

that could help show the potential for crowd-out. Moreover, information 

CMS did collect was not provided consistently by states. 

CMS Established Specific 

Requirements for Certain 

SCHIP Program Designs 

CMS established specific requirements for SCHIP program designs it 

identified as being at a greater risk for crowd-out. In issuing the SCHIP 

final rule, CMS outlined broad regulatory requirements regarding 

substitution of private health insurance with SCHIP and stated that it 

planned to incorporate additional flexibility into its review of state plans in 

this area.25 CMS could not apply eligibility-related crowd-out prevention 

requirements to Medicaid expansion programs except those operating 

under an 1115 demonstration waiver.

26 CMS did outline specific 

requirements for separate child health programs with higher income 

eligibility levels, explaining that there is a greater likelihood of crowd-out 

as incomes increase. For example, the agency required separate child 

health programs at all eligibility thresholds to monitor crowd-out, and it 

required states with SCHIP eligibility thresholds from 201 to 250 percent of

FPL to implement policies to minimize crowd-out should an “unacceptable

level” of crowd-out be detected. CMS officials told us that they did not 

define an “unacceptable level” for all states, but rather negotiated with 

states individually. CMS viewed waiting periods as a policy to minimize 

crowd-out; therefore, states with waiting periods were not required to 

monitor for an “unacceptable level” of crowd-out, and only three states 

currently do so.27 CMS also required that states institute a number of 

requirements for premium assistance programs, including a waiting 

 25See 66 Fed. Reg. 2601-04. For example, CMS officials told us that they decided against 

requiring all states to implement a waiting period, recognizing that specific circumstances 

could affect which activities related to minimizing crowd-out were most appropriate for a 

given state. Instead, CMS suggested waiting periods as an example of an activity states 

could use to minimize crowd-out and invited states to propose other options. 

26Federal law does not allow SCHIP programs operating as Medicaid expansion programs

to apply eligibility-related substitution prevention provisions, because such eligibility 

conditions are inconsistent with the Medicaid statute. See 66 Fed. Reg. 2605. However, 

section 1115 of the Social Security Act allows waivers of certain statutory requirements of

Medicaid or SCHIP for demonstration projects that promote program objectives, including 

allowing crowd-out provisions where appropriate. 

27Two of these three states will implement a waiting period if they reach “unacceptable 

levels” of 8 percent and 15 percent, respectively, while the third state plans to extend the

length of its waiting period should an unacceptable level be attained. CMS officials said 

that none of these states has reached its specified threshold. 

Page 14 GAO-09-252 SCHIP and Private Insurance
 

period.28 (Table 2 provides examples of program designs for which CMS 

provided specific guidance.) 

Table 2: Examples of Program Designs for Which CMS Provided Specific Guidance 

to States 

SCHIP design Examples of CMS guidance

Medicaid expansion 

programs 

• Medicaid expansion programs operating under 1115 

demonstration waivers were subject to CMS review.a

Separate child health 

programs 

• Required separate child heath programs at all eligibility 

thresholds to monitor crowd-out. 

• Required states with SCHIP eligibility thresholds from 201 

percent to 250 percent of FPL to implement policies to 

minimize crowd-out should an “unacceptable level” of 

crowd-out be detected.b

• Required programs above 250 percent of FPL to have 

policies in place to minimize crowd-out regardless of what 

any monitoring efforts showed. 

• Required states with premium assistance programs that 

subsidized private health insurance offered by employers 

to implement waiting periods of at least 6 months but no 

more than 12 months.c

Source: GAO analysis of CMS guidance as of December 2008. 

a

CMS did not apply crowd-out requirements to all Medicaid expansion programs. 

b

CMS did not define an “unacceptable level” for all states, but rather negotiated with states

individually. 

c

Premium assistance programs use Medicaid funds, SCHIP funds, or both to subsidize the purchase 

of private health insurance. 

In a letter issued on August 17, 2007, CMS provided specific guidance on 

crowd-out for states operating separate child health programs above 

250 percent of FPL, but implementation of the requirements in this 

guidance has been suspended.29 In this letter, CMS outlined specific 

activities states with separate child health programs should use to 

minimize crowd-out if they wish to cover children with effective family 

incomes above 250 percent of FPL. Among other things, these activities 

 28Premium assistance programs use Medicaid funds, SCHIP funds, or both to subsidize the 

purchase of private health insurance. CMS’s stated concern for instituting special 

provisions for these programs was that families currently enrolled in private insurance may 

be more likely to seek public funding if they could use it to pay for the cost of that

insurance. 

29CMS also indicated that this guidance would apply to Medicaid expansion programs

operating under 1115 demonstration waivers. 

