CHIP and Economic Stimulus Provide Pathways to Coverage

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Less than 60 days into the new administration, two significant pieces of legislation have been signed into law. Both offer pathways for coverage expansion at a time when job loss and economic crisis are putting families’ health care in jeopardy. On February 4, President Obama reauthorized the Children’s Health Insurance Program (CHIP) for the next 4.5 years.¹ On February 17, he signed the American Recovery and Reinvestment Act of 2009 (Recovery Act), much of which has direct application to the health care sector. Moreover, the budget blueprint for 2010 provides even more support to heal the ailing health care system. These efforts come at a time when the evidence on the harmful effect of being uninsured has never been more clear.² Studies funded under the HCFO program address a number of issues related to the new laws.

Children’s Health Insurance Program

While Medicaid is the primary source of health care coverage for low income children in this country, CHIP was designed to fill in the gaps for those uninsured children who are not eligible for Medicaid.³ The new reauthorization of CHIP provides financing to cover 4 million additional children and gives states greater flexibility to expand health care coverage.⁴ For example, states now have the option to provide CHIP coverage to legal immigrant children and pregnant women without any waiting period. States also have greater flexibility to provide dental benefits.⁵ Historic analyses have focused on how to expand the public program without the unintended consequence of crowding out existing private coverage. With the current decline in private coverage, the focus is back on simply expanding coverage, including whether such action would have a stimulative effect on the economy. HCFO researcher Helen Levy, Ph.D., University of Michigan, is in the process of exploring the consequences of CHIP expansions, focusing on whether switching from private to public coverage (crowd-out) reduces a family’s out-of-pocket medical spending, thus freeing up resources for other uses.⁶

In related work, although immigration reform is not a “front and center issue” at this time, HCFO-sponsored research by Steve Zuckerman, Ph.D., Urban Institute, will shed light on the potential impact on health care of changes among the immigrant population. Zuckerman’s study will include an analysis of the extent to which undocumented children and adults would qualify for Medicaid and CHIP coverage, should they become legal residents.⁷

American Recovery and Reinvestment Act of 2009

A significant number of stimulus dollars have been allocated for efforts designed to provide health care coverage to those who are presently uninsured or to ensure coverage is maintained for those at risk of losing their benefits.
 
Tax Provisions

Included among the tax provisions of the Recovery Act is an increase in the health coverage tax credit (HCTC) from 65 percent to 80 percent for 2009 and 2010.8 The HCTC is a refundable tax credit which is available to assist eligible trade-affected workers, retirees, and their families in paying health insurance premiums.⁹ HCFO researcher Karen Pollitz, Georgetown University, has examined the HCTC and concluded that, historically, this tax credit has proven to be a highly complex and expensive program for the federal government to administer, for health insurers and health plans to participate in, and for consumers to understand and use.^10,11 As reported in an RWJF-funded analysis, historically low take-up rates of the HCTC have been attributed to the inability by consumers to afford the premiums, even with a 65 percent subsidy. Increasing the subsidy to 80 percent is likely to make coverage more affordable to many of those consumers.¹² In related HCFO work, James Cardon, Ph.D., Brigham Young University, is exploring how Health Savings Accounts (HSAs) and various tax-based health insurance proposals impact the uninsured population.¹³

COBRA

The Recovery Act also provides a 65 percent premium assistance subsidy for continuation of health care coverage under COBRA—Consolidated Omnibus Budget Reconciliation Act of 1985—for unemployed workers and their families. The subsidy is provided to those individuals who lose their jobs between September 1, 2008 and December 31, 2009 with incomes not exceeding $125,000 for individuals and $250,000 for families.14 Prior studies of COBRA have suggested that many do not take advantage of the coverage because of the high cost of this insurance. Future analyses will be needed to determine whether the new subsidy is sufficient to induce significant take-up among those who become unemployed.

State Fiscal Relief

Also, included in the Recovery Act is $87 billion for the Medicaid program, $15 million of which is being immediately released to allow states to move quickly and provide relief to their residents.¹⁵ The funds will support a temporary increase in the federal medical assistance percentage (FMAP) allocation to states.¹⁶ This increase is contingent on states reinstituting rollbacks to eligibility standards, methodologies, or procedures under the Medicaid state plan or waiver if currently more restrictive than the standards, methodologies, or procedures in effect on July 1, 2008.¹⁷ The Recovery Act includes a number of additional provisions for state fiscal relief which will aid in increasing or maintaining health care coverage. These include a temporary increase in Medicare Disproportionate Share Allotments, an extension of Transitional Medical Assistance, and protection of Indians under Medicaid and CHIP.¹⁸ In related work, HCFO researcher Kathy Langwell has conducted a comprehensive assessment of the total financing of Indian health, the impacts of financing levels and organization structure and decisions on access to and quality of care, and the feasibility and distribution of costs of a number of strategies that would increase financing and improve operational efficiency and effectiveness for this population.¹⁹

Conclusion

The passage of the CHIP and the Recovery Act, along with a 2010 budget blueprint providing even more support for an ailing health care system, signals a strong message that reform is on the horizon. But the impact of these provisions and the interaction between different provisions is largely unknown. HCFO research can contribute to the complex understanding of these issues.

