[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                  CHILDREN'S ACCESS TO HEALTH COVERAGE

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 8, 1997

                               __________

                             Serial 105-68

                               __________

         Printed for the use of the Committee on Ways and Means


                                


                      U.S. GOVERNMENT PRINTING OFFICE
 52-730 CC                   WASHINGTON : 1999
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                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

                   BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada                  GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska            JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois            XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
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converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.



                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 20, 1997, announcing the hearing...............     2

                               WITNESSES

Congressional Budget Office, Linda T. Bilheimer, Deputy Assistant 
  Director for Health, Health and Human Resources Division; 
  accompanied by Murray Ross, Chief, Health Cost Estimates Unit, 
  Budget Analysis Division.......................................     7
Congressional Research Service, Patrick J. Purcell, Analyst, 
  Education and Public Welfare Division..........................    15
U.S. General Accounting Office, William J. Scanlon, Director, 
  Health Financing and Systems Issues, Health, Education and 
  Human Services Division........................................    27

                                 ______

Dubay, Lisa, Urban Institute.....................................    65
Institute for Health Policy Solutions, Richard E. Curtis.........    74
National Bureau of Economic Research, Jonathan Gruber............    60

                       SUBMISSIONS FOR THE RECORD

 American Academy of Child and Adolescent Psychiatry, Lawrence A. 
  Stone, M.D., statement.........................................    92
American Academy of Pediatric Dentistry, Chicago, IL, statement 
  and attachments................................................    94
American Dental Hygienists' Association, Stanley B. Peck, 
  statement......................................................    99
Association Healthcare Coalition, Donald G. Dressler.............   101
Council of Women's and Infants' Specialty Hospitals, Providence, 
  RI, Susan Erickson, statement..................................   104
Vencor, Inc., Louisville, KY, statement..........................   105



                  CHILDREN'S ACCESS TO HEALTH COVERAGE

                              ----------                              


                         TUESDAY, APRIL 8, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:10 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE                          CONTACT: (202) 225-3943
March 20, 1997
No. HL-8

                      Thomas Announces Hearing on
                  Children's Access to Health Coverage

    Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of 
the Committee on Ways and Means, today announced that the Subcommittee 
will hold a hearing on children's access to health coverage. The 
hearing will take place on Tuesday, April 8, 1997, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be heard from invited witnesses only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The percentage of uninsured children has remained relatively stable 
since 1988. During that period, however, Medicaid coverage has 
increased as private coverage has declined. From 1988 through 1995, the 
percentage of uninsured children increased from 13 percent to 13.6 
percent, while the percentage of children covered by private insurance 
dropped from 73.5 percent to 66.4 percent, and Medicaid coverage 
increased from 15.5 percent to 23.1 percent. Approximately one in four 
uninsured Americans are children. Of the 71 million children in the 
United Sates under age 18, 9.6 million are uninsured.
      
    Under current law, there is a large and growing public health care 
safety net for children. The Federal Government shares the cost of 
providing comprehensive health coverage to over 16 million children 
through the Medicaid program. Medicaid currently covers one in four 
American children and pays for over one-third of all births in the 
United States. About 3 million of the 9.6 million uninsured children 
are currently eligible for Medicaid, but their parents or guardians 
have not enrolled them in the program. In addition to Medicaid, the 
Health Insurance Portability and Accountability Act (P.L. 104-191) 
enacted in the 104th Congress, limits preexisting conditions and 
provides significant new protections to pregnant women and children.
      
    There is no clear explanation why children are uninsured, not 
lending itself to an easy solution. For example, children in families 
with incomes below 100 percent of poverty are more than twice as likely 
to be uninsured as children in families with incomes above 200 percent 
of poverty. However, nearly 14 percent of children without health 
insurance--1.4 million children--live in families with incomes above 
300 percent of poverty. Moreover, while the majority of insured 
Americans get health coverage through their employer, over 80 percent 
of uninsured children have parents who work part-time, and nearly 60 
percent have parents who work full-time for the entire year. In 
addition, because of the prevalence of school-based clinics, public 
health programs and various public and private initiatives, some 
children without health insurance may in fact have access to health 
coverage.
      
    In announcing the hearing, Chairman Thomas stated: ``So far, the 
issue of children without health insurance coverage has generated a 
significant amount of heat, but very little light. We need to begin 
this discussion with a better understanding of the scope of the problem 
before we advocate solutions. This hearing will provide the first 
comprehensive Congressional overview of information available on 
uninsured kids.''
      

FOCUS OF THE HEARING:

      
    The hearing will try to more clearly identify the reasons that 
children in the United States do not have access to health insurance 
coverage and the impact that lack of access has on access to health 
coverage and health status.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
copies of their statement and a 3.5-inch diskette in WordPerfect or 
ASCII format, with their address and date of hearing noted, by the 
close of business, Tuesday, April 22, 1997, to A.L. Singleton, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. If those 
filing written statements wish to have their statements distributed to 
the press and interested public at the hearing, they may deliver 200 
additional copies for this purpose to the Subcommittee on Health 
office, room 1136 Longworth House Office Building, at least one hour 
before the hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
designated representative may be reached and a topical outline or 
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supplemental sheet will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-225-1904 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Thomas. The Subcommittee will come to order.
    I am looking for a public service announcement. I am 
pleased to announce, the Medicare and the Health Care Chart 
Book compiled by the Congressional Research Service and 
published in February by the Committee on Ways and Means is now 
widely available to the public on the Internet. The information 
can be assessed through the House Ways and Means Committee home 
page. Somebody wrote it in and then crossed it out--apparently 
they didn't think I could read--www.access.gpo.gov.
    I think the press and the public will find that the Chart 
Book contains a wealth of extremely useful, timely information, 
and so forth, and so forth. It really is the best compilation 
that we have seen of charts that help you graphically 
understand the concerns, the problems, the timeliness of 
decisions in the area of Medicare, private health spending, and 
other issues that are before us encompassing today's topic.
    I am pleased to announce that the Subcommittee today is 
holding the first comprehensive hearing of the 105th on 
children's access to health coverage. There are a number of 
pieces of legislation that have been introduced, and I am very 
anxious to begin listening to folk about the problems 
associated and the possible advances accompanying children's 
access to health coverage.
    Initiatives to increase health coverage for uninsured 
children have not only been proposed by Members of Congress but 
also by President Clinton. There is significant interest in 
making this a priority for congressional action in health care. 
However, the issue has generated significantly more interest 
than solutions, and I believe the facts about uninsured 
children are much more complex--and I believe today's testimony 
will bear that out--than many have appreciated or understood.
    I think before we can intelligently evaluate the myriad of 
legislative proposals and possibly then not get into some 
pitfalls which would create unanticipated problems, or, even 
worse, pass legislation when we have already anticipated the 
resulting problems in the health care system, we need to 
understand the interaction of various decisions that we may 
very well make; and that is the goal of today's hearing.
    Before we go to our first distinguished panel of analysts, 
researchers, and economists, the gentleman from California, Mr. 
Stark, who I know has an interest in this area, would like to 
make an opening statement.
    [The opening statement follows:]

Opening Statement of Hon. Bill Thomas, a Representative in Congress 
from the State of California

    Today, the Subcommittee is holding the first comprehensive 
hearing of the 105th Congress on children's access to health 
coverage.
    Initiatives to increase health coverage for uninsured 
children have been proposed by President Clinton and members of 
Congress from both parties. Clearly, there is significant 
interest in making this a priority for congressional action in 
health care.
    However, so far the issue has generated significantly more 
interest than solutions. I believe the facts about uninsured 
children are much more complex than we have yet appreciated or 
understood.
    Before we can intelligently evaluate the myriad of 
legislative proposals and sidestep pitfalls which may create 
unanticipated problems in the health care system, we must 
examine and better understand the interaction of these facts.
    That is the goal of today's hearing.
    We have asked a group of distinguished analysts, 
researchers and economists from both the private and public 
sector to help us get a better picture of the landscape. I look 
forward to today's testimony.
      

                                


    Mr. Stark. Thank you, Mr. Chairman.
    As you were speaking, I was reviewing my opening statement. 
It doesn't offer a solution, unfortunately, and I guess that is 
what we are here to find out a little about. What I am asking 
people to do is think about the magnitude of the problem and 
put a face on it.
    You are going to hear a variety of figures, but something 
like one in seven kids do not have health insurance. And you 
say, so they don't have insurance. I think, and I would like 
the witnesses or my colleagues to challenge my assumption here, 
that an uninsured child, by definition, does not get proper 
medical care. Some may, but on balance, if a child is 
uninsured, he or she is not getting the proper care at the 
proper time.
    And worse than the one in seven--and it is numbers we used 
years ago in discussing the health insurance of adults; where 
there may be some 40 million uninsured, there are about 10 
million uninsured kids, 9.8 million I guess--is that there are 
many more, perhaps double, that number, if you take those 
children who at any point in a year or two go uninsured for 1 
month or more, because those uninsured months pick up the 
preexisting condition restrictions. If they get back in the 
system in 30 or 60 days, they are apt to have 6 months of 
waiting if they have diabetes or if they have some childhood 
disease which goes on and the new insurance won't pick them up.
    Now, I am not suggesting that that means there are 20 
million uninsured, but there could be over a period of time. 
Think of it this way: If New York City--suddenly, through a lot 
of vitamin E, if everybody in New York City became under 18, 
they all drank from the fountain of youth, and everybody in New 
York City would be uninsured.
    I have a map; I just picked the States, and these are all 
the mountain States; but that is as if every person, every 
child, in that State was uninsured. That is a lot of kids.
    And now the solution: Some children have it through their 
workplace, and the parents basically pay nothing for it. If you 
force other parents to pay something, the parents who are 
getting it free won't want to kick in. We have had that 
argument in schools, in parochial schools versus private 
schools. Some people say, Well, if we provide it through the 
Federal Government, the employers will stop paying their share, 
and therefore we will pick up a burden that is not needed.
    But again, a general figure that I have in my mind--and I 
would like to be corrected from the witnesses today--is that if 
we required, through whatever means, that every child be 
insured, even if it were privately--I am not suggesting that 
this has to be a social problem--that the cost of that coverage 
would be about $500 a kid a year.
    I am further told that if we don't require it but make it 
available on sort of a voluntary basis, the cost goes up to 
$1,500 a year because of the adverse selection. Only the 
parents that think their kids, or know their kids, are sick or 
have health problems will sign up, and the rest go uninsured, 
and that puts an unfair burden on whichever insurance company 
is doing it.
    I don't know how we get from here to there. The President 
suggested a $500 tax credit, but that does not go to every kid 
because it is not refundable. I have looked at that and think 
it is a good place to start.
    I would not mind a tobacco tax. I happen to think that 
would stop kids from smoking and pay for the cost, but there 
are a lot of political problems in how you pay for it.
    So maybe today from all these witnesses we will get some 
idea of how--and I don't think realistically we are going to 
get the whole 10 million in any bill we do, but I would like to 
see us come together and get as many of the 10 million as we 
can and get it unpolitically in the next year or so. I look 
forward to the witnesses helping us through this maze.
    Thank you for indulging me, Mr. Chairman.
    Chairman Thomas. No, thank you. And I want to underscore a 
couple points that you made, because although the testimony is 
good, it is not, frankly, as helpful as we are looking for.
    And I want to let you folks anticipate the direction of the 
questions, because although we have talked about the public 
versus the private and subsidy versus tax credits and the 
driving out of private dollars, it concerns me a bit that not 
as many people as I would have liked focused on the 135-plus 
billion dollars of tax benefit on the private side and how that 
might be utilized on the margin of the subsidy driving out 
``private insurance.''
    The other thing I found somewhat interesting was, 
apparently some folk, based upon income, make decisions on 
health care from an economic basis, and others from more of a 
health insurance protection basis--because at the high end you 
have got folks who don't have the insurance because it doesn't 
make economic sense to them; they are, in essence, self-
insured.
    And I understand that at the bottom end, if you are going 
to provide a publicly subsidized health program that is better 
than anything they can buy, they are going to opt out of the 
private one and go to the public one. But I have some concern 
on a margin where taxpayers are subsidizing a far better 
quality health care than people in the private sector can 
afford to pay for themselves.
    So I guess, as the gentleman from California indicated, we 
understand the parameters, we understand the tradeoffs; and, 
frankly, most of the testimony was trying to get us to 
understand the parameters and the tradeoffs; and at some point 
we have to grapple with the solutions.
    You are about as good as we have got in terms of advising 
us on solutions. So, as you look at your testimony, if you wish 
to give us the parameters and the dilemmas and the tradeoffs, 
fine; but we are still going to have to push you on. For 
example, Why didn't you take a look at the tax subsidy today in 
terms of certain types of employers being able to deduct 100 
percent, and how much of that could go into a larger pot in 
rethinking the way in which the distribution of health 
insurance that is currently present in the country could be 
restructured to produce a fairer and more equitable system, 
since it doesn't make a lot of sense to me that somebody gets 
100 percent of their health care deducted and somebody else 
gets nothing by virtue of their place of employment. That 
doesn't make a lot of sense from a larger health care policy.
    That is where we are today, and, as I said, I felt that 
that was largely ignored as you grappled with this problem of 
how high the subsidy versus the tradeoff or the backing out of 
private dollars.
    I have said enough. I am anxious to listen to you. Thank 
you very much.
    Today's first panel: Linda Bilheimer, who is the Deputy 
Assistant Director for Health, Health and Human Resources 
Division of the Congressional Budget Office--Dr. Ross is with 
her today--Patrick J. Purcell, who is the Congressional 
Research Service Analyst; and once again, Dr. Bill Scanlon, 
Director, Health Systems Issues, General Accounting Office.
    Thank you all for coming. And I do know that perhaps some 
of you have done some examination of that larger question of 
tax subsidies on health care; and if you care to say anything 
during your testimony, fine. Otherwise, I will ask you 
questions afterward.
    Why don't we begin with Dr. Bilheimer and move across the 
panel.