Page 15 GAO-09-252 SCHIP and Private Insurance
 

included a 12-month waiting period,30 a cost-sharing requirement,31 and 

efforts to prevent employers from changing health insurance offerings that

would encourage a shift to public programs such as SCHIP. The letter 

caused states to raise a number of concerns, including those about the 

potential effect on current enrollees,32 and we have reported concerns 

regarding the issuance of this guidance.33 In a memorandum dated 

February 4, 2009, for the Secretary of Health and Human Services, the 

President directed that the August 17 letter be withdrawn immediately.34

Approaches CMS Used Did 

Not Address All 

Information Important to 

Assessing the Extent to 

Which Crowd-Out Should 

Be a Concern 

CMS reported using a variety of approaches to assess the occurrence of 

crowd-out in SCHIP, including reviewing states’ SCHIP annual reports, 

national estimates, and CMS-commissioned studies. From this 

information, CMS officials said they believed that crowd-out was 

occurring and that the potential for crowd-out was greater at higher 

income levels. However, the approaches CMS used provided limited 

information on the occurrence of crowd-out and thus the extent to which 

it should be a concern. 

 30In a clarifying letter on May 7, 2008, CMS noted that while a 12-month waiting period was 

the standard against which all states would be evaluated, it would consider alternative 

proposals from states and the justifications for them. 

31The letter said that states were expected to impose cost sharing that could not be below 

the cost sharing required by competing private health insurance plans by more than 

1 percent of a family’s income unless such cost sharing would exceed 5 percent of a 

family’s income, which is the maximum allowed in the SCHIP statute. 

32In its May 7, 2008 letter, CMS stated that any changes made in response to the August 17, 

2007, letter need not be applied to those enrolled in the program prior to the effective date

of the letter, as long as they remain continuously enrolled in the program. However, 

because of issues of retention in the SCHIP program, concerns remain that prior enrollees 

who leave the SCHIP program will be subject to the August 17 requirements if they try to

reenroll. 

33In particular, in response to a request from Senators Rockefeller and Snowe for an

opinion on whether the agency complied with the Congressional Review Act in issuing the 

August 17, 2007 letter, we determined that CMS should have submitted this letter to 

Congress and the Comptroller General, as required by the Congressional Review Act, 

Pub. L. No. 104-121 § 251, 110 Stat. 847, 868-74, codified at 5 U.S.C. §§801 – 808, before the 

letter could take effect. See GAO, Applicability of the Congressional Review Act to Letter

on State Children’s Health Insurance Program, B-316048 (Washington, D.C.: Apr. 17, 

2008). 

34See 74 Fed. Reg. 6347 (Feb. 6, 2009). 

Page 16 GAO-09-252 SCHIP and Private Insurance
 

The questions on crowd-out that CMS asked states to answer for their 

annual reports did not collect certain indicators of the potential for crowdout, such as the extent to which SCHIP applicants were offered private 

health insurance for their families through their employers. In the annual

reports that states must submit, CMS requires states to report the 

“incidence of substitution” in their state by calculating the percentage of 

applicants who drop private health insurance to enroll in SCHIP; however,

CMS did not specify how states should calculate this incidence.35 While 

this question measures the number of SCHIP applicants who were 

enrolled in private health insurance and decided to take up SCHIP, it does 

not include SCHIP applicants who had private health insurance available 

through their employers but never enrolled. It also does not provide 

information on changes in insurance status, such as the extent to which 

SCHIP recipients gain access to private health insurance but remain 

enrolled in SCHIP. In addition, CMS does not specifically require states to 

provide information in their annual reports on the affordability of private 

health insurance available to SCHIP applicants.36

CMS has recently updated the requirements for the information that states 

must provide on crowd-out in their 2008 annual reports. For example, 

states will be expected to include more information on SCHIP applicants’ 

insurance status. Whereas states have previously been required to report 

only the percentage of applicants who have other insurance, CMS plans to 

require states to provide the percentage of applicants who have Medicaid 

and the percentage of applicants who have other insurance.37 In addition, 

CMS plans to require that states with waiting periods report on the 

percentage of applicants who meet exemptions to the waiting period. 

While these questions are useful from an eligibility standpoint, they still do 

 35CMS has recently updated the annual report that states must complete for 2008 to include 

the specific calculation states should make to arrive at this percentage: ((# applicants who

drop coverage/total # applicants) * 100). However, it remains unclear how states should 

count the number of applicants who drop coverage—whether states should include all 

applicants who dropped private insurance coverage regardless of whether they were 

granted SCHIP eligibility, or if they should count only those applicants who dropped 

private insurance and then became eligible for SCHIP after having served a waiting period, 

having obtained an exemption, or being otherwise deemed eligible for SCHIP. 

