State Children's Health Insurance Program: CMS Should Improve Efforts to Assess whether SCHIP Is Substituting for Private Insurance
Published: 2009-02-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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 crowd-out 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.
section_title: What GAO Found
paragraphs: 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. Ofthe 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.

section_title: Letter
paragraphs: Congress created the State Children’s Health Insurance Program (SCHIP)  Congress created the State Children’s Health Insurance Program (SCHIP)  in August 1997 with the goal of significantly reducing the number of low- in August 1997 with the goal of significantly reducing the number of low- income uninsured children. SCHIP offers health insurance for children in  income uninsured children. SCHIP offers health insurance for children in  low-income families that do not qualify for Medicaid and are not enrolled  low-income families that do not qualify for Medicaid and are not enrolled  under a group health plan or under other health insurance. The program  under a group health plan or under other health insurance.   enhanced federal matching rate—than what is offered under Medicaid.—has increased concerns about the possible substitution of public  (FPL)
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.
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.
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. known as crowd-out. 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. 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.
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  insurance. SCHIP was reauthorized on February 4, 2009, and concerns  about crowd-out remain.
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 crowd- out 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. To determine states’  policies to minimize crowd-out and their efforts to assess whether crowd- out 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. 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 crowd- out, 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.
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. Affordability refers to the capacity  of low-income families to purchase available private health insurance.  For purposes of this report, we did not further define levels of availability  or affordability.
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.
subsections: section_title: Background
paragraphs: 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. 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.
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. States that operate Medicaid expansions  continue to receive federal funds at the regular Medicaid matching rate  after they have exhausted their SCHIP funds. 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. 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. To help  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.
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. 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.
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  employees ranged from 89.6 percent of firms in Hawaii to 40.1 percent of  firms in Montana. 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.
With regard to affordability, MEPS looks at the amount that individuals  paid annually in order to obtain private health insurance. 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.)
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).
section_title: 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
paragraphs: CMS provided guidance to states regarding 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. 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  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.
subsections: section_title: CMS Established Specific Requirements for Certain SCHIP Program Designs
paragraphs: 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. CMS could not apply eligibility-related crowd-out prevention  requirements to Medicaid expansion programs except those operating  under an 1115 demonstration waiver. 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. CMS also required that states institute a number of  requirements for premium assistance programs, including a waiting  period. (Table 2 provides examples of program designs for which CMS  provided specific guidance.)
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. 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  included a 12-month waiting period, a cost-sharing requirement, 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, and we have reported concerns  regarding the issuance of this guidance. 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.
section_title: Approaches CMS Used Did Not Address All Information Important to Assessing the Extent to Which Crowd-Out Should Be a Concern
paragraphs: 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.
The questions on crowd-out that CMS asked states to answer for their  annual reports did not collect certain indicators of the potential for crowd- out, 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. 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.
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. 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  not account for applicants who were offered private health insurance for  their families through their employers but did not take it up. 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. 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. 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, 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  address these questions in the next year’s report. 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.
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  on state annual reports from 2000. 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, and  included a background paper on crowd-out. 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.
section_title: 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
paragraphs: 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.
subsections: section_title: States Used Similar Types of Policies to Minimize Crowd-Out, but Little Is Known about Their Effect
paragraphs: 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). As  expected, these policies were more common in separate child health and  combination programs than in Medicaid expansion programs operating  with 1115 demonstration waivers. 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.
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.
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). CMS does not  require states to consider issues of affordability in developing exemptions,  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.
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.
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. These studies  concluded that waiting periods and cost sharing can have negative effects  on individuals’ participation in SCHIP. 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. 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.
section_title: Not All States Collected Information Adequate to Assess Whether Crowd- Out Should Be a Concern
paragraphs: 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.
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.)
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  states. 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.  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. 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  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.
section_title: Conclusions
paragraphs: 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.
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  better assess whether concerns about crowd-out are warranted. For low- income 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.
section_title: Recommendation for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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 self- reported 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.
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section_title: Appendix I: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: 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.