STATEMENT OF LINDA T. BILHEIMER, DEPUTY ASSISTANT DIRECTOR FOR 
  HEALTH, HEALTH AND HUMAN RESOURCES DIVISION, CONGRESSIONAL 
 BUDGET OFFICE; ACCOMPANIED BY MURRAY ROSS, CHIEF, HEALTH COST 
            ESTIMATES UNIT, BUDGET ANALYSIS DIVISION

    Ms. Bilheimer. Mr. Chairman and Members of the Subommittee, 
I am happy to be here today to discuss issues that CBO would 
consider in evaluating health proposals for children.
    I would like to introduce my colleague, Murray Ross, who 
will join me in answering any questions you may have. With your 
permission, I will summarize my remarks and submit my full 
statement for the record.
    Policymakers are considering three types of proposals for 
expanding health insurance coverage for children: Enrolling 
more children in Medicaid by expanding eligibility and by 
extending outreach to uninsured children who are eligible but 
not enrolled; providing refundable tax credits to low-income 
families who purchase health insurance for their children----
    Mr. Stark. Doctor, would you pull the mike up.
    Ms. Bilheimer. Sorry--and providing direct subsidies to 
low-income families with uninsured children to help them pay 
for insurance.
    Some of those proposals would provide grants to the States 
to enable them to develop their own subsidy programs.
    The cost of any proposal will depend on the number of 
uninsured children, the extent of participation by both 
uninsured children and children who would otherwise have 
another source of coverage, and the cost per child receiving 
assistance.
    Most proposals for expanding health insurance for children 
have been developed in the context that about 10\1/2\ million 
children through the age of 18 are uninsured, of whom 3 million 
are eligible for Medicaid.
    The underlying situation is far more complex, however, than 
those numbers suggest. The estimate of 10\1/2\ million most 
closely corresponds to the number of children who are uninsured 
at any point in time. Thus, it represents neither the number of 
children who are uninsured for long periods of time, such as 1 
year or more which would be considerably less than 10\1/2\ 
million, nor the number of children who are ever uninsured 
during the year, which would be considerably more than 10\1/2\ 
million. Those numbers differ because some children, especially 
those in low-income families, move in and out of insurance 
coverage. So, depending on a policy's focus, the potential 
target population of uninsured children could be significantly 
more or less than 10\1/2\ million.
    Low-income children, who account for the majority of 
uninsured children, differ in the types of coverage they have 
when insured. Most children in families below the poverty level 
qualify for Medicaid, and relatively few of them have employer-
sponsored coverage. But at any point in time, more than one-
half the children in families with income between 100 and 200 
percent of the poverty level have employer-sponsored coverage, 
and a much lower proportion of them are eligible for Medicaid.
    The variability of low-income children's health insurance 
status, plus the fact that many of those above poverty have 
private coverage at least some of the time, makes designing an 
expansion policy difficult. Research indicates that subsidies 
or tax credits to encourage families to purchase coverage for 
their children would have to provide generous amounts of 
financial assistance to reduce the number of uninsured children 
significantly. It would be difficult to prevent low-income 
children who would otherwise have private coverage from 
participating.
    States might also seek to shift Medicaid-eligible children 
into a program that was fully subsidized by the Federal 
Government. Likewise, expanding Medicaid to cover higher income 
children would result in the participation of some children who 
would otherwise have private coverage. Thus, the cost of 
proposals to expand coverage--whether through direct subsidies, 
tax credits, or Medicaid--could be considerably greater than 
just the costs of covering children who would otherwise be 
uninsured.
    Although some proposals include measures to limit the 
participation of children who would otherwise have coverage, 
those measures would be difficult to enforce.
    In addition to participation by different groups of 
children, the cost of a program to expand coverage would depend 
on the covered benefits, the average health status of children 
participating in the program, and marketing and administrative 
costs, all of which would vary by proposal. I discuss those 
issues at some length in my written testimony.
    That concludes my statement, Mr. Chairman. I would be happy 
to answer any questions you may have, including questions 
relating to the tax credit and tax issues.
    [The prepared statement follows:]

Statement of Linda T. Bilheimer, Deputy Assistant Director for Health, 
Health and Human Resources Division, Congressional Budget Office

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to discuss issues that the Congressional Budget 
Office (CBO) would consider in evaluating proposals to expand 
health insurance coverage for children. Despite recent 
expansions of the Medicaid program, about 14 percent of U.S. 
children are uninsured at any point in time. Many more low-
income children are uninsured at some time during the year, 
because shifts between insured and uninsured status are 
constantly occurring. Because of the number of children 
involved and the changing composition of the insured 
population, a policy that would substantially reduce the number 
of uninsured children could be both expensive and complicated 
to design.
    Policymakers are considering three broad approaches to 
increase health insurance coverage for children:
     Enrolling more children in Medicaid, both by 
expanding eligibility and by extending outreach to uninsured 
children who are eligible but not enrolled;
     Providing direct subsidies to low-income families 
with uninsured children to help them pay for insurance; and
     Providing refundable tax credits to low-income 
families who purchase health insurance for their children.
    The costs of such proposals would depend on the number of 
children who are uninsured, the extent to which they and 
children who would otherwise have private insurance would 
participate in a subsidized program, and the average cost per 
child.

                    How Many Children Are Uninsured?

    According to widely quoted estimates, about 10.5 million 
children through the age of 18, or 14 percent, are uninsured. 
At least 3 million of them are thought to be eligible for 
Medicaid. Most proposals to expand health insurance for 
children have been developed in the context of those numbers, 
and they assume that those figures would form the basis for 
determining the potential costs and coverage effects of 
alternative options. But the underlying situation is actually 
far more complex than those numbers suggest.
    Although some children remain uninsured for the entire 
year, many more lack coverage for only part of the year. An 
estimate made at a point in time--which the 10.5 million figure 
most closely represents--counts all of the first group but only 
part of the second.\1\ But policymakers may be primarily 
concerned with children who are uninsured for a year or more, 
which would be a smaller number than the point-in-time 
estimate. Alternatively, policies might focus on all children 
who are ever uninsured, which would be a considerably larger 
number than the point-in-time estimate. For example, a 
preliminary analysis conducted by CBO indicates that in 1993, 
about 13.5 percent of children were uninsured at any one point 
during the year, but 6.5 percent were uninsured for the entire 
year, while a further 15.5 percent were uninsured for part of 
the year. Those estimates indicate how children's insurance 
status can change over time.
---------------------------------------------------------------------------
    \1\ CBO analysts believe that the estimate of 10.5 million 
children, which comes from the March 1996 Current Population Survey, is 
closer to a point-in-time estimate than an estimate of all children who 
were uninsured for the whole of 1995. For a discussion of 
methodological issues, see the appendix to this testimony.
---------------------------------------------------------------------------
    Changes in insurance status are especially prevalent among 
children in low-income families (those with family income less 
than 200 percent of the poverty level). Such children are much 
more likely than others to be uninsured. CBO's estimates 
suggest that at any point in time, more than one-fifth of low-
income children lack coverage, and they account for almost 
three-quarters of all uninsured children.
    Moreover, in tracking children for more than a year, the 
probability that a child will experience a spell without health 
insurance rises considerably. For example, more than 40 percent 
of children in low-income families at the end of 1993 lacked 
insurance coverage at some time in the preceding two years.\2\ 
However, some of them were uninsured for relatively short 
periods (four months or less). The situation may well have 
improved with the expansions of Medicaid coverage for poor 
children under age 19 that are being phased in through 2002. 
Those expansions may have reduced both the likelihood that poor 
children will become uninsured and the length of time that 
those uninsured children lack coverage.
---------------------------------------------------------------------------
    \2\ Those estimates should be interpreted carefully because the 
family income, as well as the insurance status, of those children 
probably fluctuated over the two-year period. In addition, unemployment 
rates were high in 1993, probably resulting in more children being 
uninsured than in a more typical year.
---------------------------------------------------------------------------
    Within the low-income population, children in poor families 
(with family income less than the poverty level) and in near-
poor families (with family income between 100 percent and 200 
percent of the poverty level) have similar probabilities of 
being uninsured, but they have different patterns of insurance 
coverage. Relatively few poor children have employment-based 
insurance at any point in time, but more than 80 percent are 
eligible for Medicaid. (That proportion will rise even higher 
as Medicaid coverage for poor children under age 19 continues 
to be phased in.) By contrast, more than half of all near-poor 
children have employment-based coverage, and a much lower 
proportion are eligible for Medicaid.
    Because they account for the large majority of uninsured 
children, low-income families are the focus of efforts to 
expand insurance coverage for children. But the volatility of 
their insurance status and the fact that many children above 
the poverty level have private coverage at least some of the 
time raise difficult questions about how best to design an 
expansion policy.

      How Many Children Would Participate in a Subsidized Program?

    Participation in any form of subsidized health insurance 
program for children would come from three groups of children: 
those who would otherwise be uninsured, the target group of the 
expansion; those who would otherwise have private coverage; 
and, in the case of subsidy or tax credit proposals, those who 
are eligible for Medicaid. The amount of federal assistance 
that low-income families would be eligible to receive would 
affect the amount of participation by each group.

Eligibility for Federal Assistance

    In designing a proposal to increase children's health 
insurance, policymakers would have to decide who would be 
eligible for different levels of financial support and how long 
they could remain eligible without a reassessment of their 
financial status. Eligibility criteria might include recent 
health insurance status and current Medicaid eligibility, as 
well as family income.
    Many proposals call for subsidizing uninsured children in 
families with income below a specified level and using a 
sliding scale of financial assistance for higher-income 
families. Proposals that would expand Medicaid, however, would 
probably be fully subsidized for all new participants, although 
they might include small premium contributions or cost-sharing 
requirements.
    Designing a sliding scale of financial assistance to help 
families buy insurance for their children would involve several 
policy trade-offs. On the one hand, the higher the income level 
at which families could receive full subsidies, and the more 
slowly that assistance decreased as income rose, the more 
costly the subsidies would be. On the other hand, low subsidy 
rates would reduce the cost of the proposal, but they would 
also discourage participation. Moreover, if families who earned 
too much for full subsidies lost assistance quickly as their 
income rose, they would face high marginal tax rates (the tax 
rate on each additional dollar of income).
    Some proposals would guarantee that low-income children 
remained eligible for assistance for up to one year once they 
enrolled in the program, regardless of whether their family's 
income or access to employer-sponsored coverage changed. Such a 
policy could stabilize insurance coverage for low-income 
children and help them enroll in managed care plans. But 
extended eligibility could also prove costly given the large 
number of children who are uninsured at some time during a 
year. It would mean that some low-income children who would 
otherwise experience a relatively short spell without insurance 
could enroll in the program and receive federal support for a 
full year. To avoid that outcome, proposals could restrict 
eligibility only to children who had been uninsured for some 
minimum period of time. Such a restriction could reduce the 
number of eligible children significantly, at least in the 
short run. But as discussed later, such a policy would be 
difficult to enforce, and its effectiveness would probably 
erode over time.

Participation by Children Who Would Otherwise Be Uninsured

    The rate of participation in a new health insurance program 
by low-income families with uninsured children would depend in 
part on whether the program involved Medicaid expansions, 
subsidies, or tax credits. Both families' attitudes toward the 
program and the costs they would face would affect their 
participation. 
    Expansions of Medicaid. Efforts to use the Medicaid program 
to increase insurance coverage would probably focus on 
enrolling uninsured children who are already eligible, although 
some proposals would also broaden eligibility. Enrolling more 
children who are now eligible would require major new outreach 
efforts. Some families choose not to participate in Medicaid in 
part because of the perceived stigma associated with the 
program. Others may not participate because they know they have 
conditional coverage: if their children become sick, they can 
enroll in Medicaid immediately. Both of those perceptions could 
be difficult for an outreach program to overcome. Still other 
families may not enroll because they do not know they are 
eligible, which is more likely to be the case if they do not 
receive cash welfare benefits.
    The combination of attitudes toward Medicaid and lack of 
awareness of eligibility produces surprisingly low Medicaid 
participation rates among eligible children who do not receive 
cash welfare benefits. CBO estimates that at any time during 
the year fewer than 60 percent of children who do not receive 
cash benefits, do not have private insurance, and are eligible 
for Medicaid are enrolled in the program. However, short 
periods of Medicaid eligibility may also contribute to that 
result. Most uninsured children who qualify for Medicaid but do 
not participate appear to be eligible for only a few months. 
Proposals that would allow a one-year minimum period of 
eligibility, although costly, would increase participation by 
such children.
    Subsidies or Tax Credits. Subsidies or tax credits for the 
purchase of health insurance would probably have to be large to 
increase children's coverage substantially. Uninsured children 
are usually in low-income families, and such families appear to 
be less responsive to subsidies than are higher-income 
families. A recent study by researchers at RAND, for example, 
suggests that subsidies of as much as 60 percent of the premium 
would cause only one-quarter of uninsured working families to 
buy insurance.\3\
---------------------------------------------------------------------------
    \3\ M. Susan Marquis and Stephen H. Long, ``Worker Demand for 
Health Insurance in the Non-Group Market,'' Journal of Health 
Economics, vol. 14, no. 1 (May 1995), pp. 47-63.
---------------------------------------------------------------------------
    Assuming that families had to pay only a small portion of 
the premium, subsidies to purchase private insurance might 
overcome any perceived stigma of Medicaid and thus produce 
higher participation rates. But extensive outreach would still 
be needed to inform low-income families of their options. 
Participation in subsidy programs might also be higher than 
otherwise if the procedures for determining eligibility and 
enrolling in health plans were streamlined and coordinated.
    Although tax credits would also be free of stigma, they 
would probably produce lower participation rates than direct 
subsidies that had the same monetary value. Low-income families 
could experience cash flow problems if they had to pay 
insurance premiums during the year but only received the tax 
credit at the end of the tax year. Moreover, even if the credit 
was made available at the time a family purchased a health 
plan, the family would still face the possibility of having to 
repay part of the credit amount at the end of the tax year if 
its income rose during the year. Such uncertainty might 
discourage some families from participating. Having to deal 
with the tax system could also pose a challenge for some low-
income families, many of whom would not ordinarily file a tax 
return.

Participation by Children Who Would Otherwise Have Private 
Insurance

    In the case of higher-income children, Medicaid expansions, 
subsidies, and tax credits would all probably result in a 
significant share of federal payments going to children who 
would otherwise have private health insurance for at least part 
of the subsidy period. The participation of such children would 
raise federal costs beyond what was necessary to cover the 
uninsured.
    Medicaid Expansions. Many researchers have looked at how 
the Medicaid expansions for children and pregnant women in the 
late 1980s and the 1990s have affected employment-based health 
insurance coverage. Private coverage of dependents has fallen 
as the number of children and pregnant women enrolled in 
Medicaid has soared. But that fact does not necessarily 
indicate that families have dropped private coverage to enroll 
in Medicaid; higher Medicaid enrollment may have resulted 
because families were losing private coverage.
    Studies have reached various conclusions about whether 
Medicaid ``crowds out'' private insurance. However, most 
researchers agree that little crowding out occurs in families 
with income below the poverty level, although it increases 
higher up the income scale. Researchers at the Urban Institute, 
for example, estimated that over the 1988-1992 period, less 
than 30 percent of the increase in Medicaid coverage for 
pregnant women with income between 100 percent and 133 percent 
of the poverty level resulted from the crowding out of 
employment-based insurance. But the estimate was almost 60 
percent for pregnant women with income between 134 percent and 
185 percent of the poverty level.\4\
---------------------------------------------------------------------------
    \4\ Lisa Dubay and Genevieve Kenney, ``Did Medicaid Expansions for 
Pregnant Women Crowd Out Private Coverage?'' Health Affairs, vol. 16, 
no. 1 (January/February 1997), pp. 185-193. Also see David M. Cutler 
and Jonathan Gruber, ``Medicaid and Private Insurance: Evidence and 
Implications,'' Health Affairs, vol. 16, no. 1 (January/February 1997), 
pp. 194-200; and John Holohan, ``Crowding Out: How Big a Problem?'' 
Health Affairs, vol. 16, no. 1 (January/February 1997), pp. 204-206.
---------------------------------------------------------------------------
    Subsidies or Tax Credits. As noted earlier, any system of 
subsidies or tax credits would have to be generous to have much 
impact on coverage. As a result, a large share of subsidy 
payments would probably go to children who would have been 
insured in the absence of the program, which could increase 
costs considerably. The probability of that outcome would rise, 
the higher the income level at which families were eligible for 
subsidies. But the probability would be significant even for 
families with income between 100 percent and 200 percent of the 
poverty level, who would be among the primary targets of a 
program to expand insurance; more than half of such families 
have employer-sponsored coverage.
    Low-income workers would have an incentive to drop 
employment-based coverage for their family and obtain 
children's coverage through a federally subsidized program if, 
by so doing, they could increase their money wages. Employers 
with many low-income workers might be willing to adjust the 
composition of their workers' compensation packages 
accordingly.
    To avoid such a response, most proposals would prohibit 
people from claiming subsidies or tax credits for insurance if 
they had been enrolled in an employer-sponsored plan within the 
previous year (or some other recent period) or if they were 
eligible for such coverage. But such provisions could be both 
costly and difficult to enforce, because verifying eligibility 
would be problematic. They would also raise questions of 
fairness. Some families who had chosen not to enroll in an 
employer-sponsored plan would be eligible for subsidies, 
whereas families with comparable income who had enrolled in 
their employer's plan would be ineligible.
    Moreover, even if such ``firewalls'' could be successfully 
imposed in the short run, in the long run employers and low-
income workers would change their behavior in response to the 
availability of federal funds in ways that the requirements 
could not prevent. For example, firms might transfer the jobs 
done by low-income employees to contractual workers who did not 
receive fringe benefits, and over time, increasing numbers 
might no longer offer family coverage.
    Experience during the short existence of the health 
insurance tax credit (HITC), established by the Omnibus Budget 
Reconciliation Act of 1990, provides some insight into the way 
that families with insurance would probably respond to tax 
credits or subsidies. The HITC, which existed between 1991 and 
1993, allowed taxpayers who qualified for the earned income tax 
credit (EITC) to claim an additional tax credit if they bought 
health insurance coverage for their children. The credit was 6 
percent for earned income up to $7,125. Taxpayers with earned 
income between $7,125 and $11,275 could claim the maximum 
credit of $428, and the credit phased down to zero by an earned 
income of $21,250.
    The credit was small, on average, paying for less than one-
quarter of the taxpayer's share of a family health insurance 
premium. Hence, it was unlikely to provide much incentive for 
uninsured families to obtain coverage. The income of taxpayers 
who claimed the credit was 30 percent higher, on average, than 
that of other EITC recipients. Thus, claimants were primarily 
in the phaseout range of the credit, and their credit amounts 
were sufficiently small that it seems likely they would have 
purchased health insurance anyway. 