36CMS officials did note that they ask open-ended questions in the annual report that could 

lead to information on the affordability of private health insurance. For example, they told 

us that the annual report asks states to explain factors that may account for increases or 

decreases in the number of uninsured children in the state. 

37CMS does allow states to provide a combined percentage if they are unable calculate 

separate percentages. 

Page 17 GAO-09-252 SCHIP and Private Insurance
 

not account for applicants who were offered private health insurance for 

their families through their employers but did not take it up.38 These 

questions also do not address the extent to which available private health

insurance is affordable to the SCHIP population.

CMS’s information on the occurrence of crowd-out is also limited because 

states did not consistently provide the information that CMS requested in 

their annual reports (see table 3). We reviewed SCHIP annual reports from 

2007 for state responses on the percentage of applicants who dropped 

private health insurance to enroll in SCHIP and found that less than half of 

the 51 states provided a percentage in response to CMS’s question.39 Of 

those states providing a percentage, 7 states answered the question 

directly, with 1 reporting no crowd-out and the remaining 6 reporting an

incidence of crowd-out of 1 percent or less.40 Two of the states reporting 

an incidence of less than 1 percent also reported this number for the 

percentage of applicants who had insurance at the time of application. 

Forty-one states provided a response related to what they knew about the 

insurance status of applicants,41 provided descriptive responses, or 

reported that data were not available. Three states did not answer this 

question in their annual reports. 

CMS officials told us that in cases where states had missing or incomplete 

responses to questions in the annual report, the agency allowed states to 

 38CMS guidance and regulations do not address explicitly whether it has authority to 

consider this population as an element of crowd-out. 

39In 2007, 14 of the 51 states had Medicaid expansion programs, which are only subject to 

crowd-out requirements if the state requests this authority under an 1115 demonstration 

waiver. As a result, states with Medicaid expansion programs may not have collected the 

same data as states subject to crowd-out requirements. 

40Of these seven states, just three states gave an indication of how they arrived at this 

percentage, with one state noting that it used data from a 2005 survey to answer the 

question. 

41In particular, eight states provided the percentage of applicants denied SCHIP for having 

health insurance, while six states just reported the percentage of applicants who were

currently enrolled in health insurance. This distinction is important because the percentage 

denied SCHIP likely excludes those who had other insurance but were allowed to enroll in 

SCHIP because of state-allowed exemptions, such as job loss. 

Page 18 GAO-09-252 SCHIP and Private Insurance
 

address these questions in the next year’s report.42 CMS officials also noted 

that states used different data sources when analyzing crowd-out. For 

example, they said that some states used surveys to measure crowd-out, 

while others relied on data collected through application questions. 

Table 3: States’ Responses to Annual Report Question on the Incidence of CrowdOut 

Response to question asking for the percentage of applicants who

drop private health insurance to enroll in SCHIP 

Number of 

states

Answered question directly 7

Provided the percentage denied for having health insurance within a 

certain number of months before applying 8

Provided the percentage who had health insurance within a certain 

number of months before applying 6

Provided a descriptive response 8

Responded that data were not available 19

No response 3

Source: GAO analysis of 51 states’ annual reports for 2007. 

In addition to reviewing state annual reports, CMS officials told us that 

they used national data to assess the occurrence of crowd-out. 

Specifically, they said that they used the Current Population Survey and

CMS enrollment data to track changes in public and private health 

insurance over time. While this type of analysis can account for broad 

trends in changes in insurance usage, it cannot account for the reasons for 

these changes. For example, it cannot isolate whether an increase in 

public insurance resulted from crowd-out or an unrelated decline in the 

availability of private health insurance. 

CMS officials told us that they commissioned two studies to look at the 

issue of crowd-out in SCHIP. However, the results of these studies did not 

provide a clear sense of whether crowd-out should be a concern. A 2003 

study provided information on states’ early experiences with SCHIP based 

 42CMS officials explained that resubmitting a response requires a lot of administrative work

on the part of states. Instead, CMS will talk with states about why an answer is incomplete, 

offer assistance in collecting data, and ask states to include a complete answer in the

annual report for the following year. CMS officials told us that they are in the process of

developing a follow-up letter to send to states within 60 days of submitting their 2008 

annual reports. This letter is intended to provide feedback and technical assistance to 

states and will target specific areas of the annual reports, including the section on crowdout. 