For related HCFO-sponsored research, see the grants listed below and see www.hcfo.org.

Title: The Incidence of Financing National Health Spending
Institution: Georgia State University Research Foundation, Inc.
Principal Investigator: Patricia G. Ketsche, Ph.D.
Grant Duration: March 2009 - February 2010

The researchers seek to examine who actually pays for health care expenses and the distribution of costs across the mixed public/private financing system. Specifically, they will: 1) estimate the proportion of national health expenditures paid from all sources (federal, state and local taxes, private insurance premiums, and other out-of-pocket spending) by income, age, and health status at the national level for the 2004 – 2005 period; 2) estimate how the distribution of financing varies across particular state tax systems, for different public programs, and for public versus private systems; 3) compare the incidence of financing estimates across states with different tax structures; and 4) project how the distribution will likely change under alternative assumptions for expanding coverage (e.g. a national approach using payroll taxes, state-based expansions, or expanded employer risk-pooling). The objective of this project is to provide policymakers with a better understanding of the implications of various revenue-generating systems for the equitable distribution of the financing of the health care system.

Title: Consequences of SCHIP for Household Well-Being
Institution: University of Michigan
Principal Investigator: Helen Levy, Ph.D.
Grant Duration: October 2008 - September 2009

The researchers will explore the consequences of State Children's Health Insurance Program (SCHIP) expansions, including "crowd out,"--the term used to describe the phenomenon of individuals dropping private health insurance coverage in response to expanded availability of public coverage. The researchers hypothesize that switching from private to public coverage reduces a family's out-of-pocket medical spending, freeing up more resources for other uses, making crowd-out a "windfall" not a "problem" for low-income families. They will address the following research questions: (1) How have expansions of SCHIP improved the material well-being of the low-income families the program is intended to assist, and (2) What categories of spending increase as a result of gaining eligibility for coverage? The objective of the proposed project is to reconsider the context for crowd-out and reframe the debate over SCHIP expansions with a renewed emphasis on the benefits rather than merely the costs of coverage expansions.

Title: The Impacts of Undocumented Immigrants on the U.S. Health Care System
Institution: The Urban Institute
Principal Investigator: Stephen Zuckerman, Ph.D.
Grant Duration: June 2008 - December 2009

The researchers will examine the impact of undocumented immigration on the U.S. health care system. They will also explore how efforts to secure citizenship for undocumented immigrants could increase access to public and private insurance for this population. The researchers will focus on three research questions: 1) How much have undocumented immigrants contributed to the rate of uninsurance and to growth in the numbers of non-elderly uninsured in recent years? 2) How much uncompensated care do U.S. providers deliver to undocumented immigrants who lack health insurance coverage? and 3) To what extent would undocumented children and adults qualify for Medicaid or SCHIP coverage should they become legal residents? The objective of the project is to provide current estimates of the actual burden of undocumented immigrants on the health care system to help inform public discussion on policy options.

Title: Health Savings Accounts, High Deductible Policies, and the Uninsured: Simulating the Effects of HSA Tax Policy
Institution: Brigham Young University
Principal Investigator: James Cardon, Ph.D.
Grant Duration: November 2007 - March 2009

The researchers will explore how Health Savings Accounts (HSA) and various tax-based health insurance proposals impact the uninsured population. They also will simulate how tax deduction and credit policies for non-group insurance affect the employment-based group market. Through an innovative approach, the model will consider employer choice and individual preferences in the face of the risk of uncertain medical expenditures. The behavior of three important consumer groups will be examined: (1) the currently uninsured who do not have access to group coverage; (2) the currently uninsured who have access to group coverage but choose to be uninsured; and (3) the currently insured group in group coverage. The researchers will model a variety of policy changes and assess the value to each consumer group and the likelihood of changing from the status quo. The objective of this project is to inform policymakers about the impact of HSAs and various tax-based health insurance proposals on the uninsured and group market.

Title: Financing American Indian Health Care: Impacts and Options for Improving Access and Quality of Care
Institution: Sanford Research/University of South Dakota
Principal Investigator: Kathryn Langwell
Grant Duration: September 2007 - September 2008

The researchers examined health care access and quality of care for American Indians who receive care through the Indian Health Service (IHS). In particular, they: 1) determined the resources (national and regional per capita spending) available for health care for this population from 2000 to 2005; 2) assessed service priorities and the mechanisms for explicit and implicit rationing of care; 3) analyzed the impact of priorities and rationing mechanisms on access to care, availability of services, quality, and outcomes; and 4) developed options for improving access and quality for American Indian heath care and analyze the feasibility and costs of these options. The objective of the project was to contribute to the understanding of the impact of current financing and organization of the Indian Health Service on access and quality and the contribution of these factors to the health disparities experienced by this population.