Interactions Between a Subsidy or Tax Credit Program and 
Medicaid

    The existence of a federally subsidized program of health 
insurance for children would give states an incentive to shift 
children out of Medicaid--for which they share responsibility 
with the federal government--into the new program. For example, 
states that provide Medicaid coverage to children in higher-
income families than required by federal law might lower their 
income standards. To limit such responses, federal policymakers 
could consider requiring financial contributions from the 
states or maintenance of effort with respect to the existing 
Medicaid program in any proposal to expand health insurance 
coverage for children through a mechanism other than Medicaid.
    Despite possible shifting by the states, however, the net 
effect of a subsidy or tax credit program would probably be to 
increase rather than decrease Medicaid enrollment. The reason 
is that many children applying for a new program would probably 
be among the 3 million uninsured children who are eligible for 
Medicaid at any point in time. Proposals would generally bar 
such children from participating in any new federally 
subsidized option, requiring them to obtain coverage from 
Medicaid instead. That requirement would mean that the states 
and the federal government would share the costs of covering 
those children.

             How Much Would a Program Cost Per Participant?

    The cost per child of expanding health insurance coverage 
would depend on which services were covered, the extent to 
which newly covered children used them, and the cost of 
administering the program. Because proposals for expanding 
children's coverage would be voluntary, parents with less 
healthy children would be more likely to participate. Premiums 
are generally higher, however, the less healthy the population 
that is enrolled in a health plan. So if a policy goal is to 
keep premiums low in order to encourage parents to buy 
insurance for their children, limiting that type of adverse 
selection would be a priority in designing the program. 
Administrative costs would also vary according to the design of 
the program.

Costs per Child Under a Medicaid Expansion

    If Medicaid expansions focused primarily on enrolling 
uninsured children who were already eligible, those children 
might actually cost less to insure than current enrollees. 
Because most poor children who are sick can enroll in Medicaid 
at any time, those who are eligible but are not enrolled may be 
healthier and use fewer health services than the ones who are 
enrolled. If that is indeed the case, states might be able to 
negotiate lower rates for such children with managed care 
plans. Whether children who enrolled under expanded eligibility 
requirements would be less costly than current enrollees is 
uncertain, however.
    Expanding Medicaid to cover more children would entail 
relatively low administrative costs because the eligibility, 
enrollment, and provider contracting systems are already in 
place. But the additional outreach services that would be 
needed to enroll children who are now eligible could be costly.

Premiums Under Subsidy or Tax Credit Programs

    Premiums for insurance purchased with subsidies or tax 
credits would depend on the covered benefits and on whether 
coverage was provided through individual policies or group 
plans.
    Covered Benefits. Depending on the proposal, benefits for 
children might range from relatively costly packages, offering 
services similar to Medicaid's, to much leaner benefits, 
perhaps not even covering hospitalization. Benefit packages 
with higher cost-sharing requirements would generally be less 
costly than those with lower ones. But higher cost-sharing 
requirements would make health care less affordable for low-
income families. Alternatively, a proposal that would expand 
coverage primarily through health maintenance organizations and 
other strictly managed health plans could provide comprehensive 
benefits more affordably.
    Coverage Through Individual Policies or Group Plans. 
Proposals vary with regard to the type of coverage that would 
be eligible for subsidies or tax credits. Some proposals would 
subsidize only the purchase of special insurance policies for 
children. Others would allow families with access to employer-
sponsored coverage to use subsidies or tax credits to help pay 
for that coverage.
    The costs of special children's policies would depend on a 
variety of factors. Premiums might vary, for example, according 
to the age of the child. In addition, they would vary if 
policies covering more than one child were permitted. Allowing 
only single policies would increase the risk of adverse 
selection because families might choose to enroll only their 
less healthy children. How children's policies were marketed 
and purchased would also affect the probabilities of healthier 
or less healthy children enrolling, as well as the 
administrative costs of the program. Possibilities for 
marketing and purchasing include establishing a nonprofit or 
government organization to coordinate those functions, using 
the schools to group children together to buy insurance, or 
requiring insurance companies to sell children's policies in 
the individual market.
    Selling policies through schools would provide a way to 
group mostly healthy children together to purchase health 
insurance, thereby reducing adverse selection and helping to 
keep premiums low. In effect, schools could serve the same 
grouping function for children that employers do for workers. 
Moreover, the costs of marketing the program through schools 
could be relatively low. The disadvantage of a school-based 
program, however, would be the fragmentation of a family's 
health insurance coverage that could result; not only parents 
but, presumably, preschool children would be ineligible, and 
those children might have to enroll in a different program.
    By contrast, requiring families to buy insurance coverage 
for children in the individual market would reduce the 
probability that a generally healthy mix of children would 
enroll, and premiums would be correspondingly higher. Marketing 
costs would also be high because each family would be 
negotiating for health insurance on its own. Costs could be 
reduced, however, if a nonprofit or government organization 
existed to provide standardized information about health plans 
and to coordinate their purchase.
    If families could use subsidies or tax credits to buy 
employment-based coverage, they would become part of their 
employer's group, and the employer would generally cover part 
of the insurance cost. But because many employers pay 60 
percent or less of a family premium, the employee's share might 
still be more than the cost of purchasing children's policies 
for one or two children. The advantage would be that parents as 
well as children would gain coverage, and they could all enroll 
in the same health plan.

       Administrative Costs Under Subsidy or Tax Credit Programs

    The costs of proposals using subsidies or tax credits would 
also depend on how complex they were to administer. All such 
proposals would have to develop mechanisms for establishing 
eligibility, determining subsidy or credit amounts, and giving 
those subsidies or credits directly to low-income families 
(perhaps in the form of vouchers) or to health plans and 
employers. The costs of those functions would vary among 
proposals.
    Proposals that used the schools to administer subsidies, 
for example, could achieve considerable efficiencies by tying 
eligibility for the subsidies, as well as their amounts, to 
eligibility for subsidized meals (as occurs in Florida's 
Healthy Kids program). Parents could make payments directly to 
the school system, which could negotiate with health plans. By 
contrast, if families were able to use subsidies or tax credits 
to buy employment-based coverage, the agency administering 
those subsidies or credits might have to deal with thousands of 
employers, to verify both eligibility and the amount of the 
premium.
    Any proposal using tax credits would have the advantage 
that the tax system provides a ready means for verifying 
income. But tax credits would also require low-income families 
who do not usually file tax returns to do so in order to obtain 
a credit. Moreover, experience with the EITC suggests that 
establishing a mechanism that would enable low-income families 
to receive a tax credit when they purchased health insurance 
would be difficult; very few families take advantage of the 
present option to receive their earned income credit in 
advance.

                               Conclusion

    Most uninsured children live in families whose income is 
below 200 percent of the poverty level. Such children tend to 
have sporadic health insurance coverage, causing many of them 
to experience spells without coverage during the year. Thus, 
the potential target population of uninsured children could be 
significantly greater than the 10.5 million who lack coverage 
at any point in time.
    Reducing the number of uninsured children significantly 
would require generous levels of direct subsidies or tax 
credits, and it would be difficult to prevent low-income 
children who would otherwise have private coverage from 
participating in such a generous program. The likelihood of 
their participation would increase as the income level at which 
families could qualify for federal assistance rose. As a 
result, the cost of a program to expand health insurance 
coverage for children would probably be considerably higher 
than the cost of covering only those children who would 
otherwise be uninsured.
    An alternative approach to direct subsidies or tax credits 
would be to expand Medicaid to cover higher-income children, 
although that approach would also cause some children who would 
otherwise have private coverage to enroll in the program. 
Another way to lower the number of uninsured children would be 
to induce more children who were already eligible for Medicaid 
to enroll. However, achieving that outcome would require making 
major outreach efforts and, possibly, modifying the program to 
guarantee a minimum period of eligibility.

          Appendix: Estimating How Many Children Are Uninsured

    Because the health insurance status of many children, 
especially those in low-income families, is so volatile, the 
question of how many children are uninsured is not easy to 
answer. The number of children who are uninsured at any point 
in time, the number who are uninsured for the entire year, and 
the number who are uninsured sometime during the year differ 
considerably. Understanding what different estimates of the 
number of uninsured children actually measure is important in 
evaluating the costs and effects of proposals to expand 
coverage for children. But unfortunately, people who respond to 
the national sample surveys from which analysts derive 
estimates of insurance status appear to interpret questions 
about their health insurance in ways that make distinguishing 
among the different measures difficult. Determining people's 
potential eligibility for such programs as Medicaid is also 
difficult, because family incomes fluctuate over time in ways 
that surveys may not be designed to track.
    Analysts at CBO use two national sample surveys from the 
Bureau of the Census to estimate rates of health coverage: the 
annual March supplement to the Current Population Survey (CPS) 
and the Survey of Income and Program Participation (SIPP). Data 
from the CPS present a relatively current snapshot of 
children's health insurance status, whereas the SIPP data 
illuminate the transitions in insurance status that children 
experience over time. Because of underreporting of health 
insurance coverage, especially of Medicaid, both surveys 
probably underestimate health insurance coverage to some 
degree.
    The CPS produces timely estimates of insurance coverage 
each year. The current widely quoted estimates of 10.5 million 
uninsured children under age 19, of whom at least 3 million are 
eligible for Medicaid, come from the March 1996 CPS. But 
analysts disagree on how to interpret those estimates. Some 
believe that they refer to children who were uninsured 
throughout 1995, which is the information that the survey 
intends to obtain. Other analysts, including those at CBO, 
believe that people's responses to the CPS questions produce 
estimates that reflect the number of children who were 
uninsured at a point in time, rather than for the full year.
    The SIPP data support that interpretation. Although the 
SIPP is less timely than the CPS, it is a longitudinal survey 
that tracks the insurance status of a sample of children over 
time. Thus, analysts can determine how many children were 
uninsured for the whole year and how many were uninsured for 
part of the year. The most recent survey to track respondents 
for up to 33 months covered 1992 through part of 1994. CBO's 
preliminary analysis of that survey indicates that in 1993, 
about 13.5 percent of children were uninsured at any point in 
time. That estimate corresponds closely to the March 1993 CPS 
estimate of 13.1 percent. The SIPP data also indicate that 6.5 
percent of children were insured throughout 1993 and a further 
15.5 percent were uninsured for some part of the year.
      

                                


    Chairman Thomas. Thank you very much, Dr. Bilheimer.
    Mr. Purcell.

STATEMENT OF PATRICK J. PURCELL, ANALYST, EDUCATION AND PUBLIC 
        WELFARE DIVISION, CONGRESSIONAL RESEARCH SERVICE

    Mr. Purcell. Good morning, Mr. Chairman and Members of the 
Subcommittee.
    My name is Patrick Purcell. I am an Analyst in the 
Education and Public Welfare Division of the Congressional 
Research Service.
    In the copies of my written testimony, you will find some 
charts illustrating the points I will be discussing, but in the 
interest of brevity, I will not refer directly to these charts 
in my remarks this morning.
    Chairman Thomas. The same request would be made, if you 
would talk directly into the microphone. They are very 
unidirectional, and it is hard to pick it up.
    Mr. Purcell. Surely.
    In announcing today's hearing, Mr. Chairman, you stated 
that the Subcommittee would focus on identifying the reasons 
why some children do not have health insurance coverage and the 
impact that lack of insurance has on their access to health 
care services.
    As you know, most of the 70 million children in the United 
States are covered by some form of health insurance, either 
public or private. More than 6 out of 10 are covered by private 
health insurance plans, and almost one-quarter are covered by 
the Medicaid Program. In any given month, however, between 9 
and 10 million children have no health coverage.
    I would like to use my time before the Health Subcommittee 
today to describe some of the employment and income 
characteristics of the families of uninsured children, which 
may explain in part why they do not have access to the private 
health insurance system that covers the majority of Americans.
    First, however, it is important to note that an estimated 3 
million uninsured children are eligible for coverage under the 
Medicaid Program but are not enrolled. The reasons that some 
parents or guardians do not enroll their eligible and otherwise 
uninsured children in the Medicaid Program are not yet well 
understood, but anecdotal evidence suggests that lack of 
knowledge about their children's eligibility for Medicaid, 
failure of the parent or guardian to supply required 
information during the enrollment process, and a welfare stigma 
that some families associate with the Medicaid Program may all 
contribute to eligible children remaining uninsured.
    Although one-third of uninsured children may be eligible 
for Medicaid, most are not. Data from the Census Bureau, 
however, indicate that nearly 60 percent of uninsured children 
are members of families in which one parent is employed year 
round full time. Another 20 percent are in families with a 
parent who is employed part time.
    That so many uninsured children are members of working 
families is significant because employers are the predominant 
source of health insurance coverage in the United States today. 
In 1995 more than 70 percent of the U.S. population under the 
age of 65 was covered by private health insurance, and most of 
those who were covered by these plans were insured through 
their own employer or that of a family member.
    To understand why nearly 10 million children lack health 
insurance when most of them are the children of working 
parents, we need to ask why these workers are themselves 
unemployed. To address this question, the Congressional 
Research Service has been examining data collected by the 
Bureau of the Census and the National Center for Health 
Statistics.
    We used data from two national household surveys, the 
Current Population Survey and Health Interview Survey, to find 
some of the key employment, income, and demographic 
characteristics that distinguish working heads of families who 
are uninsured from working family heads who are covered by 
private health insurance.
    In an average month during 1994, an estimated 6.3 million 
heads of families were employed either full time or part time 
but had no health insurance coverage. About three-fourths of 
these families included children. These family heads were 
predominantly young, working for small firms in the service 
sector or in retail or wholesale trade, and had family incomes 
that were lower than the national average.
    For example, in 1994 nearly half of employed, uninsured 
family heads were under the age of 35, compared with just one-
quarter of employed family heads that were covered by private 
health insurance. Half of all employed, uninsured family heads 
worked in firms with fewer than 25 employees, while just 21 
percent of employed and privately insured family heads worked 
for firms of this size. And finally, 60 percent of employed, 
uninsured family heads had family incomes of less than $30,000. 
In contrast, among those that were employed and privately 
insured, only 16 percent had family incomes below $30,000.
    Most of the working family heads who are without health 
insurance during any given month have been uninsured for a 
significant period of time. In 1994 more than half of the 
working family heads who were without health insurance in a 
given month reported that they either had been last insured 
more than 3 years ago, or that they had never been insured. 
Just 15 percent said they had been covered by health insurance 
within the past year.
    Among working but uninsured family heads who had lost 
health insurance coverage some time within the last 3 years, 
one-half said that the reason they had stopped being covered 
was either because they had lost a job or had changed jobs. The 
recently enacted Health Insurance Portability and 
Accountability Act may help reduce loss of insurance coverage 
caused by changing jobs, but those that lost insurance as a 
result of a job change still represented only one-sixth of 
employed, uninsured family heads in 1994.
    Although most Americans have health insurance coverage 
through their own employment or that of a relative, acquiring 
health insurance through employment is possible only when this 
benefit is offered as part of the compensation package. It is 
important to note, therefore, that in the 1994 Health Interview 
Survey, 70 percent of working, uninsured family heads reported 
that health insurance coverage was not offered at their place 
of employment.
    Nevertheless, even though most employed but uninsured 
family heads reported that health insurance coverage was not 
available through their employers, only 1 in 10 cited the lack 
of an employment-based plan as the main reason they were 
uninsured. More than 60 percent, on the other hand, said it was 
the high cost of health insurance that was the primary reason 
they were not covered.
    Finally, data from the Health Interview Survey also show 
that 1.3 million working, uninsured family heads were offered 
health insurance at their place of employment but declined that 
coverage. Of this number, two-thirds said that the cost of the 
insurance was at least one of the reasons they did not accept 
it.
    In 1994 almost one out of every six families with a working 
but uninsured head reported they had spent nothing for medical 
care in the previous 12 months. Among working families with 
private health insurance, only 1 in 12 reported no spending for 
medical care. Moreover, this disparity in the proportion of 
families with no medical expenditures is not explained by 
differences in either family size or the age of the family 
head.
    While working uninsured family heads were more likely to 
have zero medical expenses, families in both groups were about 
equally likely to have reported medical expenses exceeding 
$500. In both cases, about one-third of the families had 
expenses in this amount.
    One possible explanation for uninsured families having a 
greater likelihood of zero expenditures than insured families 
but an equal likelihood of expenditures exceeding $500 is that 
they are more price sensitive than insured families with 
respect to small medical expenses that they might consider 
discretionary. When serious illness or injury occur, however, 
medical expenses are not easily avoided, so that relatively 
large expenses occur among both insured and uninsured families 
with similar frequency.
    Because of the disparity in family incomes, however, a 
given medical expense would account for about twice the share 
of average family income among employed but uninsured family 
heads as it would among those covered by private health 
insurance.
    In summary, most uninsured children are the dependents of 
working parents, but their parents tend to be employed in small 
firms that do not offer health insurance coverage. Moreover, 
the average income of these families is substantially lower 
than that of families that are covered by private health 
insurance.
    Finally, about one-third of all uninsured children are 
eligible for, but not enrolled in, the Medicaid Program. While 
Medicaid would pay most of the medical expenses of these 
children if they were to become seriously ill, failure to 
enroll may diminish their access to primary and preventive 
health care services.
    That concludes my remarks, Mr. Chairman. I would be happy 
to answer any questions.
    [The prepared statement and attachments follow:]

