What the Directive Requires

Under the August 17, 2007 directive, the Centers for Medicare and Medicaid Services (CMS) imposed new conditions that states must meet in order to cover children with gross family incomes above 250 percent of the federal poverty level (FPL) with SCHIP funding. One of these conditions required that there is “assurance that the number of children in the target population insured through private employers has not decreased by more than two percentage points over the prior five year period.” The target population is low-income children.

Issues to Consider

CMS officials stated that this requirement was established to deter crowd out. However, there has been controversy on whether the requirement is an appropriate measure for states, mostly due a state’s inability to affect employer coverage. The following provides additional information and resources.

State Ability to Control Employer Coverage

The number of Americans with employer-based coverage has been declining for years, largely due to factors that are outside of a state’s control. The decline is somewhat more pronounced for children than for adults, and is largely due to the strain posed on employers and families alike by rapidly rising health care premiums. State variation in employer coverage rates can also be attributed to demographic and family characteristics, individual employment, and local labor market characteristics.

• The Role of Medicaid and SCHIP as an Insurance Safety Net, Urban Institute, August 2006
• Why Is There State Variation in Employer-Sponsored Insurance?, Health Affairs, January/February 2003, data is for adults

Meeting the Employer Coverage Requirement

It appears that most states would be unable to meet the employer coverage requirement. The Economic Policy Institute (EPI) has used Census data to analyze trends in children’s employer-sponsored insurance (ESI) coverage over the past five-year period for which data are available, consistent with the context of the CMS directive. The results show that between 2000-01 and 2005-06, rates of ESI declined by 4.5 percentage points among all people under 65 years old, and by 4.9 percentage points among all children under 18. The declines in ESI were even greater for families with lower incomes.

On a state-by-state basis, the EPI analysis indicates that 41 states had ESI declines for all children of more than two percentage points (although not all were statistically significantly greater than two percentage points), and would not meet the ESI requirement in the CMS directive. CMS may consider other sources of data, such as state studies, to assess compliance with the ESI requirement, but the EPI analysis suggests that it may prevent a significant number of states may be unable to meet it.

• The Erosion of Employment-Based Insurance, Economic Policy Institute, November 1, 2007
  The ten states with ESI declines for children of two percentage points or less are: Alaska, Hawaii, Massachusetts, Nebraska, New Mexico, New York, North Dakota, Oklahoma, Virginia, and Wisconsin; none of which were statistically significant at the p < 0.05 level.