Consumer advocacy group criticizes CHIP for restrictions on extending coverage to parents

Families USA argues for more flexible applications in reaching uninsured children

Editor’s note: The Children’s Health Insurance Program (CHIP) is proving a classic Catch-22. The regulations governing this $24 billion program to cover uninsured children are so restrictive, they often block cost-effective use of the funds. In this issue of State Health Watch, we look at the Massachusetts program using CHIP to cover parents through supplements to employer health plans. We talk to experts who explain why most state programs will not be able to duplicate what Massachusetts did, and who offer other approaches. Our special report also looks at unexpected problems in the Virginia and Florida plans.

Well-intentioned though it may be, the federal government’s Children’s Health Insurance Program (CHIP) may not provide adequate protection for uninsured children because it restricts states’ options in providing coverage to parents, according to a new report from the Washington, D.C.-based advocacy group Families USA.

While it’s important to expand health insurance to cover uninsured children, it’s also important to recognize that the well-being of children is tied closely to the health of their parents, according to Vicky Pulos, associate director of health policy at Families USA. Unfortunately, that’s where CHIPs falls down, the report contends. Here are a few of the findings that led Families USA to make that criticism:

• More than 75% of uninsured children live with parents who are uninsured.

• More than 90% of uninsured children live in families in which at least one parent works.

• The majority of parents of uninsured children don’t have access to employer-based insurance.

• About 2.8 million uninsured parents of uninsured children have incomes below the poverty line; 2.3 million more have incomes between the poverty line and 200% of poverty.

The $24 billion CHIP program is supposed to provide coverage for children in families whose income is too high for traditional Medicaid but not high enough to pay for private insurance. Unfortunately, the program provides only limited authority for states to use CHIP money to cover parents, too.

That limited authority comes via what’s known as the Family Coverage Variance. According to Ms. Pulos, however, states can only use the variance if they demonstrate to the Health Care Financing Administration (HCFA) that:

1. The family contains "targeted low-income children" who are eligible for coverage under CHIP.

The problem here is that "Medicaid covers children at higher income levels than parents; therefore, the uninsured parents of children eligible to receive Medicaid prior to any CHIP expansion [of the Medicaid program] will not be eligible for family coverage," according to the report.

2. Family coverage will be "cost-effective" compared to the costs of just covering eligible children in the family.

So far, HCFA hasn’t clarified what it means by "cost-effective," but most experts believe it means that family coverage should be "no more costly" than simply covering eligible children in a family. And, according to the report, "HCFA has identified only one circumstance in which it may be no more expensive to cover an entire family … and that is when the family has access to employer-sponsored coverage in which the employer contributes to the premium costs."

3. Family coverage won’t substitute for private group coverage.

Essentially, HCFA doesn’t want parents dropping private insurance to enroll in the CHIP program. It also wants to keep employers from reducing their contribution toward the cost of dependent coverage or stopping contributions altogether.

4. The coverage provided to children meets minimum standards for benefits and affordability and otherwise complies with the CHIP law.

"CHIP requires that all plans provide a certain minimum level of benefits, and limits costs imposed on families," the report says. "States must identify the benefits and cost sharing in employer-based plans and have some way to supplement inadequate benefits or subsidize excessive costs."

States also can apply to HCFA for a research and demonstration waiver under Section 1115 of the Social Security Act. That act authorizes the Department of Health and Human Services to waive statutory requirements "for experimental, pilot, or demonstration projects that will assist in promoting the objectives of the Act." Unfortunately, HCFA has discouraged states from applying for 1115 waivers until the CHIP program becomes more established.

Given the stringent requirements for obtaining a family coverage variance, it’s not surprising that only one state—Massachusetts—has been approved to subsidize premium costs for families with access to employer-based coverage. (See related story on what states are doing, page 1.) Massachusetts did it primarily by showing HCFA that it was cost-effective for the state to subsidize premium costs for employer-sponsored insurance for families near the poverty line.

"We were in the midst of an expansion anyway," says Sharon Torgerson, director of external relations for the Massachusetts Division of Medical Assistance (DMA) in Boston. Under an 1115 waiver, the state began expanding its health program in July 1997 by raising its eligibility guidelines to 133% of the federal poverty level. That added 152,000 people to the state’s medical assistance caseload. A month later, using CHIP money, the state expanded further, to 200% of the poverty level.

"I think that because we were in the midst of expansion, we were able to win family coverage approval from HCFA by showing that it was cost-effective for us to purchase a family plan through an employer-sponsored program," Ms. Torgerson says.

According to HCFA, a number of states are interested in exploring employer-based coverage—especially because the agency has indicated that such an approach may be the only way to meet the cost-effectiveness criteria. "About the only other circumstance people have been able to think of is where there is a difference between individual coverage and family coverage and you have a really huge family," Ms. Pulos says. "In that situation, the cost of covering six kids might be less than the cost of family coverage."

The problem with employer-based coverage, however, is that it tends to exclude lower-income families. Ms. Pulos cites several studies which show that the percentage of families with employer-based insurance decreases as income decreases. "So a lot of these working poor families that the CHIP program is designed to address are probably in jobs where they don’t have access to coverage from their employer, or their employer doesn’t subsidize much of the cost.," Ms. Pulos says. "So those folks are out of the picture as far as using children’s health insurance family coverage variance resources."

Ms. Pulos says that, rather than pushing for a Massachusetts-style employer-based approach to providing care to families, states should consider adapting their approach to mimic their Medicaid programs. "The traditional Medicaid program is a more flexible avenue for states to provide health insurance coverage to lower income families than the CHIP program—and the federal government pays a share of the cost," Ms. Pulos says.

Contact Ms. Pulos at 202-737-6340.