Statement of Patrick J. Purcell, Analyst, Education and Public Welfare 
Division, Congressional Research Service

    In announcing today's hearing, Mr. Chairman, you stated 
that the Subcommittee would focus on trying to identify the 
reasons why some children do not have access to health 
insurance coverage, and the impact that this lack of insurance 
has on their access to health care. As you know, most of the 70 
million children in the United States are covered by some form 
of health insurance, either public or private. More than 6 out 
of 10 are covered by private health insurance plans, and almost 
a quarter are covered by the Medicaid program. In any given 
month, however, between 9 and 10 million children have no 
health insurance coverage. I would like to use my time before 
the Subcommittee today to describe some of the employment and 
income characteristics of the families of uninsured children, 
which may explain in part why they do not have access to the 
private health insurance system that covers the majority of 
Americans.
    Before addressing the issue of access to private health 
insurance coverage, I would like to note that, according to 
information from the Census Bureau's Current Population Survey, 
an estimated 3 million uninsured children are eligible for 
coverage under the Medicaid program but are not enrolled. The 
reasons that some parents or guardians do not enroll their 
eligible and otherwise uninsured children in the Medicaid 
program are not yet well understood, but anecdotal evidence 
suggests that lack of knowledge about their children's 
eligibility for Medicaid, inability of the parent or guardian 
to supply required information during the enrollment process, 
and a ``welfare stigma'' that some families associate with the 
Medicaid program may all contribute to eligible children 
remaining uninsured.
    While up to a third of uninsured children may be eligible 
for Medicaid, data from the Census Bureau indicate that nearly 
60% of uninsured children are members of families in which at 
least one parent is employed year-round, full-time, and another 
20% are in families with a parent who is employed part-time. 
That so many uninsured children are members of working families 
is significant because employers are the predominant source of 
health insurance coverage in the United States. In 1995, more 
than 70% of the U.S. population under age 65 was covered by 
private health insurance, and more than 90% of those who were 
covered by these plans were insured through their own employer 
or that of a family member.
    To understand why nearly 10 million children lack health 
insurance when most of them are the children of working 
parents, we need to ask why these workers are themselves 
uninsured. To address this question, the Congressional Research 
Service has been examining data collected by the Bureau of the 
Census and the National Center for Health Statistics. We used 
data from two national household surveys--the Current 
Population Survey and the National Health Interview Survey--to 
find some of the key employment, income, and demographic 
characteristics that distinguish working heads of families who 
are uninsured from working family heads who are covered by 
private health insurance.

 Age, Industry of Employment, and Family Income of Employed, Uninsured 
                              Family Heads

    In an average month during 1994, an estimated 6.3 million 
heads of families were employed either full-time or part-time 
but had no health insurance coverage, either public or 
private.\1\ These family heads were predominantly young, 
working for small firms in the service sector or in retail or 
wholesale trade, and their families had incomes that were lower 
than the national average. For example, in 1994:
---------------------------------------------------------------------------
    \1\ This figure includes 4.5 million employed, uninsured heads of 
families with children and 1.8 million employed, uninsured persons with 
a spouse but without children. (CRS analysis of data from the Current 
Population Survey).
---------------------------------------------------------------------------
     48% of employed, uninsured family heads were under 
age 35. (Figure 1)
     51% of employed, uninsured family heads worked in 
firms with fewer than 25 employees. (Figure 2)
     56% of employed, uninsured family heads worked in 
wholesale or retail trade or in business, personal, or 
professional services. (Figure 3)
     39% of employed, uninsured family heads had family 
incomes of less than $20,000, and 60% had incomes below 
$30,000. (Figure 4)
[GRAPHIC] [TIFF OMITTED] T2730.001

[GRAPHIC] [TIFF OMITTED] T2730.002

              Length of Time Since Last Insured (Figure 5)

    Most of the working family heads who are without health 
insurance coverage during any given month have been uninsured 
for a significant length of time. In 1994, 55% of the working 
family heads who were without health insurance in an average 
month reported that they had either last been insured more than 
3 years ago or that they had never been insured. Only one-third 
reported that they had been insured some time in the last 3 
years, and just 15% said that it had been less than a year 
since they were last covered by health insurance.

      Reasons that Previous Insurance Coverage Stopped (Figure 6)

    Among working but uninsured family heads who had lost their 
health insurance coverage some time within the last 3 years, 
half said that the reason they stopped being covered by 
insurance was either because they had lost a job or because 
they changed jobs. No other single reason cited for loss of 
health insurance coverage accounted for as much as 10% of all 
responses to this question. The recently enacted Health 
Insurance Portability and Accountability Act (P.L. 104-191) may 
help reduce loss of insurance coverage caused by changing jobs, 
but those who lost insurance as a result of changing or losing 
a job still represented only one-sixth of all employed, 
uninsured family heads in 1994.
[GRAPHIC] [TIFF OMITTED] T2730.003

          Reasons Unable to Find Insurance Coverage (Figure 7)

    About one-third of the 2 million working but uninsured 
family heads who had lost their health insurance coverage 
within the last 3 years reported that they subsequently sought 
an alternative source of health insurance but were unable 
obtain coverage. By far the most commonly cited reason for 
being unable to regain health insurance coverage--mentioned by 
more than four-fifths of those responding to this question--was 
that they could not afford to purchase it. Seven percent of 
those who sought alternative coverage reported that they were 
turned down due to ill health or other risk factors.

              Reasons Cited for Being Currently Uninsured

    Although most Americans have health insurance coverage 
through their own employment or that of a relative, acquiring 
health insurance through one's employer is possible only when 
this benefit is offered as part of an employee's compensation 
package. It is important to note, therefore, that in the 1994 
National Health Interview Survey, 70% of working, uninsured 
family heads reported that health insurance coverage was not 
offered at their place of employment. (Figure 8)
    Even though 7 out of 10 employed but uninsured family heads 
reported that health insurance coverage was not available 
through their employers, only 11% cited the lack of an 
employment-based plan as the main reason that they were 
uninsured. More than 60%, on the other hand, said that the high 
cost of health insurance was the primary reason that they were 
not covered by health insurance, which may indicate that they 
would have purchased health insurance on their own if they had 
considered it worthwhile to do so. (Figure 9)
    Even among uninsured family heads who said that they were 
not offered health insurance at their place of employment, more 
than twice as many cited the high cost of insurance as the main 
reason they were uninsured as said that it was because they 
could not get coverage where they worked.
    Finally, out of 1.3 million working, uninsured family heads 
who were offered health insurance at their place of employment 
but who declined that coverage, two-thirds said that the cost 
of this insurance was among the reasons that they declined to 
be covered. (Figure 10)
[GRAPHIC] [TIFF OMITTED] T2730.004

[GRAPHIC] [TIFF OMITTED] T2730.005

     Amount Spent on Health Care in Previous 12 Months (Figure 11)

    Fifteen percent of families in which the head was employed 
but uninsured reported zero expenditures for medical care in 
1994. This is twice the rate at which families where the head 
was both employed and insured reported no expenditures for 
medical care. If the higher proportion of uninsured family 
heads with no medical expenses had been due to the uninsured 
family heads being younger than their privately insured 
counterparts or from having fewer children than the family 
heads who were privately insured, then we would expect the 
difference in these proportions to diminish significantly once 
we controlled for the effects of age and family size. In fact, 
however, even when we adjust for size of family and age of the 
family head, families with an employed but uninsured head were 
still about twice as likely as those in which the head was 
employed and privately insured to have reported no medical 
expenses during the previous year.\2\
---------------------------------------------------------------------------
    \2\ Adjusted for age, the ratio of employed uninsured family heads 
to employed privately insured family heads who reported zero medical 
expenditures in the previous twelve months was 1.83/1. Adjusted for 
family size, the ratio was 1.95/1. In these tabulations, medical 
expenditures exclude spending for nonprescription drugs and insurance 
premiums for those with insurance.
---------------------------------------------------------------------------
    While working uninsured family heads were more likely than 
family heads who were working and privately insured to have 
reported zero medical expenses, they were almost as likely as 
privately insured family heads to have had incurred medical 
expenses of $500 or more. In both groups, about one-third of 
the families reported out-of-pocket medical expenses of $500 or 
more in the preceding 12 months. One possible reason for 
uninsured family heads to have a greater likelihood of zero 
expenditures than insured family heads, but an almost equal 
likelihood of an expenditure exceeding $500 is that they are 
more price-sensitive than insured family heads with respect to 
small medical expenses that might be considered discretionary. 
When serious, illness or injury occur, however, medical 
expenses are not easily avoided, so that relatively large 
expenses occur in insured and uninsured families with similar 
frequency.
    Because of the disparity in family income between the 
uninsured and the insured, however, medical expenses account 
for about twice the share of income for families with an 
employed but uninsured head as they do in families where the 
head is both employed and covered by private health insurance.
    This concludes my presentation, Mr. Chairman. I would be 
happy to answer questions.
[GRAPHIC] [TIFF OMITTED] T2730.006

      

                                

    Chairman Thomas. Thank you, Patrick.
    Dr. Scanlon.

STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH FINANCING AND 
SYSTEMS ISSUES, HEALTH, EDUCATION AND HUMAN SERVICES DIVISION, 
                 U.S. GENERAL ACCOUNTING OFFICE

    Mr. Scanlon. Thank you, Mr. Chairman and Members of the 
Subcommittee. I am pleased to be here today as you consider the 
question of health insurance coverage for children.
    My remarks are drawn from a number of recently issued GAO 
reports on trends in the private sector and Medicaid coverage 
for children, including shifts in employers' commitments to 
family coverage and the experiences of innovative State and 
local programs to insure children.
    Over the last several years, we have seen a continuing 
deterioration in the extent of private coverage accompanied by 
a sharp rise in the number of children on Medicaid.
    Between 1989 and 1995, the percentage of children covered 
by private plans fell 11 percent. Without that decline, an 
additional 5 million children would have been privately insured 
at some time during 1995. Declines in private insurance 
coverage have been widespread, affecting both adults and 
children. However, children have been affected more, as 70 to 
90 percent of the decline involved dependent coverage.
    Many employers, responding to several years of double-digit 
increases in health insurance costs, have restructured their 
health plans to gain more control over costs. Workers, on 
average, are required to pay higher shares of premium costs, 
and workers' costs for family coverage have increased more 
sharply than costs of single coverage.
    Other steps taken by employers to limit costs may also 
discourage acquisition or retention of family coverage. They 
include: Providing alternative benefits or incentives to 
workers who choose employee-only coverage or who obtain family 
coverage through their spouse; refusing to cover a spouse if 
the spouse has other health insurance; imposing a surcharge for 
working spouses covered as dependents; refusing to provide 
dependent coverage unless the employee is the family's primary 
wage earner.
    Mr. Chairman, I would note that in our testimony we did not 
address the issue of tax preferences for health insurance, but 
in this context, employers are clearly acting in terms of 
appealing to employees' rationale in trying to maximize their 
benefits at minimum cost.
    Given that our tax preferences are neutral in terms of 
whether or not they encourage family coverage, it may be 
possible to restructure them in a way that would encourage 
employers to maintain more support for family coverage. That 
would deal with the potential 5 million employees who currently 
work for firms who offer no family coverage, as well as some of 
these firms that have reduced their support for family 
coverage. It does not, though, address the 18 million workers 
who are working for firms that offer no health insurance.
    While we have seen these deteriorations in private coverage 
and expanded Medicaid eligibility, States, localities, and 
private organizations have all developed innovative programs to 
offer subsidized coverage to uninsured children that would not 
qualify for Medicaid.
    In 1996 9 States had State and locally funded programs and 
24 States had privately funded programs. In reviewing six of 
these State or privately funded programs, we found they could 
provide potentially useful lessons for future efforts to insure 
children. For example, unlike State Medicaid Programs which 
operate as open-ended entitlements, the programs cap 
enrollments and, if necessary, maintain waiting lists to stay 
within their fixed budgets that were provided by revenues from 
taxes, grants, and donations. These waiting lists generally 
operated, however, on a first-come, first-served basis without 
establishing priorities based on service needs.
    All six programs we reviewed required at least some of the 
families to share in the cost through premiums, and some 
programs also required copayments for certain services such as 
prescription drugs and eyeglasses. The family's premium share 
increased as their income increased. In all programs, the 
lowest income children paid no premium or a very heavily 
subsidized premium. Two of the programs allowed children of any 
income to join, but families with higher incomes were 
responsible for paying the full premium costs.
    While all six programs covered basic preventive and 
outpatient services, some limited other services such as 
hearing, vision, dental, and mental health care. Some, 
particularly the private funded programs, also limited 
inpatient care. They sometimes did so anticipating that 
children would qualify for Medicaid if they needed more 
extensive care.
    All of the programs worked extensively to reach families of 
uninsured children. One program worked through the schools, 
which allowed them to most easily reach their target group, 
school-aged children.
    Other outreach efforts included dedicated hotlines, 
television and radio ads, bus billboards, fast-food restaurant 
tray liners, and presentations provided at churches and other 
community locations. To encourage enrollment, two of the 
programs used sports and television personalities as 
spokespersons.
    These outreach efforts served not only to identify children 
eligible for their programs, they also identified children 
eligible for Medicaid and channeled them into that program.
    The programs were also developed to be easily administered. 
Most operated at least partially through nonprofit or private 
insurers, which enabled the programs to use existing provider 
payment systems and physician networks, guaranteeing patient 
access to providers. Each of the six programs developed 
simplified enrollment procedures and took specific steps to 
avoid the appearance of a welfare program.
    In conclusion, let me say that the recent erosion in 
private coverage has left many children without insurance and 
has created interest in expanding coverage. However, efforts to 
expand coverage for children need to be developed in ways that 
do not supplant existing private insurance. In addition, 
Medicaid's potential should not be ignored, as many uninsured 
children are eligible for Medicaid but do not enroll. Outreach 
strategies developed by State and private programs could guide 
State efforts to reach such children.
    Other innovative elements in the State and private 
programs, such as sliding-scale premiums and cost sharing for 
program enrollees, should be considered in efforts to cover 
more uninsured children while controlling costs. However, 
adopting strategies like limiting inpatient care, on the 
premise that other funding may be available, may not provide 
the range of coverage children need.
    Mr. Chairman, that concludes my statement. I would be happy 
to answer any questions you have or Members of the Subcommittee 
have.
    Thank you.
    [The prepared statement and attachments follow:]

Statement of William J. Scanlon, Director, Health Financing and Systems 
Issues, Health, Education, and Human Services Division, U.S. General 
Accounting Office

    Mr. Chairman and Members of the Committee:
    I am pleased to be here today to discuss recent changes in 
health insurance coverage and the effect of these changes on 
children. Without health insurance, many families face 
difficulties getting preventive and basic health care for their 
children. Children without health insurance are less likely to 
have routine medical and dental care, establish a relationship 
with a primary care physician, and receive immunizations or 
treatment for injuries and chronic illnesses. Recognizing the 
importance of health insurance for children, Members of the 
House and Senate and the administration have proposed expanding 
children's health insurance coverage--either through grants to 
the states, refundable tax credits, vouchers, or other means.
    My remarks today will focus on three points: (1) recent 
trends in children's health insurance coverage, particularly in 
employment-based coverage; (2) the increasing role of Medicaid 
in insuring children and possible interactions with private 
insurance; and (3) some small-scale but innovative state and 
private efforts to provide coverage for uninsured children. 
These remarks summarize findings from previous GAO work, based 
on our analysis of the Bureau of the Census March Current 
Population Surveys for health insurance coverage in 1989 and 
1995 and information from the Census on trends in coverage from 
1987 through 1995; other public and private surveys, such as a 
survey conducted by KPMG Peat Marwick on employer health 
insurance; interviews with experts, insurance company 
executives, and benefits consultants; current research on 
health insurance issues; and case studies of state and private 
programs that insure children. (A list of GAO products related 
to this issue appears at the end of this statement.)
    In summary, we found that while most children have health 
insurance, almost 10 million children lack insurance. Between 
1989 and 1995, the percentage of children with private coverage 
declined significantly--part of an overall decline in coverage 
of dependents through family health insurance policies. 
Increases in the cost of providing health insurance have 
prompted many employers to take steps that discourage or limit 
dependent coverage, such as raising premiums or providing 
incentive payments to employees who refuse family coverage. 
This erosion in employer support for health insurance has 
contributed to the increasing number of children in working 
families without private health insurance.
    As these reductions in private coverage were occurring, 
Medicaid eligibility for children expanded. These expansions 
helped to cushion the effect of the loss of private coverage, 
but they also may have contributed to some further reductions 
in private coverage. Families respond to the availability of 
public coverage differently. While some families may have been 
induced to drop private coverage to gain Medicaid for their 
children, others may not have taken advantage of the program. 
Indeed, almost 3 million Medicaid-eligible children remain 
uninsured.
    A number of states, in conjunction with local governments, 
and private entities have developed children's insurance 
programs that differ significantly from Medicaid. Some of these 
public/private efforts may prove instructive in developing 
future strategies for insuring children. For example, by 
targeting their outreach efforts, the programs have been able 
to identify uninsured children--some of whom are eligible for 
Medicaid. In addition, the programs have developed service 
packages based on preventive care and required parents to 
assume some of the insurance cost through premium contributions 
and copayments for specific services. Such strategies have 
helped to stretch program dollars and provide needed health 
care to more children.