Page 19 GAO-09-252 SCHIP and Private Insurance
 

on state annual reports from 2000.43 The study reported that states’ 

estimates of crowd-out in SCHIP ranged from 0 to 20 percent, but 

cautioned that state data must be interpreted carefully because of a 

number of factors, including the limited experience upon which states 

based their estimates. A 2007 study assessed the SCHIP program,44 and 

included a background paper on crowd-out.45 The background paper 

synthesized evidence on the occurrence of crowd-out in SCHIP and 

concluded that while the evidence suggested that crowd-out occurred, the 

magnitude of the occurrence ranged widely—from 0.7 to 56 percent—

depending on how crowd-out was defined and measured. The study 

commented on the strengths and weaknesses of various ways to define 

and measure crowd-out, but it did not indicate a preference for any 

specific methodology. 

In general, states implemented similar types of policies in their activities to 

minimize crowd-out, but not all states collected information adequate to 

assess whether crowd-out should be a concern. States’ policies largely 

sought to deter individuals from dropping private health insurance. 

Officials we interviewed in the nine sample states generally believed that 

their policies were effective in minimizing crowd-out. However, little 

evidence existed to confirm this belief. Less than half of states investigate

whether applicants had access to private health insurance, which is key to 

understanding the extent to which crowd-out should be a concern. 

States Used Similar 

Types of Policies to 

Minimize Crowd-Out, 

but Not All Collected 

Adequate Information 

to Assess whether 

Crowd-Out Should Be 

a Concern 

 43M. Rosenbach, et al., Implementation of the State Children’s Health Insurance Program:

Synthesis of State Evaluations (Cambridge, Mass.: Mathematica Policy Research, Inc., 

March 2003). 

44M. Rosenbach, et al., National Evaluation of the State Children’s Health Insurance 

Program: A Decade of Expanding Coverage and Improving Access (Cambridge, Mass.:

Mathematica Policy Research, Inc., September 2007). 

45S.S. Limpa-Amara, A. Merrill, and M. Rosenbach, SCHIP at 10: A Synthesis of the 

Evidence on Substitution of SCHIP for Other Coverage.

Page 20 GAO-09-252 SCHIP and Private Insurance
 

Forty-seven states used one or more policies to minimize crowd-out. 

These policies deter individuals from dropping private health insurance in

order to take up SCHIP. Our analysis found that waiting periods—required 

periods of uninsurance before applicants can enroll in SCHIP—were the 

most common policy states had in place to minimize crowd-out; premiums 

and other types of cost sharing were also frequently used (see fig. 4).46 As 

expected, these policies were more common in separate child health and

combination programs than in Medicaid expansion programs operating 

with 1115 demonstration waivers.47 A waiting period is meant to 

discourage individuals from dropping private health insurance. Premiums 

and other types of cost sharing are used in SCHIP to narrow the cost 

difference between SCHIP and private health insurance, thereby reducing 

the likelihood that lower out-of-pocket costs for SCHIP will attract 

individuals who already have other health insurance. Ten states reported 

having premium assistance programs, where states used SCHIP funds to 

pay premiums for private health insurance sponsored by employers. In 

contrast to CMS’s view that premium assistance programs could raise 

concerns about crowd-out, 5 states reported that such programs were a 

policy to prevent crowd-out. One state reported instituting a policy 

directly aimed at affecting employer behavior. This state made it an unfair 

labor practice for insurance companies or employers to encourage 

families to enroll in SCHIP, for example, through changing benefit 

offerings, when the families already have private health insurance. 

States Used Similar Types 

of Policies to Minimize 

Crowd-Out, but Little Is 

Known about Their Effect 

 46Premiums are payments required of enrollees for health insurance for a given period of 

time. Other types of cost sharing include coinsurance and deductibles. 

47While combination programs include both a Medicaid expansion and a separate child 

heath component, our analysis of these programs showed a similar trend. Waiting periods, 

premiums, and other cost sharing were more prevalent in the separate child health 

component than in the Medicaid expansion component. In general, Medicaid expansions

are expected to follow Medicaid rules and thus generally do not impose waiting periods 

and are limited in the amount of premiums and cost sharing that they impose. 

Page 21 GAO-09-252 SCHIP and Private Insurance
 

Figure 4: States’ Policies to Minimize Crowd-Out

0

5

10

15

20

25

30

35

40

Premium 

assistance

program

Other

cost sharing

Waiting Premium

period

Source: GAO analysis of state information as of July 31, 2008.

Number of states

Policies

10

30

35

39

Premium

Other

assistance

program

cost sharing

Premium

Waiting

period

Notes: The total number of states with policies to minimize crowd-out is 51; some states used more 

than one policy. Other cost sharing includes co-payments or deductibles, though only 3 states had 

deductibles. 

