State Buy-In Programs: Prospects and Challenges

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Abstract

State buy-in programs are designed to address coverage shortfalls among moderate- and higher-income children whose families are not eligible for Medicaid or SCHIP but who cannot afford, or do not have access to, private coverage. These programs allow families to buy their children into a comprehensive public insurance plan with low out-of-pocket cost sharing at an unsubsidized premium. As more states aim to achieve universal coverage for children, buy-in programs may be one component they consider in their plans to reach that goal. This brief explores some issues for states to consider before implementing a buy-in program.

Excutive Summary

• SCHIP buy-in programs, available in a growing number of states, provide comprehensive health insurance options for children in families with incomes too high to qualify for government-supported plans. Through these programs, moderate- and higher-income parents can buy their children the same health care coverage offered through the state programs, but at a much higher premium than charged for lower-income children.
• Take-up rates in buy-in programs appear to be low relative to the size of the uninsured population to which they are targeted, ranging from 8 to 11 percent of eligible children in selected states. Enrollment in private nongroup coverage among the target income group tends to be substantially higher than enrollment in buy-in programs in the same state.
• While no definitive analysis is available on how much buy-in programs are “crowding out” private insurance, the low enrollment levels in buy-in programs suggest that they have had little impact on employer-sponsored insurance (ESI). In addition, since the buy-in populations largely pay for the full costs of their coverage, there is little displacement of private dollars with public dollars.
• Premiums in buy-in programs are substantially higher than premiums charged to children in the subsidized component of Medicaid/SCHIP. The high premiums likely contribute to the low take-up rates observed since they constitute a large share of income for families with moderate incomes (i.e., families with incomes between 200 and 400 percent of the federal poverty level) and since most families can reasonably expect their children to have spending levels substantially lower than the premium.
• By providing greater subsidies to moderate-income families, thereby raising the minimum income level for the unsubsidized buy-in, states will likely see greater enrollment in the buy-in program and greater reductions in uninsurance among children.
• Adverse selection is likely to occur in buy-in programs, especially in those where premiums are high relative to income, participation is voluntary, and the private nongroup insurance market does not have community rating and guaranteed issue of policies. The limited information available does suggest that there is adverse selection in buy-in programs, though more research is needed. However, to the extent that these programs are enrolling children with higher than average health needs, the buy-ins are likely providing high quality, comprehensive care, with low out-of-pocket cost sharing to which these children would not have had access otherwise.
• States may be able to limit adverse selection by requiring that children be uninsured for a specified period of time prior to enrolling. However, this approach will penalize children with private coverage that is more costly or less comprehensive than what is available through the buy-in program. Nongroup coverage, in particular, tends to have limited benefits and provides a lower insurance value for the dollar due to high administrative costs. Requiring such waiting periods also may have adverse health consequences for children.
• States could reduce premiums for buy-in programs by increasing out-of-pocket cost-sharing requirements. Such a change could increase take-up and reduce adverse selection. However, increasing cost sharing places a greater financial burden on those with high health care needs and may reduce some families’ financial access to necessary care. In addition, administrative costs associated with the buy-in may rise as mechanisms for tracking payments must be implemented.
• One option being considered is to impose a mandate on parents to cover their children, which would likely be the most effective strategy for increasing take-up and reducing adverse selection in the buyin. The impacts on the coverage of moderate- and higher-income uninsured children will likely depend on how the penalties for noncompliance compare with the premiums in the buy-in program. Moreover, before a mandate is implemented, it will be essential to consider the affordability of the buy-in premiums and cost sharing, particularly for moderate-income families.
• Buy-in programs can stimulate greater enrollment among children already eligible for Medicaid and SCHIP, but this will not occur automatically; it will likely require aggressive marketing and outreach.
• Many questions about buy-in programs remain unresolved. In particular, no information is publicly available on how enrollment and take-up in buy-in programs vary by income group, how the characteristics (e.g., demographic, health needs, etc.) and health care access of the children served by the buy-in differ from those in other insurance groups (i.e., children with non-group coverage, children with ESI, children with subsidized public coverage, and uninsured children), how buy-in programs affect and are affected by the nongroup market in a particular state, and what other policies are needed to maximize the positive spillover effects associated with offering a buy-in.

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