The Decline in Private Health Insurance Coverage Hit Children Harder As 
                  Employer Financial Support Decreased

    Between 1989 and 1995, private family insurance coverage 
declined for both children and working-age adults. Most of the 
decline was for the dependents of workers--most dramatically 
for children. During this period, the percentage of children 
with private health insurance dropped from 74 percent to 66 
percent. Had this decrease not occurred, nearly 5 million more 
children would have had private health insurance.
    Eroding employer financial support for providing health 
insurance to employees' families has contributed to the overall 
decline in private insurance coverage. The vast majority of 
privately insured children are covered under their parents' 
employment-based health care plans.\1\ But as health insurance 
premiums reached 10 percent of employers' payroll costs, many 
employers began to reconsider the amount of employee 
insurance--particularly family coverage--that they would 
support. The health insurance cost to employers for a worker 
who does not elect family coverage is less than half the cost 
of family coverage. As a result, firms are considering a 
variety of ways to control the cost of coverage--particularly 
family coverage.
---------------------------------------------------------------------------
    \1\ For information on the structure of the private market for 
individual coverage, see Private Health Insurance: Millions Relying on 
the Individual Market Face Cost and Coverage Trade-Offs (GAO/HEHS-97-8, 
Nov. 25, 1996).
---------------------------------------------------------------------------
    There was a slight decrease in the proportion of workers 
whose employers sponsored health insurance between 1988 and 
1993. The decrease was more pronounced among those working in 
small firms--13 percent fewer people working for firms with 
fewer than 10 employees had employers who sponsored coverage. 
Even if an employer sponsors a plan, it may not cover family 
members. In 1993, almost one-quarter of the workforce could not 
get family coverage at work. Over 18 million workers were 
employed by firms that did not sponsor coverage at all, and 
more than 5 million workers worked for firms that sponsored 
coverage for workers, but not family members.
    Most employers that offered coverage raised employee 
premium contributions significantly--especially for family 
coverage. In large firms with 100 or more employees, average 
monthly premium contributions increased 79 percent for family 
coverage compared with 64 percent for single coverage between 
1988 and 1993. A Hewitt Associates analysis of benefits offered 
by a group of major firms with 1,000 or more employees showed 
that median monthly premium contributions for family indemnity 
coverage increased 64 percent between 1990 and 1995, whereas 
median monthly premium contributions for employee-only 
indemnity coverage increased 47 percent.
    In addition to increasing premium contributions, employers 
are increasingly turning to other options in their benefit 
design to limit their costs. These options may discourage 
family coverage but may also result in employers of two-income 
families sharing in the cost of coverage and avoiding the cost 
of duplicate coverage. These options include
    --providing alternative benefits or incentives to workers 
who choose employee-only coverage,
    --providing financial incentives to employees who obtain 
family coverage through their spouse,
    --refusing to cover a spouse if the spouse has other health 
insurance,
    --imposing a surcharge for working spouses covered as 
dependents,
    --refusing to provide dependent coverage unless the 
employee is the family's primary wage earner, and
    --changing premium structures so that larger families pay 
higher premiums.

   Expanded Medicaid Coverage Offset Much of the Decline in Private 
                         Coverage for Children

    Between 1989 and 1995, the number of children in the United 
States increased by almost 7 million, but the number of 
children with private health insurance coverage remained 
virtually unchanged. During this same period, Medicaid 
eligibility for children expanded so that poor and near-poor 
children under age 12 became eligible,\2\ and enrollment 
increased by 6 million children. Despite the growth in 
Medicaid, the number of uninsured children grew by more than 1 
million--reaching almost 10 million uninsured children by 1995.
---------------------------------------------------------------------------
    \2\ Beginning in 1986, the Congress passed a series of laws that 
expanded Medicaid eligibility for pregnant women on the basis of family 
income and eligibility for children on the basis of family income and 
age. Before these eligibility expansions, most children received 
Medicaid because they were enrolled in Aid to Families with Dependent 
Children. Starting in July 1989, states were required to expand 
coverage for pregnant women and infants with family incomes at or below 
75 percent of the federal poverty level. Two subsequent federal laws 
further expanded mandated eligibility for pregnant women and children. 
By July 1991, states were required to cover (1) pregnant women, 
infants, and children up to age 6 with family income at or below 133 
percent of the federal poverty level and (2) children 6 years old and 
older born after September 30, 1983, with family income at or below 100 
percent of the federal poverty level.
---------------------------------------------------------------------------
    There is considerable debate about the extent to which 
expanding Medicaid eligibility contributed to the decline in 
the percentage of children who had private coverage. For 
example, one study suggests that as much as one-sixth of the 
overall decline in the proportion of people with private 
coverage may have occurred because families dropped their 
insurance to enroll children and pregnant women in Medicaid.\3\ 
However, other studies found a lesser effect or no effect at 
all.\4\
---------------------------------------------------------------------------
    \3\ See David M. Cutler and Jonathan Gruber, Does Public Insurance 
Crowd Out Private Insurance? Working Paper No. 5082 (Cambridge, Mass.: 
National Bureau of Economic Research, Apr. 1995).
    \4\ See Lisa Dubay and Genevieve Kenney, Revisiting the Issues: The 
Effects of Medicaid Expansions on Insurance Coverage of Children 
(Washington, D.C.: The Urban Institute, Oct. 1995); Lara D. Shore-
Sheppard, ``Stemming the Tide? The Effect of Expanding Medicaid 
Eligibility on Health Insurance Coverage,'' unpublished draft, Nov. 
1995; Lara D. Shore-Sheppard, ``The Effect of Expanding Medicaid 
Eligibility on the Distribution of Children's Health Insurance 
Coverage,'' paper presented at the Cornell/Princeton Conference on 
Reforming Social Insurance Programs, May 1996; and Esel Y. Yazici, 
``Medicaid Expansions and the Crowding Out of Private Health 
Insurance,'' paper presented at the 18th Annual Research Conference of 
the Association for Public Policy Analysis and Management, Pittsburgh, 
Pa., Nov. 2, 1996.
---------------------------------------------------------------------------
    Regardless, the studies indicate that, at most, one-sixth 
of the loss in private coverage stems from families' choosing 
to substitute Medicaid for private coverage. Consequently, had 
Medicaid eligibility not been expanded, the number of uninsured 
children would probably have been even greater.
    Moreover, Medicaid expansions could have reduced the number 
of uninsured children even more, but many uninsured children 
who are eligible for Medicaid do not enroll. In 1994, almost 3 
million Medicaid-eligible children lacked health insurance. Our 
previous work and that of other researchers points out several 
reasons families do not enroll their eligible children in the 
Medicaid program. Some low-income families are unaware that 
their children may be eligible for Medicaid, and some are 
stymied by the complexity of the enrollment process. Moreover, 
some families may not consider health coverage necessary until 
a child experiences a medical crisis. The stigma associated 
with participation in a publicly funded health insurance 
program can also deter some families.
    While states have developed Medicaid outreach programs, 
their past outreach efforts focused more on encouraging use of 
preventive care by current participants than on encouraging new 
enrollment. The Health Care Financing Administration and the 
Health Resources and Services Administration are in the 
preliminary stages of developing a more aggressive outreach 
program for potential Medicaid beneficiaries.

    States, Localities, and Private Organizations Have Created New 
                     Strategies To Insure Children

    While many states expanded Medicaid beyond federal 
requirements to cover more uninsured children, a few developed 
innovative programs to offer subsidized coverage apart from 
Medicaid. By 1996, 9 states had state-and locally funded 
programs, and 24 states had privately funded programs. While 
most of these programs are small in scale, they do provide 
important lessons regarding program design characteristics.
    In earlier work that we conducted on six of these state-
funded or privately funded programs in five states,\5\ we found 
that while the programs' approaches varied significantly, they 
shared some common characteristics. In some ways, they differed 
strikingly from Medicaid.
---------------------------------------------------------------------------
    \5\ We visited the Alabama Caring Program for Children, the Western 
Pennsylvania Caring Program for Children, Pennsylvania's Children's 
Health Insurance Program, New York's Child Health Plus Program, the 
Florida Healthy Kids Program, and MinnesotaCare. MinnesotaCare began as 
a state-funded program, but Medicaid began to fund children 
participating in the program as of July 1995 through Minnesota's 
Medicaid 1115 waiver. The children's portion of MinnesotaCare is still 
distinct from its Medicaid program, however.
---------------------------------------------------------------------------
    --Unlike state Medicaid programs, which operate as open-
ended entitlements, all the programs capped enrollment to stay 
within their fixed budgets. The state programs' funding came 
from state general revenues; dedicated shares of specialized 
taxes, such as tobacco taxes or health care provider taxes; 
local tax revenue; and grants and donations from foundations 
and other private-sector entities. The private programs raised 
money through private donations, many with considerable support 
from Blue Cross/Blue Shield organizations.
    --All of the programs we visited were designed to augment 
the existing range of coverage options by covering uninsured 
children not eligible for Medicaid. Two of the programs allowed 
children of any income to join, but families with higher 
incomes were responsible for paying full premium costs.
    --All six programs required at least some of the families 
to share in the costs of coverage through premiums and 
copayments--with the families' share increasing as income 
increased. For example, Pennsylvania's Children's Health 
Insurance Program charged nothing for children in families with 
income below 185 percent of the federal poverty level and 
charged $29 to $34 per month per child for children in families 
with income between 185 and 235 percent of the federal poverty 
level. All programs heavily subsidized premiums for the lowest-
income children--ranging from charging families nothing to 
charging $10 per child per month for children with family 
income at or below 130 percent of the federal poverty level. In 
every program, most children received the maximum subsidy. (See 
app. I.)
      

                                


[GRAPHIC] [TIFF OMITTED] T2730.007

      

                                


    --While all six programs covered basic preventive and 
outpatient services, some limited other services, such as 
vision, hearing, dental, and mental health care. Some also 
limited inpatient care, particularly the privately funded 
programs. The programs that limited inpatient services 
sometimes did so anticipating that the children would qualify 
for Medicaid if they needed more extensive care.
    --The programs were developed to be easily administered. 
Most operated, at least partially, through nonprofit or private 
insurers, which enabled the programs to use existing provider 
payment systems and physician networks, guaranteeing patient 
access to providers.
    --Each of the six programs worked extensively to reach 
families of uninsured children and to promote their knowledge 
of the program. One program worked through the schools, which 
allowed it to most easily reach its target group: school-aged 
children. Other outreach efforts included dedicated hot lines, 
television and radio ads, bus billboards, posters in local 
discount stores, fast-food restaurant tray liners, and 
presentations provided at churches and other community 
locations. To encourage enrollment, three programs used sports 
and television personalities as program spokespersons. These 
outreach efforts served to identify not only children eligible 
for the six programs but also children eligible for Medicaid, 
who were then channeled into that program.
    --Each of the six programs developed simplified enrollment 
procedures and took specific steps to avoid the appearance of a 
welfare program.

                              Conclusions

    Although most children are still covered by private 
employment-based insurance, recent erosion of private coverage 
has left many children without coverage. The Medicaid expansion 
has cushioned the effect of this erosion on children. However, 
efforts to expand coverage for children need to be developed in 
ways that do not supplant existing private coverage. Despite 
the Medicaid expansion, many uninsured children who are 
eligible for Medicaid do not enroll. Outreach strategies 
developed by state and private programs could guide state 
efforts to reach uninsured children who are eligible for 
Medicaid but not enrolled. Other innovative state and private 
strategies, such as sliding-scale premiums and cost sharing for 
program enrollees, could provide a model for enrolling more 
uninsured children while controlling costs. However, adopting 
other strategies, such as limiting services like inpatient care 
on the premise that other funding may be available, may not 
provide the range of coverage that children need.
    Mr. Chairman, this concludes my statement. I would be happy 
to answer any questions you or Members of the Committee may 
have.
      

                                

[GRAPHIC] [TIFF OMITTED] T2730.008

      

                                


                          Related GAO Products

    Employment-Based Health Insurance: Costs Increase and Family 
Coverage Decreases (GAO/HEHS-97-35, Feb. 24, 1997).
    Private Health Insurance: Millions Relying on Individual Market 
Face Cost and Coverage Trade-Offs (GAO/HEHS-97-8, Nov. 25, 1996).
    Medicaid and Uninsured Children, 1994 (GAO/HEHS-96-174R, July 9, 
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    Health Insurance for Children: Private Insurance Coverage Continues 
to Deteriorate (GAO/HEHS-96-129, June 17, 1996).
    Medicaid: Spending Pressures Spur States Toward Program 
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    Health Insurance for Children: State and Private Programs Create 
New Strategies to Insure Children (GAO/HEHS-96-35, Jan. 18, 1996).
    Medicaid and Children's Insurance (GAO/HEHS-96-50R, Oct. 20, 1995).
    Health Insurance for Children: Many Remain Uninsured Despite 
Medicaid Expansion (GAO/HEHS-95-175, July 19, 1995).
    Medicaid: Spending Pressures Drive States Toward Program 
Reinvention (GAO/HEHS-95-122, Apr. 4, 1995).
    Medicaid: Experience With State Waivers to Promote Cost Control and 
Access Care (GAO/HEHS-95-115, Mar. 23, 1995).
    Uninsured and Children on Medicaid (GAO/HEHS-95-83R, Feb. 14, 
1995).
    Tax Policy: Health Insurance Tax Credit Participation Rate Was Low 
(GAO/GGD-94-99, May 2, 1994).
    Employer-Based Health Insurance: High Costs, Wide Variation 
Threaten System (GAO/HRD-92-125, Sept. 22, 1992).
    Access to Health Insurance: State Efforts to Assist Small 
Businesses (GAO/HRD-92-90, May 14, 1992).
      