Four states did not respond to our request to verify information; therefore, we used information from 

states’ 2007 annual reports. 

Thirty-nine states had waiting periods, and they varied in length. The most 

common waiting period length was 3 or 6 months (see fig. 5). At least 2 of 

the 39 states reduced their waiting periods after concluding that crowd-out 

was not a significant problem and that the original waiting period length

was unnecessarily long.48

 48These two states were New Jersey, which lowered its waiting period from 12 months to 

3 months, and California, which lowered its waiting period from 6 months to 3 months. 

Page 22 GAO-09-252 SCHIP and Private Insurance
 

Figure 5: States’ Waiting Period Lengths 

0

2

4

6

8

10

12

14

16

1 2 3 4 6 12 

Source: GAO analysis of state information as of July 31, 2008.

Number of states

Length of waiting period (in months)

3

12

1

3

2

15

Notes: This figure shows the waiting periods imposed by 36 states. While the total number of states

with waiting periods is 39, 3 states used more than one waiting period. These 3 states implemented 

multiple waiting periods to be applied in specific situations. For example, one state applied different 

waiting periods to different levels of applicant income. The length of these multiple waiting periods

ranged from 3 to 12 months and are not included in this figure. 

Four states did not respond to our request to verify information; therefore, we used information from 

states’ 2007 annual reports. 

All 39 states with a waiting period included exemptions designed to 

account for instances where a child involuntarily lost private health 

insurance. These exemptions were mostly related to the availability rather 

than the affordability of insurance (see table 4). Exemptions varied among 

states, but the most common exemptions were for a change in job status

that led to a loss of private health insurance, a change in family structure, 

and exhaustion of health insurance provided through the Consolidated 

Omnibus Budget Reconciliation Act of 1985 (COBRA).49 CMS does not 

require states to consider issues of affordability in developing exemptions, 

 49COBRA, in general, requires employers that offer group health plans and have 20 or more 

employees to make health insurance available for a limited period of time for employees 

and their dependents who have lost health insurance because of certain events, including 

the loss of employment or the loss of eligibility as a dependent on a parent’s plan. 

Page 23 GAO-09-252 SCHIP and Private Insurance
 

and just over 10 states provided an exemption specifically for economic 

hardship, that is, if private health insurance makes up too much of a 

family’s income. 

Table 4: States’ Exemptions to Waiting Periods and the Conditions They Addressed

Condition Exemptions

Number of 

states

Availability of insurance Change in job status (loss of job or reduction of hours resulting in loss of 

benefits) 29

Loss of COBRA 20

Termination/reduction in group health insurance 26

Special health care needs or termination of health insurance for a disability 9

Exhaustion of prior benefits 7

Address change that is not covered by private health insurance sponsored

by an employer 9

Affordability of insurance Economic hardship (income threshold specified) 11

Availability and affordability of insurance Change in family circumstance (e.g., death or divorce) 20

Self-employed/individual health insurance 7

Source: GAO analysis of state information as of July 31, 2008. 

Note: All 39 states that had waiting periods had exemptions to them. Additionally, states can have 

more than one exemption. 

SCHIP officials in the nine sample states generally believed that their 

policies to minimize crowd-out were effective but did not cite any specific 

data to support their assessment. Officials from these nine states generally

reported that waiting periods, outreach efforts to inform applicants about 

program requirements, and premiums and other cost-sharing mechanisms 

were successful policies to minimize crowd-out. Officials in four of the 

states also noted that these policies may have unintended consequences, 

such as limiting families’ access to insurance. 

Among the nine states in our sample, seven states reported no immediate 

plans to change their policies to minimize crowd-out, while two states 

were considering reducing the requirements in place regarding waiting 

periods. Officials from one of the two states said that they are considering 

reducing the state’s waiting period. Officials from the other state wanted 

to add an economic hardship exemption to the state’s waiting period. 

Page 24 GAO-09-252 SCHIP and Private Insurance
 

Our analysis of previous research found few studies that estimated the 

effect of different policies on minimizing crowd-out, but those that did 

primarily focused on waiting periods and cost sharing.50 These studies 

concluded that waiting periods and cost sharing can have negative effects 

on individuals’ participation in SCHIP.51 These studies also suggested that 

policies to minimize crowd-out may deter SCHIP enrollment by eligible 

uninsured children at a faster rate than they deter use by individuals who 

have private health insurance.52 However, little is known about how 

variation in policies, such as the length of a state’s waiting period, affects 

efforts to minimize crowd-out. 