Title: Monitoring the Early Experience with Federal Health Insurance Tax Credits
Institution: Georgetown University
Principal Investigator: Karen Pollitz, M.P.P.
Grant Duration: February 2004 - July 2005

As part of the Trade Adjustment Assistance Act of 2002, Congress created a new, refundable, advance-payable health care tax credit. This tax credit can be viewed as a small-scale demonstration of health insurance tax credits as a way to expand coverage more broadly. This project examined five aspects of the tax credit. It: 1) described the qualified coverage options established in every state; 2) explored the reasons why states decide to establish different coverage arrangements; 3) examined enrollment statistics to determine the impact of state coverage decisions; 4) explored the availability of data on state-based coverage programs for evidence that premium subsidies reduce adverse selection; and 5) reviewed available data on people who claim the tax credit and the premiums they pay. The purpose of this study was to provide policymakers with objective and timely information that will help them monitor and understand the early operations of this program.

1 The program, previously known as SCHIP, is now referred to as CHIP.
2 "America’s Uninsured Crisis: Consequences for Health and Health Care," Report Brief, Institute of Medicine, February 2009 www.rwjf.org/files/research/20090224iomamericasuninsuredcrisis.pdf
3 “State Children’s Health Insurance Program (CHIP): Reauthorization History,” The Kaiser Commission on Medicaid and the Uninsured,” February 2009. Also see www.kff.org/medicaid/upload/7743-02.pdf
4 For more on efforts by specific states to expand coverage for children, see State Coverage Initiatives, State of the States, AcademyHealth, January 2009, pp. 46-7. Also see www.statecoverage.org/files/State%20of%20the%20States-2009.pdf
5 “State Children’s Health Insurance Program (CHIP): Reauthorization History,” The Kaiser Commission on Medicaid and the Uninsured,” February 2009, www.kff.org/medicaid/upload/7743-02.pdf
6 grants/consequences-schip-household-well-being
7 grants/impacts-undocumented-immigrants-us-health-care-system
8 "No Small Change, The Stimulus Package and Its Impact," Patton Boggs Analysis of the American Recovery and Reinvestment Act of 2009, February 17, 2009.
9 “Health Coverage Tax Credit,” Internal Revenue Service, U.S. Department of the Treasury, March 4, 2008. Also see www.irs.gov/individuals/article/0,,id=109960,00.html
10 Pollitz, K. “Complexity and Cost of Health Insurance Tax Credits,” Journal of Insurance Regulation, Vol. 25, No. 4, Summer 2007.
11 For discussion on findings from the Pollitz study, see Kirk, A. “The Individual Insurance Market: A Building Block for Health Reform?” Report, AcademyHealth, May 2009, http://www.hcfo.org/files/hcfo/synthesis0508_0.pdf; "Early Experiences with Federal Health Insurance Tax Credits," Findings Brief, AcademyHealth, Vol. X, No. 7, September 2007, http://www.hcfo.org/files/hcfo/findings0907.pdf.
12 Dorn, S. “Can Economic Recovery Legislation Be Most Effective in Helping Laid-Off Workers Obtain Health Coverage?” Robert Wood Johnson Foundation/Urban Institute, February 2009. Also see www.rwjf.org/files/research/20090211qsstudyunemployedworkers.pdf
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14 Patton Boggs Analysis at 107-08; see also, Dorn, S. “How Effectively Does the American Recovery and Reinvestment Act Help Laid-Off Workers and States Cope with Health Care Costs?” Robert Wood Johnson Foundation/Urban Institute, March 18, 2009, www.rwjf.org/coverage/product.jsp?id=40188; Schwartz, K. “The COBRA Subsidy and Health Insurance for the Unemployed,” Issue Brief, The Kaiser Family Foundation, March 2009, www.kff.org/uninsured/upload/7875.pdf
15 Runningen, R. “Obama to Begin Sending $15 Billion to States for Medicaid Costs.” Bloomberg.com, February 23, 2009. Also see www.bloomberg.com/apps/news?pid=20601103&sid=a20BviKqGPZ8&refer=us; Youngman, S. "States to Get $15 Billion Shot of Medicaid Funding," The Hill, February 23, 2009. Also see http://thehill.com/leading-the-news/states-to-get-15b-shot-of-medicaid-funding-2009-02-23.html
16 Patton Boggs Analysis at 110-11.
17 See NCSL Analysis of ARRA – Medicaid FMAP Increase Provisions, www.ncsl.org/print/statefed/ARRA-MedicaidFMAPIncreaseProvisions.pdf
18 Patton Boggs Analysis at 111-12.
19 grants/financing-american-indian-health-care-impacts-and-options-improving-access-and-quality-care