                                


    Chairman Thomas. Thank all of you very much.
    I am fully cognizant that we are looking for answers when 
perhaps the basic charge was to try to review the area, because 
as we have moved forward in our knowledge in this area, there 
are certain frustrations that have begun to develop.
    And I guess the first question I would ask all of you is 
that we are now focusing, as I indicated in my opening remarks, 
on children's insurance. It is kind of like an age bracket, and 
we are normally used to looking at age brackets in terms of the 
65 and above for Medicare. And when I look at some of the 
States that have been pulled together and listen to some people 
who are talking about employer retirement programs, we had a 
panel several weeks ago in which--I believe it was GTE in terms 
of telecommunications--and more and more are having folks 
retire at 55. Now there is this concern between 55 and 65 of an 
age group who are uninsured, which is a relatively large 
number.
    But when we were looking at the general universe of those 
who were uninsured, I was not surprised to know that it was the 
25 to 34 age group that was above the poverty level, employed, 
who did not have insurance. I have had two in that category.
    A lot of it is a mental set about the fact that they do not 
need it because nothing is going to happen to them, and there 
is no package out there that fits their needs, and a whole 
series of issues. But they are the single largest group. And 
now we have children, and, as Pete said, maybe one in seven; 
somebody else used the statistic, five out of six children are 
insured.
    I guess my first question would be, If we were looking for 
a segment from a societal point of view, is this the segment 
that we would focus on vis-a-vis the other groups?
    And yes, I understand the payoff in terms of dealing with 
health care early over the life of the child, but what has 
happened recently that has had us focus on this particular 
segment? Because when you break out children, you have concerns 
about family income, how you tie them in to various programs, 
and the consequence of perhaps somebody in the family being 
insured and someone else not from the poverty end.
    So why this age segment? Why are we looking at this 
question? Anybody.
    Ms. Bilheimer. I guess, Mr. Chairman----
    Chairman Thomas. From a priority point of view when we have 
limited dollars.
    Ms. Bilheimer [continuing]. I think three issues have 
really focused attention on children. First, we have undertaken 
extensive expansions of the Medicaid Program for children. I 
think some people viewed those expansions as ways to provide 
coverage for children, and they are now looking and seeing that 
the problem of uninsured children has not, in fact, been 
solved, that we still have very large numbers of uninsured 
children in spite of large expansions of Medicaid.
    Second, the issue that you addressed--that children do not 
appear, if they are uninsured, to gain access to basic 
preventive health services--has caused concern.
    Third, if coverage for children focuses on the broader 
child population, that is a relatively inexpensive group of the 
population to insure.
    I think all three of those issues have caused people to 
focus on children as a group that we could perhaps expand 
coverage to relatively inexpensively. But I think you are 
correct in saying that it is not necessarily the group in which 
the highest rates of uninsurance are likely to be found.
    Chairman Thomas. My concern is about reaching them 
inexpensively. We have testimony, and we will get it later, and 
it is fairly obvious, that children that are covered have 
better health profiles. That makes sense.
    But when you look at some of the efforts that have been 
made, as Mr. Scanlon indicated, in the States, it makes sense, 
if you are focusing on uninsured children, to use groupings 
where children are, like schools, which may in fact fracture to 
a certain extent the way we have looked at offering insurance 
historically. If you are going to deal with it from a Medicaid 
point of view or subsidy point of view, you have to get at the 
family income.
    And we have experienced from our EITC changes and the 
others that it is very difficult incrementally to get people to 
change behavior, and administratively it is relatively 
expensive to look at those groups. I don't completely 
understand your statement that we can do it inexpensively.
    I understand the group, and if we can get them into the 
insurance and their health care needs are not that great so 
that they would be good to add to the insurance pool and would 
not be expensive when they are covered with the insurance. If 
that is what you meant, I understand it.
    Ms. Bilheimer. That is what I meant. And your point is well 
taken on the administrative costs of doing anything like this.
    Chairman Thomas. Any other reaction?
    Mr. Purcell. I would like to add a fourth point, and that 
is a fairly dramatic change in the source of health insurance 
among children since the late eighties.
    Between 1988 and 1995, the proportion of children covered 
by private health insurance has declined from about 73\1/2\ 
percent to about 66\1/2\ percent. Simultaneously, the 
proportion of children covered by Medicaid went from about 15 
to 23 percent.
    There is a lot changing in the health insurance field among 
children, and we don't know for sure yet whether the trend of 
declining private health insurance coverage among children is 
going to continue or not. While these changes have occurred----
    Chairman Thomas. But when you make that statement, then, I 
come back to you and say, Why? And I think the answer is 
obvious, but why have we had this switch? The uninsured have 
remained relatively stable among the population, but who 
insures them has switched from private to public. Why?
    Mr. Purcell. I don't know. But I do know----
    Chairman Thomas. Is the answer marketplace, the cost of the 
insurance in the private sector?
    Mr. Purcell. I think that probably is a large part of the 
answer. A lot of employers are finding that they simply cannot 
afford to offer this fringe benefit to their workers, and so 
they are cutting back. The next panel will discuss whether 
there was a cause and effect going on here, if expansion of 
Medicaid caused families to consciously drop family coverage to 
pick up Medicaid. There is some evidence of that occurring too. 
But I think the bulk of the evidence is that it is the 
employers that are deciding that this is something that a lot 
of them can't afford.
    Ms. Bilheimer. Picking up on that, Mr. Chairman, a recent 
study that was undertaken by a firm here in Washington surveyed 
employers to look at their attitudes toward coverage of 
families, and I think a majority of the firms that were 
interviewed stated they didn't think that employers should pay 
more than 50 percent of family coverage. Some thought that 
employers should be paying less, and some thought that 
employers should not be paying for family coverage at all.
    I think the attitudes of employers are changing quite 
rapidly.
    Chairman Thomas. Thank you.
    One other question I wanted to--we have got a lot of 
questions, and we can try to weave them together.
    Mr. Stark, in his opening statement, talked about the 
concern of how long children have been uninsured. And you have 
a chart, Mr. Purcell, which shows about one-third of them have 
been uninsured in terms of family heads for more than 3 years, 
which means the children clearly have been uninsured for more 
than 3 years, 18 percent from 1 to 3 years, and 22 percent 
never had insurance.
    When you look at the distribution of who has it and the 
length at which they don't have it, you have the vast majority 
from 1 year to never having had it before.
    But one of the focuses of the President's proposal is to 
spend almost $10 billion in the area of subsidies to low-income 
workers on a temporarily unemployed window. And I guess my 
question would be, If we have limited bucks and we are trying 
to get the most bang for the buck, is this where you folks 
would spend that money?
    Mr. Purcell. I would say that part of that distribution is 
caused by the fact that this survey asks people about their 
health insurance coverage at a point in time, and at a point in 
time people without health insurance for a long period are 
heavily represented.
    There is this other group of people which is substantial 
which sort of churned in and out of insurance coverage because 
of job changes. And if you follow a sample of families through 
the course of 1 year, you would see that a larger proportion of 
people who are ever uninsured, are uninsured for a short 
period.
    Chairman Thomas. And if we could get at some of the 
problems of not picking up insurance through those short-term 
problems, which are definitional problems as to who is eligible 
in a pool, we can resolve a number of those problems, in my 
opinion, for a whole lot less money. And if I have limited 
dollars to spend, I would like to think about spending them in 
perhaps a slightly different way.
    You all received this sheet. I believe CRS helped us. And I 
don't think it is available to the general audience, but we 
will make it available if anyone shows an interest. All it 
tried to do was take a look at how many people we were using to 
subsidize the number of folks covered under primarily 
government programs--Medicare, Medicaid, veterans' health care, 
FEHBP, Department of Defense, consolidated health centers, 
Indian health care. It came to about 110 million people, at a 
cost of $332 billion. We were looking at the exclusion and 
deduction side of it, and there are about 150 million people 
covered roughly, with 135 billion dollars' worth.
    This just underscores everybody's comment that if it is in 
the private sector, you wouldn't want to drive out private 
sector dollars currently paying for insurance and substitute 
them with public dollars, because clearly the tradeoff is a 
very expensive one, leading to the trend of a very, very heavy 
price tag added to the already very heavy price tag in terms of 
public subsidy.
    Dr. Bilheimer, you folks did a study, though, about the 
employer contribution; and the concern that I have, 
historically, I have dealt with a lot of things like salaries 
and the rest, and when you deal with income variations and you 
apply a 100-percent deduction to it and it is tied 
percentagewise to income, there is a clear skewing of benefits 
to the higher income. If you used fixed dollar amounts that 
would be available, obviously the lower end would be a 
percentagewise higher benefit.
    I understand you looked at the employer benefit picture. 
Can you give us some feel for the distribution of benefits?
    Ms. Bilheimer. Yes. CBO's Tax Analysis Division conducted a 
study back in 1994 of the tax subsidy for employment-based 
health insurance. As you know, the subsidy from the tax 
exclusion increases with the size of the premium, the share of 
the premium paid by an employer, and the marginal tax rate of 
the employee, all of which tend to increase with income.
    Premiums are likely to be higher at higher income levels, 
both because workers are more likely to have insurance year-
round and to be covered by more than one policy, and because 
they are more likely to have family rather than individual 
coverage.
    So when we looked at where the subsidy goes by income 
level, we looked at the average tax subsidy for tax units--that 
is sort of the equivalent of families--between 100 and 200 
percent of the poverty level, versus those with incomes at 400 
percent of the poverty level and above. And in 1994, that 
average tax subsidy was about $250 for families between 100 and 
200 percent of the poverty level, versus about $1,160 for 
families at 400 percent the poverty level and above. A major 
reason for that outcome was that many of the taxpayers between 
100 and 200 percent of the poverty level didn't actually have 
employment-based coverage at all.
    If we looked just at people in that income bracket who had 
employer-sponsored coverage, their tax subsidy averaged about 
$730, compared with about $1,340 for families at 400 percent of 
the poverty level and above who had employment-based coverage.
    But before one draws too many conclusions from that, 
remember that although higher income people benefit more than 
lower income people from the tax subsidy, the net 
distributional effect depends on how it is financed. The 
benefits accruing to higher income families may be offset by 
other taxes that must be raised to make up for the lost tax 
revenues.
    Chairman Thomas. I appreciate that last point, which is a 
universal one that folks often do not look at when they look at 
the various particular areas. But I still see in the overall, 
including those who do not have insurance, a 4- to 5-time 
benefit and then more realistically, a 2-to-1 benefit. But 
anything approaching a 2-to-1 benefit by virtue of what is 
supposed to be available to all is, I think, a significant 
emphasis.
    Mr. Purcell, there is a chart in figure 2 in your testimony 
which talked about the uninsured family heads vis-a-vis size of 
the firm, number of employees, and although you break it down 
between 10 and 24 and 25 and 99, if you grouped it from 10 to 
100, since your next group is 100 to 500 and then 500 to 1,000 
and above 1,000, what you would get would be a percentage 
reduction, which I think most people would find rather 
intuitive, up to a point that, under 10, the smaller firms, you 
had 38 percent of them who did not have the insurance and 
somewhere around 15 percent for the 10 to 100 and then 11 
percent for the 100 to 500, and 4 percent for the 500 to 1,000. 
That is a clear, reduced percentage of uninsured as the size of 
the company gets larger. And then you go to the 1,000 plus, and 
you have 19 percent.
    My assumption has to be that that includes a number of 
people who, by choice, don't make, to them, an economic 
decision to have insurance. Or do you have other evidence to 
the contrary?
    Mr. Purcell. I believe that some of it is what you pointed 
out, and some of it may be that the large--not all large firms 
are like GM or IBM. There are fairly high-wage people there. 
Some of these are large firms with low-wage work forces and low 
benefits as well. But predominantly, I think your 
interpretation is accurate.
    Chairman Thomas. And then another chart, figure 3, which I 
find interesting and, again, almost self-evident to most people 
who have looked at the area, and that is, clearly, far and away 
the type of employment that does not provide insurance is the 
wholesale and retail trade area, and historically such has been 
the case.
    One of the areas I did not see represented in any 
examination is one that is of concern to me--and I will end on 
this, and anybody can respond to it--is that we have had the 
first of what I consider consolidation in terms of health cost 
changing the industry on the delivery of health care with the 
movement toward managed care.
    What we have not seen completely yet, although it is 
beginning to occur, in the area of simply offering insurance 
itself, is to begin to examine the households with two earners 
and the reconciling of insurance between those two earners, 
because it has historically been the choice of the earners to 
determine which insurance they will go with and which employer.
    More and more, the second employer is a government entity 
either at the State, local, or Federal level. And what we have 
seen is more and more a richer package offered at that level, 
and we have not seen the full movement of employers requiring 
identification of what else is out there in terms of insurance, 
so that you don't get duplication of insurance costs through 
employers, but that you get everybody covered with one dollar 
coverage in a way that creates a seamless but not duplicative 
structure.
    And I don't think we fully appreciated the transfer of what 
used to be private insurance costs to the public sector by 
virtue of the employee opting for the spousal insurance covered 
by a government entity rather than the private sector.
    Any comment by anybody on that?
    Mr. Scanlon. I think you are very right, Mr. Chairman, in 
terms of the slowness, but the start of developments in this 
area as employers are recognizing that there are savings 
available through better coordination of insurance for dual 
working couples.
    As we have noted in our testimony, there have been a number 
of different steps that employers have taken. And with respect 
to that first chart you referred to of Mr. Purcell's, the major 
firms, firms of over 1,000 employees, very frequently will make 
use of flexible spending accounts, which make it easy for an 
employee to make a rational choice in terms of foregoing health 
insurance coverage sort of with their firm if their spouse is 
able to provide them with comprehensive coverage through other 
employment.
    I think we don't have good numbers on the fraction of 
employers that are doing this, but it appears to be a growing 
trend that employers are seeking better coordination of 
coverage in order to reduce their costs, and they are offering 
incentives to their employees to make it attractive to them as 
well.
    Chairman Thomas. It just seems to me, if in fact this is 
going to be something, we could examine the way in which we 
allow the cost of insurance to be written off by corporations 
and the growing percentage for those who are self-employed 
between dependents only or dependents with family deductions 
that would allow us to resolve at least a portion of the 
dilemma that we see between the subsidy, the tax credit, and 
the driving out of private insurance versus public. And I 
didn't see anybody in any of the testimony focusing on the full 
use of all of the tax structure that currently provides support 
in the purchase of insurance.
    And then just finally, this one chart which compares the 
uninsured head of family and the privately insured head and the 
cost of health care, I guess my reaction was, I was amazed at 
how similar the two charts look in that with just about a 4-
percent adjustment on the zero and 2 percent on that first 
$500, the expenses are the same between the insured and the 
uninsured. And I found that more remarkable than the marginal 
comment you made about the charts.
    Mr. Purcell. Actually, I put them side by side for that 
reason because, for the most part, the charts look----
    Chairman Thomas. I want to assure you that had they been on 
separate pages, I would have still noticed how similar they 
look. But I appreciate you putting them on one page.
    Mr. Purcell [continuing]. They are similar, but the one 
difference I think that stands out is that about twice as many 
of the families with an employed uninsured head reported zero 
expenditures. So the only difference is----
    Chairman Thomas. Well, I understand. But that is 8 percent 
versus 15 percent when you say double the amount.
    But in terms of high cost, no cost, and intermediate cost, 
I think that is striking, how similar they are.
    Mr. Purcell. I think that may be because, as I said in my 
testimony, if illness or injury occur, it doesn't happen with 
respect to whether or not you have insurance.
    Chairman Thomas. Precisely. I thank you.
    Mr. Stark. Thank you, Mr. Chairman.
    I would like to review with the panel this issue of what 
was referred to as crowding out. I guess the major concern is 
that if we, in fact, subsidize kids' insurance, then employers 
will not pay for it themselves. It makes good sense. And I 
would like to just discuss this a little bit in terms of not 
the emotional issue of, should we insure kiddies, but what 
happens to the cost.
    If private companies drop dependent coverage, they will 
save about 15 to 20 percent. Does anybody want to disagree with 
that?
    In the ballpark? OK.
    They are dropping coverage or increasing cost sharing to 
the employees, which is about the same thing, I guess, at an 
increasing rate. Does anybody want to disagree with that?
    Mr. Scanlon. That is correct.
    Mr. Stark. We are in an area of high employment, so there 
is some competition certainly for skilled workers. But at the 
low end of the scale--if you were going to offer any health 
insurance, you would offer it to workers first, it seems 
intuitive, because you might have some single workers and you 
are mostly concerned about attracting the worker. So the 
incentive for the employer who is going to do the right thing 
or is going to try to make a more attractive workplace is at 
least to start with workers coverage and not necessarily 
dependent coverage. Still OK?
    Ms. Bilheimer. I would like to make one comment, Mr. Stark. 
With regard to the 15- or 20-percent reduction in premium 
payments by employers, that would depend on whether they were 
dropping coverage for all dependents or were still offering 
policies that covered the spouse.
    Mr. Stark. So, 15 to 20 percent is the kiddies' cost, not 
necessarily the spouse?
    Ms. Bilheimer. Not necessarily the spouse.
    Mr. Stark. All of that kind of smushes together, doesn't 
it? Because, generally, I don't know of any policies that are 
not all dependents, spouse, and children.
    Ms. Bilheimer. Employers are beginning to develop 
alternative policies now.
    Mr. Stark. It is worker plus spouse, or worker plus spouse 
and kids? You are getting three levels rather than the 
traditional two?
    Ms. Bilheimer. In some cases, even more than that. Some 
employers may offer a one-parent-with-a-child policy.
    Mr. Stark. OK. Tradition is no longer serving me to keep 
current on this stuff. So you are saying they are cutting these 
decisions more narrowly.
    Well, what I am having trouble seeing, then, if my $500 
figure is right--and it may or may not be, but let's use it 
because I can do the math with my shoes and socks on--and it is 
$500 for a kid, we are talking 25 cents an hour.
    John Hallahan at Urban Institute basically says that if we 
have substantial coverage expansion--that is picking up kids--
we are going to crowd out private coverage and that the only 
way to avoid crowding out private coverage is to do little or 
nothing and accept a large number of uninsured.
    I guess what I am getting at is, Do any of you see an in 
between? Mr. Thomas suggests some various tax incentives to 
give employers less of a tax credit or deduction for only the 
worker and then increase the percentage of the deduction if 
they insure more members of the family. But that is, in effect, 
giving them some money--that is federally buying it one way or 
the other.
    Is there any alternative to either requiring or sitting 
with and watching the crowding out? That is where I am stuck. 
Does anybody have a solution?
    Mr. Scanlon. Well, I don't think employers are acting 
unilaterally in this situation.
    Mr. Stark. But it is the trend; am I not correct?
    Mr. Scanlon. Well, except that much of the research has 
indicated that employees' choice plays a big role here, too, 
that when given an opportunity to have less cost to them for 
insurance, they may opt to choose Medicaid as opposed to 
choosing their employer-based insurance.
    Mr. Stark. To choosing what?
    Mr. Scanlon. Choosing Medicaid rather than employer-based 
insurance.
    Mr. Stark. Oh, OK. But I am going to assume that is your 3 
million or so, and it still leaves 7 million for whom Medicaid 
is not an option.
    Mr. Scanlon. That is true. But in terms of behavior, the 
employee has----
    Mr. Stark. If we do universal coverage, Medicaid wouldn't 
be an issue anyway, then, if everybody paid two bits an hour, 
they would have the choice to go public or private.
    But I just want to see how we get this crowding out for the 
people that would otherwise buy the insurance.
    Mr. Purcell. Dr. Bilheimer. Anybody.
    Mr. Purcell. I think one possibility might be, for 
instance, in the decision whether or not to enroll a child in 
Medicaid, since there is this large number of uninsured above 
the poverty line, for whom currently Medicaid is basically 
free.
    There is always the possibility of transitioning from a 
full subsidy to a partial subsidy. If you have some income, you 
can buy in at a partially subsidized premium. And that way, if 
the family does have some alternative choice of insurance, at 
least it is not a comparison of, this one costs and this one is 
free; there is at least some cost to either choice.
    Mr. Stark. So you are saying we might expand the Medicaid 
coverage as an option?
    Mr. Purcell. With some sort of income-related premium.
    Mr. Stark. Yes. But I am just saying expand the Medicaid 
coverage income eligibility and requirement, because now we no 
longer are doing that quite as extensively as we did.
    Mr. Purcell. Exactly.
    Ms. Bilheimer. I think as you get higher up the income 
scale with some form of subsidy or tax credit, some amount of 
replacement is almost inevitable. That is something that has to 
be considered as part of a policy.
    Having said that, the design of a particular policy may 
affect the extent to which that occurs. If you are dealing with 
subsidies or tax credits for family coverage versus individual 
policies that you are selling through the schools, you are 
going to get different types of response.
    Mr. Stark. Wouldn't it make sense if someplace up the 
income scale, you had individual insurance, whereas the higher 
up the income scale, the more likely it is that you have 
individual insurance at your place of employment. The 
convenience factor of just adding your spouse or kiddies to the 
policy as opposed to--the marginal difference for a person at a 
relatively high income of going out and shopping the kids' 
insurance on the cheap, as opposed to including it in one 
deduction from your paycheck, sounds to me like----
    Ms. Bilheimer. I think the convenience factor is very 
important, and it is not just from the financial side.
    Mr. Stark. It is being in the same health plan?
    Ms. Bilheimer. It is being in the same health plan. I 
talked to some people in the Florida Healthy Kids Program, for 
example, and they said they didn't think there was a big issue 
with higher income families enrolling in the program, even 
though they couldn't really police it. They said the 
convenience factor was a considerable one because the children 
would have had to have been in a separate health plan from 
younger children who were not eligible and from the parents, 
and that was a big issue for them.
    Mr. Stark. My time is over. But in a sense I guess what I 
am trying to ask the panel is, If we are going to subsidize for 
kids, we are going have to put up with some crowding out. Is 
that fair?
    Ms. Bilheimer. Yes.
    Mr. Scanlon. Right. And in addition to charging a premium 
to families as incomes increase, the other technique that has 
been used by States is to establish less easy access to their 
Medicaid Programs by requiring that people be uninsured for a 
period of time so that you cannot just simply drop private 
coverage and join the Medicaid Program immediately. If you are 
going to be in one of the optional groups, you would have to 
have a waiting period of some period of uninsurance.
    Mr. Stark. And our problem, in January the NFIB said they 
oppose any legislation to expand coverage for uninsured 
children because it would just be another mandate that 
undermines the ability of small businessowners to manage their 
health care costs and voluntarily provide health benefits to 
their employees. So there you sort of set up the argument.
    If we talk about crowding out, we have a very substantial 
lobbying effort to stop it. We need some help.
    Thank you, Mr. Chairman.
    Chairman Thomas. Thank you.
    And just to add a couple of other factors to it, as long as 
some of our witnesses will be talking, they are dealing with 
the 150, 185, or maximum 200 percent of poverty. We can talk 
about it as a marginal crowding out, but some of these 
proposals are 300 percent of poverty, and there is going to be 
a bidding war on the Senate side which may go higher.
    I think you have a serious problem regarding crowding out, 
and my problem is, when you look at the government-provided 
programs with no cost, no payment, no deductibles for 
prescription as well, versus what an employer might be able to 
offer, you can get fairly high up in the income level in terms 
of the attractiveness of going public versus private, so that, 
on the margin, not only do you have to deal with the phasing 
out, I believe, but you also are going to have to deal with 
some copays and deductibles or some other kinds of packages to 
create a number of smaller stairs rather than this relatively 
high income cliff.
    Does the gentleman from New York wish to inquire?
    Mr. Houghton. Yes. Thank you, Mr. Chairman.
    I am trying to put my arms around what are the critical 
issues here. We have got a problem. The uninsured children have 
remained relatively stable in number since 1988, and Medicaid 
has gone up, and the uninsured children, I guess, have gone 
from 13 to 13.6 percent. Medicaid coverage has increased.
