Transitions from private to public health coverage among children: estimating effects on out-of-pocket medical costs and health insurance premium costs.

Public health insurance coverage for children increased from 18 million in 1987 to 30 million in 2007, primarily as a result of eligibility expansions in Medicaid and the State Children's Health Insurance Program (SCHIP), and major outreach and enrollment efforts by states to increase take-up among eligible children. Many have touted SCHIP as a federal-state success in expanding coverage to uninsured families (Grogan and Rigby 2009). Perhaps the most prominent concern raised about SCHIP, especially during the 2007 reauthorization debate, has been crowd-out: the possibility that expanded public health insurance displaces private coverage. Findings are mixed regarding the amount of crowd-out resulting from Medicaid and SCHIP expansions. Still, many policymakers express concerns about the extent of crowd-out associated with expansions of public health insurance. Despite numerous studies, little is known about crowd-out's implications for affected families. Hudson, Selden, and Banthin (2005) contend that debates over crowd-out point estimates “distract policymakers from the larger and more important challenge of weighing various program benefits against program costs” (p. 233). Some studies mention possible redistributive effects of crowd-out in the form of effective income transfers (Cutler and Gruber 1996a; Holahan 1997; Davidson, Blewitt, and Thiede 2004; Ham and Shore-Sheppard 2005; Hudson, Selden, and Banthin 2005;). However, few scholars have specifically studied these redistributive effects. This paper uses longitudinal data from the Survey of Income and Program Participation (SIPP) for the period 1998–2003 to identifying children ages 0–18 who transition from private to public health coverage, which includes but is not limited to crowd-out. We focus on transitions from private to public health coverage rather than crowd-out because of the many challenges in accurately identifying and measuring crowd-out. We begin by descriptively comparing children who transition from private to public coverage to those who remain on private health insurance throughout a given year, and to the broader population of all children. We then examine two key outcomes: annual out-of-pocket medical expenditures and health insurance premium costs. We utilize a bootstrapped instrumental variable, two-stage-least-squares analysis to estimate the effects of such transitions on out-of-pocket medical expenditures and health insurance premium costs. We estimate the probability of a private-to-public transition in the first stage, finding that child health status and expanded Medicaid and SCHIP eligibility are key predictive factors. In the second stage, the instrumented private-to-public transition variable has a significant impact on out-of-pocket medical expenditures and family premiums. Families with children who transition realize lower out-of-pocket medical expenditures and family premium costs, on average, compared with children remaining on private insurance all year. We conclude by considering policy implications.