Ambitious Maryland officials lay out blueprint for employer-based coverage under CHIP

"Complex, but achievable" is how gung-ho Maryland health officials describe the idea of subsidizing private-sector coverage in its Children’s Health Insurance Program (CHIP).

A 36-page report presented to legislators Dec. 3 lays out how to cover as many as 12,000 Maryland residents between 200% and 235% of the federal poverty level. If Maryland is successful, it will join Massachusetts, Mississippi, and Wisconsin in the select but growing circle of states with CHIP employer-sponsored insurance.

If not, it will join states such as Florida, whose plan for employer-sponsored insurance the Health Care Financing Administration (HCFA) rejected in early November. The sticking point is Florida’s insistence on dropping below the fed’s 60% minimum employer contribution, HCFA administrator Nancy-Ann DeParle said in a Nov. 5 letter to Florida Medicaid director Gary Crayton.

Maryland has two advantages in the effort to add employer-sponsored insurance to its CHIP plan. It’s not shy about learning from the successes and stumbles of other states pursuing employer-sponsored insurance. In addition, state Medicaid director Debbie Chang recently came to Maryland from a job as co-chair of HCFA’s steering committee on CHIP implementation.

"I think that employer-sponsored coverage is a viable alternative; it’s a great way to reach children," she told participants at the annual meeting of the National Association of State Medicaid Directors in October.

The report on Maryland’s so-called "private option" plan borrows heavily from the successes of other states and suggests a few new measures itself for tackling the trickier issues in employer-sponsored CHIP coverage:

1. Crowd out.

In an effort to discourage employers from substituting CHIP dollars for their own contributions toward dependent coverage, HCFA in February 1998 said that subsidies would be allowed only if businesses anted up at least 60%, the median premium contribution nationwide. Maryland will try to show, as Mississippi and Massachusetts have done successfully, that its statewide contribution is 50% and should be the CHIP threshold.

2. Cost sharing.

HCFA bans cost sharing for preventive services and caps it at 5% of annual income, strategies which are uncommon among private employers. To handle the preventive service cost sharing, the report recommends the purchase of an insurance rider. A conventional private-sector approach for handling such cost sharing, having the employee front the costs and seek a refund later, is unacceptable to HCFA, says Ms. Chang.

One size fits all

Finding a way to handle the 5% cap appeared to be more complex. The specific cap for a given family is based on income and family size, and could even vary throughout the year if a family’s income fluctuates. To avoid what would be an administrative nightmare, Maryland’s health officials have replicated California’s "flat approach" to CHIP cost sharing. The report recommends the cap on costs be set at the lowest possible amount, the $442 that would be paid by a family of two making 200% of the federal poverty level. For group plans, the costs consist exclusively of premiums and will be relatively easy to track. For those covered in the individual market, the costs will consist of premiums and other expenses, and the report notes that implementation will take some degree of "administrative oversight."

3. Benefit design.

Maryland is proposing a new approach to cover the residents who are otherwise eligible for the program, but who are unable to enroll through employer-based coverage. Of the 6,900 residents expected to enroll in the private-option program, only about 2,000 are expected to do so through employer-sponsored insurance; the remaining 4,900 likely will be covered by a new private sector plan or a Medicaid-look-alike plan.

Maryland legislators are keen on using the private-sector model as much as possible in CHIP, and the report proposes that the state use a "request for information" to gauge whether insurers have any interest in offering a product that meets the complex requirements of the program. Where there are gaps in geographic coverage or shortfalls in capacity, state officials propose a Medicaid look-alike product, probably offered through HealthChoice, the Maryland Medicaid managed care plan.

"The decision to allow two alternative default health plans . . . has not been considered by other states," notes the report. "Staff discussions with HCFA staff indicated that this approach will likely be carefully scrutinized by federal officials and may ultimately not be approved."

Florida’s problem was convincing HCFA to accept an employer contribution of lower than 60%. In August, Florida abandoned its proposed 20% minimum contribution for a strategy that distinguished between large and small employers, and between employers who already provided dependent coverage and those who did not.

Businesses without existing dependent coverage would be required to contribute at least 24% or 40%, respectively, depending upon whether they had fewer than 50 or 50 or more employees. Businesses with existing dependent coverage would be required to maintain their share of the premium costs, with a minimum contribution of 24% and 40% for small and large businesses, respectively.

Florida: How low can you go?

Meager health care benefits among Florida’s private sector employers justifies the tiered approach, according to correspondence from Mr. Crayton to HCFA in August.

Although the average employer contribution is 57%, that level puts Florida last among 40 states in a ranking of the percentage of premium contributed by employers for their employees enrolled in family coverage, he said. Furthermore, it doesn’t recognize the fact that only about 39% of Florida’s small businesses offer health insurance benefits, he told HCFA.

Even when HCFA rebuffed the idea and suggested an alternative, Florida regulators and businesses stood their ground. "While I appreciate your willingness to work with us, given the characteristics of Florida’s business environment, we must continue to support the proposal we submitted," Mr. Crayton wrote to HCFA in October.

Contact Mr. Crayton at (850) 488-9347 and Ms. Chang at (410) 767-4664.