    What is the answer to this thing in terms of the States? 
For example, New York State has a program, and you have listed 
these things in terms of some of the coverage which has been 
extended to them. It has been quite successful. Is this an 
answer to our problem? Or must we go to a Federal expensive, 
complicated system to solve some of these issues?
    So that is the number one question.
    Question number two is, Why are the uninsured families 
increasing in some of the larger companies rather than the 
smaller companies? And does the concept of self-insurance, 
which some firms are going to, make any sense?
    So I throw those two questions out to anybody in the panel 
who would like to answer.
    Mr. Scanlon. I think the New York program and the other 
State programs that we have reported on have been quite 
successful in terms of covering children, covering them 
relatively efficiently, and by keeping costs down.
    These programs have operated on very limited scales. They 
have relied on some State revenues. They have relied on 
donations and other fundraising, and, as a result, they have 
had to limit their enrollments.
    In some programs there have been waiting lists, and 
sometimes the time on the waiting list can be considerable. So 
the issue, in part, is the benefit of these programs. If we 
want to make them more available, we have to find additional 
revenue sources.
    The States feel pressure and would tell you that they would 
feel hard pressed to substantially add their contributions to 
this.
    In terms of private donations, it is always hard to raise 
money privately in large amounts, and that is what I think 
these programs have encountered, but they have done a 
remarkable job in terms of operating very effectively with the 
limited dollars they have had.
    The major firms, I think, are recognizing, as Mr. Purcell 
indicated, that they have a heterogeneous work force, and they 
are offering that work force a set of options in terms of 
benefits. And lower income workers, we have found, tend to 
forgo insurance because they have other priorities they would 
like to spend their incomes on, so that when they are given a 
choice of benefits, they may more frequently forgo insurance, 
particularly for children, because we talked about children 
being less expensive to insure. It is in part because most 
children are healthy. They need important preventive and 
routine care on a periodic basis, but generally most children 
are healthy, and therefore, parents may feel they can forgo the 
insurance.
    Mr. Houghton. What about the self-insurance concept?
    Mr. Scanlon. Most of the major firms are engaged in self-
insurance. Therefore, they are very sensitive to the costs of 
the services that their employees are going to be using and are 
seeking ways to minimize those costs.
    The coordination of coverage between a worker and that 
worker's spouse is one of the techniques that is available to 
them.
    There is also concern from employers with respect to these 
costs in regard to fairness to all their workers. As you 
provide coverage for a family, it costs more to cover a larger 
family, and why would an employer subsidize one worker more 
than another by paying more for their benefits? Employees are 
taking actions with respect to that as well.
    I think the issue of self-insurance versus purchased 
insurance from an outside firm comes back to the issue of cost, 
though. The firm feels sensitive to the cost in both situations 
and may have somewhat more control when they self-insure in 
terms of how they structure their benefits, but still their 
decisions may be motivated or affected primarily by the cost 
issue.
    Mr. Houghton. Yes, but with the number of children covered 
by private insurance dropping quite substantially, does that 
include the self-insurance?
    Mr. Scanlon. That included the self-insured, yes.
    Mr. Houghton. And that will be a further goal to reduce the 
cost and eliminate the insurance for children in those people 
who are self-insured?
    Mr. Scanlon. I am sorry?
    Mr. Houghton. Well, will the movement toward self-insurance 
accelerate the reduction in coverage for children?
    Mr. Scanlon. I don't think it should have a major impact on 
it, except to the extent that it gives the employer more 
flexibility in designing their plans in ways that coordinate 
coverage for working spouses better.
    Mr. Houghton. Thank you very much.
    Chairman Thomas. Does the gentleman from Nevada wish to 
inquire?
    Mr. Ensign. Thank you, Mr. Chairman.
    I would, first of all, like to try to identify a few of the 
problems out there. We have heard a lot about uninsured 
children, and certainly from an emotional standpoint and from a 
press standpoint, that grabs headlines and that stirs a lot of 
people's emotions.
    What percentage of the children that are uninsured are 
getting improper health care?
    Mr. Scanlon. We have seen in evaluations, some of the 
programs that we looked at, that as many as one-third of the 
parents reported they delayed getting necessary care for their 
children when they were sick and they did not have insurance.
    Mr. Ensign. And was that simply because they did not have 
insurance?
    Mr. Scanlon. Concern over the cost was the primary reason 
as to why they delayed the obtaining of services.
    Mr. Ensign. The reason I ask that is that in the State of 
Nevada, at least in Clark County, which is the Las Vegas 
metropolitan area, we provide free vaccinations for children, 
and yet we still have a fairly high number of unvaccinated 
children simply because the parents, even though it does not 
cost them anything, they don't do it, and the schools require 
vaccinations. Even with all of that, you still have a fairly 
high number of children that don't get vaccinated.
    I guess that is one of the reasons I ask the question, is 
that, if a lot of these people were insured, would their 
children still be getting proper health care?
    Mr. Scanlon. Insurance and costs are not the only barrier 
to the proper use of services. There is clearly a role for 
education and outreach to parents and families to ensure that 
they do receive proper services, that they recognize when they 
need particular services. The efforts need to be done in 
combination, if we are going to be effective in delivering 
services to children.
    Mr. Ensign. How much of it do you think is education? How 
much of it do you think is just pure laziness and pure 
irresponsibility?
    I think it is totally irresponsible for parents not to get 
their children vaccinated. But is that because people don't 
realize that they need vaccinations? Do you think the people 
are that ignorant to know, growing up in America, that 
vaccination is a good thing for children?
    Mr. Scanlon. I am afraid that we have never looked into it. 
I think it is a tough question in terms of what is motivating 
or what is deterring people from seeking health services. I 
recognize it is a very important question, because if we are 
going to overcome these nonfinancial barriers, we need to 
understand their causes. But it is not something we have looked 
at or I am aware that others have looked at as well.
    Mr. Ensign. Dr. Bilheimer, maybe I can ask you a question, 
because I have read proposals that had to do with taking the 
EITC arm, making that a place where you could provide a tax 
credit, directing that portion of the EITC for families with 
lower incomes to require them if they are going to get the EITC 
to buy private health insurance.
    Could you comment on that?
    Ms. Bilheimer. I have not looked at those proposals at any 
length, but I am certainly aware they are out there.
    For some families, supposing health insurance cost $500, 
$700, $800 a child; that would make a significant dent in their 
income. It would take a significant part out of their EITC. But 
for those who were in the range of the maximum EITC credit, if 
they had one or two children, it would probably be worth their 
while to do that.
    As you get up into the upper end of the phaseout range of 
the EITC, which for families with more than one child, would be 
income of around $25,000 to $29,000--the EITC would be less 
than the cost of the insurance for two children. So, it 
probably would not be in their interest to participate.
    The other question you have to ask is, What type of 
insurance would be available if you established a $500 tax 
credit that would be taken out of a family's EITC? Experience 
with the HITC, health insurance tax credit, that existed 
between 1991 and 1993 suggests that if there were credits 
available for small amounts, insurance companies might emerge 
that would offer very bare-bones policies or, in some cases, 
policies that provided very little coverage at all, and they 
would convince people that this was coverage and would the EITC 
requirement.
    I think this would have to be very carefully monitored so 
that we didn't go through some of the experience we went 
through with the HITC.
    Mr. Ensign. Thank you, Mr. Chairman.
    Chairman Thomas. Does the gentleman from Georgia wish to 
inquire?
    Mr. Lewis. Thank you, Mr. Chairman. Thank you, Mr. 
Chairman, for holding this hearing. I think this is an urgent 
concern.
    I must first say that I think our country is too rich and 
too great to have children who do not have health insurance. 
This is a problem we can fix, and I think, through the help of 
our Chairman and our colleagues, we can fix it. We must fix it. 
This hearing is a good first step, and I look forward to 
working with you toward the completion of this process.
    I missed the testimony of members of this panel, but I have 
had an opportunity to read most of the statements, and so I 
would like to raise a question. Is it true that many parents 
working at jobs--put it simple--are not offered health 
insurance? If that is true, then is the question whether public 
action will replace private action, known as the crowding out 
effect, so serious?
    Ms. Bilheimer. If you take families below 100 percent of 
the poverty level, I think most researchers who have looked at 
the issue conclude that the probability of much crowding out is 
very small.
    For families between 100 and 200 percent of the poverty 
level, especially once you get up above 150 percent of the 
poverty level, at any point in time about 50 percent of the 
children do have employment-based coverage.
    So, much above 150 percent of the poverty level, some 
crowding out is part of the price that you would pay for 
expanding coverage. Some of the other panelists may want to 
comment.
    Mr. Purcell. Yes, I would just like to say that although a 
large percentage of employed, uninsured family heads work at 
firms that do not offer insurance, there are many other people 
who work at firms that are similar that do offer health 
insurance. It is a question of targeting.
    If you were to somehow make insurance available to those 
who work at firms that don't offer it, you don't want to create 
an incentive for those firms that do offer it to drop it.
    Mr. Scanlon. I would agree, and I think one of the things 
we face in how to minimize the crowding out effect is that 
solutions such as charging premiums and making insurance less 
readily available to encourage employers to maintain their 
insurance are not going to be perfect. There is still going to 
be an impact when there is public insurance available.
    However, we need to recognize whether the tradeoff in terms 
of the expanded coverage we may obtain is commensurate with the 
amount of crowding out that we are willing to tolerate.
    Mr. Lewis. Dr. Scanlon, let me ask you: It seems to me 
everyone agrees that quite a few children, maybe around 10 
million, are uninsured. There is debate and sometimes conflict 
or maybe a little controversy about the actual number, but 
everyone agrees that some of our children are uninsured, have 
it as debate whether Medicaid expansion encourages families to 
drop private health insurance. Is it fair to say there is no 
agreement even in the academic community on whether that is 
true?
    Mr. Scanlon. I think in the academic community there is 
agreement that there has been a crowding out effect. There is 
disagreement in terms of the magnitude of that effect. It is a 
difficult issue to study.
    One of the ways of looking at it that would be most ideal 
is to be able to follow large groups of people through time and 
observe their behavior. We don't very often get an opportunity 
to do that, we have to work with more fragmentary evidence, and 
the researchers in this area have done excellent work in terms 
of trying to use that evidence to identify the extent of the 
crowding out effect. They have come up with varying estimates. 
I think we all recognize it is real, and we are not quite sure 
of its magnitude.
    Mr. Lewis. Would other members of the panel like to respond 
about this controversy, this debate over the number of children 
that are actually uninsured?
    Ms. Bilheimer. I think, Mr. Lewis, that the next panel is 
going to include experts on this issue.
    Mr. Lewis. So, I should be patient and wait.
    Mr. Chairman, could I just take another 30 seconds?
    According to the testimony from the Congressional Research 
Service, the uninsured are employed at all sizes of firms, not 
just small firms. Would it be a good guess that the main reason 
for this is that they cannot afford health insurance even if 
the firm offers it?
    Mr. Purcell. I think there is one of the tables that shows 
that among employed, uninsured family heads, there are about 
1.3 million who were offered insurance at their place of 
employment but declined it, and about two-thirds of them said 
the reason they declined it was at least partly because of the 
cost.
    Mr. Lewis. Would you be prepared, any member, to tell 
Members of this Subcommittee that we have hundreds, thousands, 
and maybe millions of our citizens that are working every day, 
and the working poor, but they cannot provide or be part of an 
effort to provide or pay part of the health insurance for their 
children or for themselves?
    Ms. Bilheimer. I don't know that we have a specific number 
that we can give you. But to add to Mr. Purcell's comment, 
there are two issues involved here. The first is whether people 
can afford what their employer offers. The second is that in 
some cases, particularly among poor families, people are not 
eligible even though their employer offers coverage, because 
they are part-time workers or because they are in a 
probationary period prior to being eligible to enroll. Surveys 
suggest that a significant number of low-income people do work 
for employers that offer insurance, but in fact, they are not 
eligible to participate.
    Mr. Lewis. Thank you.
    Thank you, Mr. Chairman.
    Chairman Thomas. I thank the gentleman.
    Does the gentleman from Nebraska wish to inquire?
    Mr. Christensen. Mr. Chairman, this may have already been 
asked, and it might not be the right panel, so I will ask it, 
and if it has already been asked, we will just go on.
    Has there been any discussion about the number of 
participants in the 10 million figure who are illegal aliens or 
who are legal aliens?
    Chairman Thomas. That has not been asked.
    Mr. Christensen. Would anyone have a comment on that or 
know that figure, or should we save that for the next panel?
    Ms. Bilheimer. I do not have any number on that. I don't 
know whether anybody else on the panel does.
    Mr. Purcell. Actually, the CRS was asked that question 
recently, I think, by the Senate Finance Committee; and we 
looked at the CPS. The problem is there are not a lot of people 
in-household surveys who are going to willingly admit that they 
are illegal aliens. There is data, though, on citizenship and 
birthplace of both parents; and a small fraction of those 
children who were reported to be uninsured were either 
noncitizens or born in another country. It was about 9 percent.
    Mr. Scanlon. We don't have any additional information.
    Mr. Christensen. Mr. Purcell, you were commenting earlier--
before I had to leave, you were talking about free health care 
and free this and free that; and I would just remind you there 
is nothing free in this country.
    Mr. Purcell. I agree, there is no free lunch. That is what 
they taught us in Economics 101. I was speaking to the issue of 
who pays; and in this case, for instance, Medicaid, that it is 
the other people who are paying.
    Mr. Christensen. I know.
    Also, during your testimony, you talked about the stigma 
that may be identified with people not participating in the 
Medicaid Program and taking the opportunity of getting their 
health care. How big a problem do you think that really is? Did 
your study or did your findings show anything in terms of the 
actual stigma of participating in a welfare-type program?
    Mr. Purcell. It is not something that anyone can quantify. 
And I also believe, it is just my opinion, having looked at the 
data over a number of years, that it may decline over time 
because I think fewer and fewer people automatically associate 
Medicaid with welfare. That is partly because the eligibility 
requirements are now very distinct for the two, and it is 
possible over time more and more people will have a view of 
Medicaid as just a public insurance program and not necessarily 
as welfare.
    Mr. Scanlon. I would note that in the State programs that 
we looked at there was a sensitivity on the part of the program 
officials to avoid welfare stigma with their programs. They 
wanted to clearly identify them as insurance programs and make 
them more mainstream. They were very proud of the fact that to 
a provider it may be invisible as to what the source of 
insurance was. For an individual, program managers thought that 
making their coverage more like mainstream insurance provided 
better access to providers for their beneficiaries, and I think 
that is an important distinction in their minds.
    Mr. Christensen. Have any of you examined the issue that 
Senator Trent Lott talked about this past week concerning the 
expansion of the MSA proposal to cover the temporary lapse of 
parents in between-job situations and coverage for their 
children?
    Ms. Bilheimer. That is a very recent proposal, and we 
really haven't had an opportunity to look at it, so we don't 
know any of the specifics. It would depend on whether the 
proposal was designed to provide more coverage for families or 
whether it was specifically targeted at children. It is not 
clear right now how a medical savings account specifically for 
children might work; so, until we see more details, I don't 
think we can comment on that.
    Mr. Christensen. OK. My time is running out. I do want to 
make a quick comment, Mr. Chairman.
    At a time when we do have a system that is available as far 
as Medicaid that is not being utilized by a lot of those that 
need to use it, we have free immunizations--and, frankly, in my 
district, there are very few kids that are ever denied access 
to health care when they truly need emergency health care. But, 
we also want to be cognizant of the fact that we want to make 
sure that we take care of the children. In terms of compassion, 
I think that is the right thing that we focus on.
    But I also don't want to move too quickly and create a 
problem where there may or may not be a problem and not fully 
utilizing the current system that is in place, and so I 
appreciate the panel and their testimony and look forward to 
learning more about this issue.
    Chairman Thomas. I thank the gentleman for his comments. 
You will find that most everybody is focusing on, as we use 
limited tax resources, how we can get the most bang for the 
buck; and clearly, some alternative insurance programs like 
medical savings accounts might actually provide us more bang 
for the buck in honor of our colleague from Louisiana, who is 
not here, and who is fond of saying that people will consume as 
much health care as other people are willing to pay for.
    There is a clear understanding of this transitionary period 
where, if I have to pay for it and I get less and I have an 
option of not paying for it and getting more, that it is a 
simple choice for them to make.
    My concern is that, as we look at the bang-for-the-buck 
question, we not only look at this crowding-out concept but 
also alternatives in what government might offer rather than a 
standard, one-size-fits-all Medicaid approach.
    Does the gentlewoman from Connecticut wish to inquire?
    Mrs. Johnson of Connecticut. Thank you, Mr. Chairman, and 
thank you for holding this hearing. I think it is extremely 
important we get a better grasp of what is happening for 
children in America with regard to health services; and, in 
that regard, I would like to pursue a slightly different line 
of questioning.
    What do we know about where the uninsured children live?
    Ms. Bilheimer. In terms of the States where they live?
    Mrs. Johnson of Connecticut. And the locations. In other 
words, what percentage of uninsured children live in New York, 
Chicago, and Los Angeles? What percentage live in the top 2 
percent of the largest cities? In other words, does knowing 
about where these children are located have any--can that help 
us look at how we might meet their needs? What do we know about 
where they live?
    Mr. Purcell. CRS just put out a report on the number of 
uninsured children by State. In terms of regional 
distributions, there is a slightly higher likelihood of being 
uninsured for children who live in the South and the West, 
compared to the Midwest or Northeast. I am not sure, I have not 
looked at data that breaks out urban rural, so I can't really 
tell you whether a child is more likely to be uninsured if they 
live in a rural area or an urban area. But, we can certainly 
look at that.
    Mrs. Johnson of Connecticut. We are likely to know that the 
3 million of the 10 million who are Medicaid eligible but not 
participating probably do live in the cities. But it would be 
interesting.
    Anyway, what I need to know is, Can you analyze this for 
me? Can you find this out? And can you find out if the majority 
of the uninsured children do live in urban areas, what 
percentage of those urban areas have community health centers?
    Mr. Purcell. We can certainly address the first of those 
questions fairly easily, which is the percentage that live in 
cities versus rural areas. And the data are even accurate to 
look at some----
    Mrs. Johnson of Connecticut. Well, can you look at where 
the community health centers are located?
    Mr. Purcell. We can do that, yes.
    Mrs. Johnson of Connecticut. The reason this is important, 
the community health centers provide dental, vision, health, 
mental health, and prenatal on a sliding-scale fee; and this is 
a great underutilized resource in America. And when you look at 
the chart that the Chairman was referring to, 8 million people 
are helped by the community health centers for $8 million, I 
think.
    But I have long worked with community health centers, and 
people don't think about them. And when we had big layoffs and 
steep and sudden layoffs in Connecticut, I referred a lot of 
families to the community health centers which are in our area. 
There is a brandnew one in my hometown, state of the art, 
beautiful; and because they have doctors who are reducing their 
loan costs, often extremely capable and qualified doctors.
    So this is not second-tier health care, and it is available 
very cheap. People don't know about it. The new one in my 
district has been going door to door. So we need to know before 
we jump into this who lives within what kind of radius of our 
community health centers and whether or not more money going 
into our community health care system will reach better.
    We also need to know, Are any of the States that are into 
this issue, are they finding a way to add a hospital component 
to the community health center plan? Now, Connecticut has had 
community health centers develop their only network alternative 
to compete for Medicaid family business; and we need to look at 
what in addition to community health care center dollar 
expansion it would cost us to also add in hospital components. 
That is one of the questions I would like your help on.
    I assume you have no immediate information. If not, I will 
just go on to the other information we also need. We also need 
to know how many of these children live in cities where there 
is a well-developed series of school-based health clinics, and 
this goes to this issue of the fact that we actually fund free 
vaccines for all the children in America. They just don't get 
them. We have known that for a long time.
    Remember, President Clinton proposed a free vaccine 
program; and we said, we already have it; and we went on about 
how they don't deliver it. So we need to look at that and then 
what health care are these children getting now? What 
percentage of the 10 million are seen in emergency rooms and we 
are paying through uncompensated care. Do we know about all the 
money we are pouring into uncompensated care costs? How much of 
that is going to these children?
    A kid breaks his arm, he is uninsured, he goes to the 
emergency room, he gets all the care he needs. Well, once he is 
in the emergency room system, if he has no insurance, if the 
family is low income or even if not, minimum amounts are paid 
by the children.
    So we need a better understanding of how we are paying for 
essential services for these children now, where is that money. 
Because we might be better off pulling that money out of the 
system and using it in a different way. And maybe insurance 
premium isn't the best way.
    And the last thing I would like to say ask you, Mr. 
Scanlon, what is Tenn-Care doing? What does that tell us? Also, 
in your very interesting chart, which we thank you very much, 
they were very helpful, the States that do have children 
programs, what are the experiences in those States with 
displacement? So Tenn-Care and the States' displacement you 
might actually answer.
    Then, Mr. Purcell, a similar kind of question. You have a 
couple charts that show 17 percent of families that are 
uninsured heads of household but working full time and then 
your other chart, 19 percent of upper income. On one chart, 17 
percent earn more than 50,000. The other 19 percent of 
employers, over a thousand employees don't choose it. Where is 
our potential to at least get some percentage of the children 
through that group?
    So, if you would take off on some of those questions, I 
would appreciate it.
    Mr. Scanlon. Sure. Tenn-Care was a program that very 
effectively reduced the number of uninsured. It was introduced 
in 1994. It employed one of the methods that we have talked 
about here today, which is to require that individuals who wish 
to enroll in Tenn-Care have a period of no insurance before 
they would be eligible so that people would not drop their 
private coverage in favor of the subsidized coverage available 
through Tenn-Care.
    There was a very dramatic increase in the number of insured 
in Tennessee immediately following the introduction of the 
program. Now, Tennessee was able to reduce the per person cost 
of coverage in moving from their fee-for-service system to the 
managed care model that they are using for Tenn-Care. They 
were, frankly, surprised by the number of people that were 
enrolling and have not reopened enrollment for a considerable 
period of time. So after having enrollment open for the first 
year of operation, newly uninsured have not had the opportunity 
to join the Tenn-Care Program as Tenn-Care faces other 
financial demands that they have been struggling to meet.
    Mrs. Johnson of Connecticut. And what does your experience 
say about do they have any uninsured children in Tennessee 
anymore and are the uninsured children amongst those who have 
been post the open enrollment period?
    Mr. Scanlon. We have not looked at recent data on 
Tennessee, but I would expect, with the passage of time, that 
there has been an increase in the number of uninsured children. 
We can find out more information about that for you.
    Mrs. Johnson of Connecticut. We need to know in that first 
year if they went down to zero uninsured children or zero 
cared-for children--I don't want to use the wrong language and 
get the wrong answer. I want to know if there were people that 
didn't get care in that first year because they were out of the 
system and what they did, in the sense, was reach a zero 
tolerance for uncared-for children.
    Mr. Scanlon. They were very effective in terms of expanding 
eligibility. I think zero is a hard thing to reach, and so 
there were undoubtedly small numbers that were not getting the 
care they required. But Tennessee was effective in expanding 
their eligibility in that period. We can find out for you how 
that has changed since the introduction of the program in 1994.
    Mrs. Johnson of Connecticut. Given all the questions we 
have been asking, if you would take a look at the Tenn-Care 
Program and see what indication it gives us, I would appreciate 
it.
    Mr. Scanlon. We would be happy to.
    [The information was subsequently received:]