 50An analysis of 23 articles found 5 studies that estimated the effectiveness of waiting 

periods—C. Bansak and S. Raphael, “The Effects of State Policy Design Features on TakeUp and Crowd-Out Rates for the State Children’s Health Insurance Program,” Journal of 

Policy Analysis and Management, vol. 26, no. 1 (2006); K. Kronebusch and B. Elbel,

“Simplifying Children’s Medicaid and SCHIP,” Health Affairs, vol. 23, no. 3 (2004); 

J. Gruber and K. Simon, “Crowd-Out Ten Years Later: Have Recent Public Insurance

Expansions Crowded Out Private Health Insurance?” A.T. Lo Sasso and T.C. Buchmueller, 

“The Effect of the State Children’s Health Insurance Program on Health Insurance 

Coverage,” Journal of Health Economics, vol. 23 (2004); and B. Wolfe and S. Scrivner, “The

Devil May Be in the Details: How the Characteristics of SCHIP Programs Affect Take-Up,” 

Journal of Policy Analysis and Management, vol. 24, no. 3 (2005)—and three articles—J. 

Gruber and K. Simon, “Crowd-Out Ten Years Later: Have Recent Public Insurance

Expansions Crowded Out Private Health Insurance?”; J. Hadley, et al., “Insurance

Premiums and Insurance Coverage of Near-Poor Children,” Inquiry, vol. 43, no. 4 (Winter 

2006/2007); B. Wolfe and S. Scrivner, “The Devil May Be in the Details: How the 

Characteristics of SCHIP Programs Affect Take-Up”—that estimated the effectiveness of 

cost sharing. 

51Four of the five studies that estimated the effectiveness of waiting periods and the three 

studies that estimated the effectiveness of cost sharing reported that these policies have a 

negative and significant impact on SCHIP enrollment. See B. Wolfe and S. Scrivner, “The

Devil May Be in the Details: How the Characteristics of SCHIP Programs Affect Take-Up”; 

A.T. Lo Sasso and T.C. Buchmueller, “The Effect of the State Children’s Health Insurance 

Program on Health Insurance Coverage”; J. Gruber and K. Simon, “Crowd-Out Ten Years

Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?”; 

J. Hadley, et al., “Insurance Premiums and Insurance Coverage of Near-Poor Children”; 

C. Bansak and S. Raphael, “The Effects of State Policy Design Features on Take-Up and 

Crowd-Out Rates for the State Children’s Health Insurance Program”; and Kronebusch and

B. Elbel, “Simplifying Children’s Medicaid and SCHIP.” 

52See L.A. Blewett and K.T. Call, “Revisiting Crowd-Out”; A.T. Lo Sasso and T.C. 

Buchmueller, “The Effect of the State Children’s Health Insurance Program on Health

Insurance Coverage”; B. Wolfe and S. Scrivner, “The Devil May Be in the Details: How the

Characteristics of SCHIP Programs Affect Take-Up”; and J. Hadley, et al., “Insurance

Premiums and Insurance Coverage of Near-Poor Children.” 

Page 25 GAO-09-252 SCHIP and Private Insurance
 

All 51 states monitored crowd-out by asking applicants questions about 

whether they had private health insurance, but fewer states asked whether 

applicants were offered health insurance through their employers—a key 

piece of information in understanding whether crowd-out should be a 

concern. 

Not All States Collected 

Information Adequate to 

Assess Whether CrowdOut Should Be a Concern 

All 51 states asked applicants if they were currently insured, and 44 of the 

51 states asked applicants whether they had been insured in the past. 

Twenty-four states asked applicants about their access to private 

insurance. Of these 24 states, 15 states asked applicants if they had access 

to any private health insurance and 9 states asked applicants if they had

access to specific types of private health insurance (such as through state

or school employment). The remaining 27 states did not ask questions to 

determine whether applicants had access to private health insurance 

through their employers. 

The majority of states made efforts to verify applicants’ responses to their 

questions about insurance. Twenty-five states used a database to verify 

applicants’ enrollment in private health insurance, 14 states verified 

applicants’ responses with employers, and 7 states used both. States 

conducted verification of insurance most frequently at the time of 

application, although about half of the states verified insurance status at 

eligibility renewal or at other regular intervals. (See table 5.)

Table 5: States’ Efforts to Verify Insurance Status

Effort 

At any 

point in time

At 

application 

At eligibility 

renewal 

At regular 

intervals 

Employer verification only 9 7 8 3

Database verification only 20 18 13 17

Both employer and database 

verification 9 7 5 5

No verification 13 19 25 26

Source: GAO analysis of state information as of July 31, 2008. 

Note: States were considered to verify insurance status at any point in time if they verified insurance 

status at application, eligibility renewal, or other regular intervals. States may have verified insurance 

status at more than one point in time. 

