Addressing Crowd Out
Legislative AuthorityIn general, whenever the federal government seeks to subsidize coverage for those who cannot afford it on their own, the issue of crowd out is raised. In 1997 when Congress was creating SCHIP (which expanded coverage for uninsured children with incomes above Medicaid eligibility levels), there was concern that some families would decide to drop private coverage and enroll their children in subsidized SCHIP coverage. In response, Congress required states to include in their state SCHIP plans an explanation of how they would prevent the substitution of public insurance for group health insurance. As the insurance affordability gap for families widens and many states seek to expand SCHIP eligibility further up the income scale, crowd out has again risen as a concern among policymakers, including during the 2007 congressional debate over reauthorization of SCHIP.The SCHIP law requires states to describe in their state plans the procedures that they will use to ensure that SCHIP coverage does not substitute for group-based coverage. 1 It, however, does not specify exactly which procedures a state must use, reflecting a decision that states should have the flexibility to decide which strategies are most effective given their particular economic conditions, health insurance system, and demographics. |
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| In issuing regulations on the crowd out provisions of the SCHIP law,
the Centers for Medicare and Medicaid Services (CMS; at the time, the
Health Care Financing Administration) indicated it would particularly
scrutinize anti-crowd out procedures in states with SCHIP programs
covering children further up the income scale. 2
Specifically, states with coverage between 150 percent and 200 percent
of the federal poverty level (FPL), at a minimum, are expected to
evaluate the incidence of crowd out and to have detailed plans for how
they will respond if their monitoring efforts identify issues. States
providing coverage above 200 percent of the FPL are expected to
actually implement specific strategies to limit substitution. (See Strategies.) More recently, however, the Administration issued a letter to state officials on August 17, 2007 imposing far more extreme anti-crowd out requirements on states that want to cover children above 250 percent of the FPL. The requirements make it very difficult, if not impossible, for states to cover any uninsured children in families with gross income above 250 percent of the FPL. 3 If a state should somehow be able to meet the letter’s requirements, it still must require that uninsured children in the target income range remain without coverage for a full year before they can be enrolled in SCHIP. By dictating that states use this type of blunt technique for addressing crowd out, the letter has eliminated key parts of the flexibility that states long have had to design their SCHIP programs and imperiled coverage for tens of thousands of children. In contrast to SCHIP, the Medicaid program does not require that people be uninsured to be eligible for Medicaid. In practice, since Medicaid typically serves a lower-income population than SCHIP, the people that it serves rarely have private coverage. In those instances when they do, Medicaid “wraps around” it, providing services not covered by the private insurance and keeping cost-sharing obligations to the levels allowed in Medicaid. The private insurance, however, is treated as a third party payor that must cover its share of bills before Medicaid will pay for remaining gaps in coverage. Go To Next Section: DataFootnotes1. Section 2102(b)(3)(C) of the Social Security Act. Back 2. Letter from Sally Richardson, Director of the Center for Medicaid and State Operations at the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services), to State Health Officials (SHO #07-001), (February 13, 1998). Back 3. Letter from Dennis Smith, Director of the Center for Medicaid and State Operations at the Centers for Medicare and Medicaid Services, to State Health Officials (SHO #07-001), (August 17, 2007). Back |