United States General Accounting Office

GAO Testimony

Before the Subcommittee on Health, Committee on Ways

and Means, House of Representatives

For Release on Delivery

Expected at 10:00 a.m.

Tuesday, April 8, 1997

HEALTH INSURANCE FOR

CHILDREN

Declines in EmploymentBased Coverage Leave

Millions Uninsured; State

and Private Programs Offer

New Approaches

Statement of William J. Scanlon, Director

Health Financing and Systems Issues

Health, Education, and Human Services Division

GAO/T-HEHS-97-105

Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

Mr. Chairman and Members of the Subcommittee:

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.

Page 1 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

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.

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.

1

For 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).

Page 2 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

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 one-quarter 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

employee-only 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.

Page 3 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

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

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.

3

See 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).

4

See 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.

Page 4 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

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.

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 stateand 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.

5

We 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.

Page 5 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

• 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.)

• While all six programs covered basic preventive and outpatient services,

some limited other services, such as vision, hearing, dental, and mental

health care. Some also limited inpatient care, particularly the privately

funded programs. The programs 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.

• 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.

Page 6 GAO/T-HEHS-97-105
Health Insurance for Children: Declines in

Employment-Based Coverage Leave Millions

Uninsured; State and Private Programs Offer

New Approaches

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 Subcommittee may have.

Contributors For more information on this testimony, please call Michael Gutowski,

Assistant Director, on (202) 512-7128. Other major contributors included

Sheila K. Avruch and Karen M. Sloan.

Page 7 GAO/T-HEHS-97-105
Appendix I 

Comparison of Family Cost-Sharing

Provisions, October 1996

Program

Income range, as

a percentage of

federal poverty

level

Family premium

contribution per

month per child

by income range

Percentage

enrolled by

income range Copayments

Service and amount of

copayment

Alabama Caring

Program for Children

$0-12,000a $0 100 Yesb Outpatient services-$5

Florida Healthy Kids

Program

0-130

131-185

over 185

5-10c

13-30c

45-60c

68

15

17

Yes Prescription drugs-$3,

eyeglass lenses-$10,

refractions-$3,

nonauthorized emergency

room visits-$25

MinnesotaCare 0-150

151-275

4

4-98e

66d

34d

No None for children or

pregnant women; for other

adults, prescription

drugs-$3, eyeglasses-$25,

inpatient hospital

charges-10%

New York’s Child

Health Plus Program

0-159

160-222

over 222

0

2.08

35-66.50c

86

13

1

Yes Prescription drugs-$1-3,

inappropriate emergency

room use-$35

Pennsylvania’s

Children’s Health

Insurance Program

0-184

185-235

0

28.74-34.39c

95f

5f

Yes Prescription drugs-$5

Western Pennsylvania

Caring Program for

Children

0-184

185-235

0

20/up to

50 per family

96

4

Yes Prescription drugs-$5

Note: This appendix corresponds with enclosure IV in GAO/HEHS-97-40R and updates table 2 in

GAO/HEHS-96-35.

aAlabama uses absolute dollar amounts for income eligibility determination.

bPreferred doctors may require a $5 copayment for some services; however, most doctors waive

the copayment.

cPremium contribution varies by locale or insurer.

dEstimated by program officials for 1995.

ePremium contribution varies by income level within specified range and family size.

f

Estimated by program officials for 1996.

Page 8 GAO/T-HEHS-97-105
Appendix II 

Average Cost Per Child Per Month for

Services Covered by Programs, October

1996

Costs/services

Alabama

Caring

Program for

Children

Florida Healthy

Kids Program MinnesotaCare

New York’s

Child Health

Plus Program

Pennsylvania’s

Children’s Health

Insurance

Program

Western

Pennsylvania

Caring Program

for Children

Average cost per

child per montha $20.00 $49.00 $60.00 $56.45b

$52.00c

$63.00 $70.62

Services

Primary and

preventive cared • • • • • •

Emergency and

accident care • • • • • •

Speech therapy •e • • •

Physical and

occupational therapy •e • • • •

Prescription drugs • • • • •

Hospitalization and

inpatient physician

services • • b •e •e

Mental health care •e • •e •e

Substance abuse

care •e • •e

Vision care •e • •e •e

Hearing care • • • •

Dental care • • •

Home health care • • • •

Ambulance services • • •

Durable medical

equipment and

prosthetic devices • • •

Podiatry •e •

Chiropractic services •e • •f

Family planning • •

Other services • •g • • • •

(Table notes on next page)

Page 9 GAO/T-HEHS-97-105
Appendix II 

Average Cost Per Child Per Month for

Services Covered by Programs, October

1996

Note: This appendix corresponds with enclosure III in HEHS-97-40R and updates figure 3 in

GAO/HEHS-96-35.

aAverage cost reflects the total premium cost, regardless of the funding source, but excludes

program administrative costs.

bNew York planned to add inpatient services and reset premiums to cover these additional

services in 1997.

cAverage cost for fully subsidized children aged 1 through 17 is $52 per child per month and for

partially subsidized children birth through age 5 is $63 per month.

dPrimary and preventive care services include well-child visits, immunizations, diagnostic testing,

outpatient physician services, and outpatient surgery.

eThese services have specific limitations.

f

Chiropractic services are covered if ordered by the primary care physician.

gPreventive dental care is offered in some counties.

Page 10 GAO/T-HEHS-97-105
Appendix II 

Average Cost Per Child Per Month for

Services Covered by Programs, October

1996

Page 11 GAO/T-HEHS-97-105
Related GAO Products

Employment-Based Health Insurance: Costs Increase and Family Coverage

Decreases (GAO/HEHS-97-35, Feb. 24, 1997).

Children’s Health Insurance Programs, 1996 (GAO/HEHS-97-40R, Dec. 3, 1996).

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).

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).

(101556) Page 12 GAO/T-HEHS-97-105
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