Twenty-nine states used databases at some point to verify individuals’ 

enrollment in private health insurance; however, there were differences in

the databases used. The database sources states used included 

(1) databases from private insurance companies, (2) databases run by 

third-party administrators, and (3) databases that were maintained by the 

Page 26 GAO-09-252 SCHIP and Private Insurance
 

states.53 The databases also varied in the scope of insurance information 

they provided. For example, some databases included information on the 

majority of the population with private health insurance in a state, while 

other databases were more limited, such as those for state employees.54

While all of the databases verify insurance status, they do not determine 

whether individuals have private health insurance available through their 

employers but did not make use of it for their families. 

Another way states often verified insurance status was by checking with

individuals’ employers—which could allow a state to determine whether 

the individuals had private insurance available to them. We identified 18

states that used various approaches to verify insurance status with 

employers at some point. Generally, the states asked whether (1) the 

individual was insured, (2) the individual had access to employer 

insurance, and (3) the individual paid out-of-pocket expenses for private 

health insurance.55 Other differences included the number of individuals 

states verified insurance status for and how employer information was 

collected. For example, at least 2 states only verified insurance status with 

employers if they found evidence that an individual might have private 

health insurance available through an employer, such as a pay stub 

showing that wages were deducted for health insurance premiums. 

Another state reported that it verified the availability of private health 

insurance through (1) an annual survey sent to all employers in the state 

and (2) an individual questionnaire sent to the employers of specific 

applicants and enrollees. 

The nine states whose officials we interviewed varied in the extent to 

which they measured crowd-out, with five states providing some estimate 

of crowd-out and four states reporting that they could not estimate it at all. 

The five states that did measure crowd-out developed their estimates 

 53Some states have contracted with a third-party administrator, an outside organization, to 

perform the administrative task of identifying SCHIP applicants and enrollees with private 

health insurance. For example, a number of states reported contracting with an 

organization, Health Management Systems, that compares SCHIP applicant and enrollee 

information to private health insurance plan enrollment files to help identify individuals. 

54One official from our sample of nine states indicated that third-party databases were not 

always up to date. For example, this official noted that while the third-party administrator 

may update its database quarterly, participating insurance companies may only provide

updated information annually. 

55Over half of the 18 states asked whether the individual was insured; states asked the

remaining two questions less frequently. 

Page 27 GAO-09-252 SCHIP and Private Insurance
 

differently. Officials from one of the five states based their estimate on the 

number of applicants who did not meet the eligibility criteria for SCHIP 

because they were enrolled in other insurance. However, this estimate 

measures how successful the state was in avoiding the inappropriate use 

of SCHIP rather than crowd-out. Officials from the remaining four states 

based their estimates on the number of individuals who dropped insurance 

for reasons that—by their states’ definitions—constituted crowd-out. For 

example, one state included in its estimate of crowd-out circumstances in 

which families had private health insurance available but dropped it 

because it was unaffordable, while another state explicitly excluded this 

reason from its estimate. 

None of the officials in our sample of nine states viewed crowd-out as a 

concern, with most basing this assessment on a variety of indicators, 

including the availability and affordability of private health insurance for 

the SCHIP population in their state. Six states told us that private health 

insurance was not readily available and three other states believed that 

where insurance was available it was not affordable. Another state 

referred to the small number of SCHIP enrollees at its highest eligibility 

level—from 250 to 300 percent of FPL—as indicating a low potential for 

crowd-out. 

Understanding the potential for crowd-out is a complex task that begins 

with understanding the extent to which private health insurance is 

available to children in families whose incomes make them eligible for 

SCHIP. SCHIP is designed to offer health insurance to eligible children 

who would otherwise be uninsured, not to replace private health 

insurance. For crowd-out to occur, private health insurance must be 

available to low-income families who qualify for SCHIP, and these families 

must find such insurance affordable. CMS and the states differ in their 

views on whether crowd-out is a concern for SCHIP, yet the information 

on which both base their views is limited in providing a basis for assessing

the occurrence of crowd-out. 

Conclusions 

CMS’s guidance to and reporting requirements for states provide limited 

information on the extent to which crowd-out should be a concern. While 

precise measurements of crowd-out are difficult, certain indicators could

help improve assessments of the extent to which crowd-out should—or 

should not—be a concern. In particular, asking SCHIP applicants who 

work whether they are offered private health insurance for their families 

through their employers could provide an initial assessment of the extent

to which private health insurance is available to these individuals and thus 

Page 28 GAO-09-252 SCHIP and Private Insurance
 

better assess whether concerns about crowd-out are warranted. For lowincome working families, the affordability of available private health 

insurance is also important in determining whether crowd-out should be 

considered a concern. However, CMS does not currently have this 

information, as states are not required to collect and report it. Information 

about the availability and affordability of private health insurance could 

help ensure the best use of SCHIP funds and help determine the future 

funding needs of this important program. 

To improve information on whether crowd-out should be a concern in 

SCHIP, we recommend that the Acting Administrator of CMS refine CMS 

policies and guidance to better collect consistent information on the 

extent to which applicants have access to available and affordable private 

health insurance for their children eligible for SCHIP. Such actions should 

include ensuring that states 

• collect and report consistent information on the extent to which SCHIP 

applicants have private insurance available to them and 

• take appropriate steps to determine whether available private health 

insurance is affordable for SCHIP applicants. 

CMS reviewed a draft of this report and provided written comments, 

which are reprinted in appendix I. In addition to comments on our 

recommendation, CMS provided us with technical comments that we 

incorporated where appropriate. 

Overall, CMS concurred with the report’s findings, conclusions, and 

recommendation. CMS commented that the issue of crowd-out is 

complicated and that assessing or measuring it is difficult because of 

variations in definition and methodologies for assessing its occurrence. 

CMS agreed that the availability and affordability of health insurance are 

relevant issues in reviewing crowd-out. They also agreed with our 

recommendation, stating that information on the availability and 

affordability of health insurance from states would be extremely helpful in 

evaluating the potential for crowd-out. 

CMS also listed a number of concerns in response to our recommendation 

about the collection and submission of additional information related to 

the availability and affordability of private health insurance. CMS stated 

that the reliability of any information states collect from applicants about 

Recommendation for 

Executive Action 

Agency Comments 

and Our Evaluation 

Page 29 GAO-09-252 SCHIP and Private Insurance
 

the availability or affordability of private coverage would be suspect if it 

were self-reported. However, our work found that much of the information 

currently collected by states and submitted to CMS on applicants’ 

insurance status, which is used for eligibility determinations, is also selfreported by applicants. Moreover, our work shows that the majority of 

states take steps to verify this self-reported information. Thus, the use of 

self-reported data is not unusual and collecting such data could help CMS 

make an initial assessment of the extent to which private health insurance

is available and affordable. With these data, CMS could better assess 

whether concerns about crowd-out are warranted. 

CMS also noted that there is currently no national definition of

affordability and that it does not believe it would be appropriate for the 

agency to develop one because of the diversity of states’ economies and 

health insurance markets, as well as the flexibility that is a key tenet of

SCHIP. Further, CMS commented that its existing definition of a targeted

low-income child does not specify that children only receive SCHIP if 

private health insurance is not affordable. We agree that CMS should not 

be responsible for devising a national standard of what is considered 

affordable within a state. We believe that states are in the best position to 

make such a determination, and as noted in our report, some states 

already make such designations in their assessments of an individual’s 

access to private health insurance. 

Finally, CMS commented that because of the administrative and reporting 

burdens that would be associated with additional data reporting, the 

agency would need to provide states with opportunities to discuss the 

changes needed to collect and report this information. We agree that such

steps may be necessary. We also note that CMS recently updated questions 

in its SCHIP annual report template to help ensure that states are 

collecting and reporting necessary information related to crowd-out. Thus, 

the administrative efforts associated with additional information 

collection and reporting are well within the scope of CMS’s responsibility. 

As agreed with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Acting Administrator 

of the Centers for Medicare & Medicaid Services, committees, and others.

This report also will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

Page 30 GAO-09-252 SCHIP and Private Insurance
 

If you or your staff have any questions about this report, please contact me 

at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix II. 

Sincerely yours, 

James C. Cosgrove

Director, Health Care 

Page 31 GAO-09-252 SCHIP and Private Insurance
Appendix I: Comments from the Centers for Appendix I: Comments from the Centers for Medicare & Medicaid Services 

Medicare & Medicaid Services 

Page 32 GAO-09-252 SCHIP and Private Insurance
Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 

Page 33 GAO-09-252 SCHIP and Private Insurance
Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 

Page 34 GAO-09-252 SCHIP and Private Insurance
Appendix II: 

A

GAO Contact and Staff 

cknowledgments 

Page 35 GAO-09-252

Appendix II: GAO Contact and Staff 

Acknowledgments 

James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov

In addition to the contact named above, Carolyn Yocom, Assistant 

Director; Kristin Bradley; William Crafton; Kevin Milne; Elizabeth T. 

Morrison; Rachel Moskowitz; and Samantha Poppe made key 

contributions to this report. 

SCHIP and Private Insurance

GAO Contact 

Acknowledgments 

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