    This responds to Mrs. Johnson's question on the impact of 
TennCare on the number of uninsured children in Tennessee, 
including current policy on enrolling children. Since the 
beginning of TennCare, in January 1994, the estimated 
percentage of uninsured Tennesseans declined. (See Table 1.) 
When it first opened enrollment, TennCare provided coverage not 
only to people eligible for Medicaid, but also to people who 
had been uninsured as of March 31, 1993. Researchers estimate 
that TennCare reduced the uninsured population by about 47 
percent between 1993 and 1994. However, the percentage of 
uninsured Tennesseans has crept up since 1994, likely in part 
because TennCare began to limit new uninsured enrollees and 
remove some enrollees from its program due to nonpayment of 
premiums. Because TennCare's funding was limited and enrollment 
had grown more than expected, TennCare closed enrollment in 
January, 1995 for persons who had been uninsured--unless they 
were Medicaid-eligible or uninsurable due to preexisting 
conditions.

             Table 1.--Estimated Number and Percentage of Uninsured Persons in Tennessee, 1993-1996
----------------------------------------------------------------------------------------------------------------
                                                       1993            1994            1995            1996
----------------------------------------------------------------------------------------------------------------
Number..........................................         452,232         298,653         303,785         333,268
Percent.........................................             8.9             5.7             5.8            6.3
----------------------------------------------------------------------------------------------------------------
Source: William F. Fox and William Lyons. Health Care and TennCare: A Survey of Tennesseans. (Knoxville:
  Tennessee: Center for Business and Economic Research and Social Science Research Institute, the University of
  Tennessee at Knoxville: February, 1997), p. 2.
TennCare currently covers about 550,000 children under 18 years old. Most of these children come from the
  Medicaid-eligible population, but about 75,000 were previously uninsured and would not have been Medicaid
  eligible. An estimated 67,430 children were uninsured in Tennessee in 1996.
Due to concern about the number of children still uninsured, in April, 1997 TennCare opened enrollment to
  uninsured children under 18 years old. To encourage enrollment, the program also dropped three potential
  barriers to care. TennCare disregarded any potential COBRA coverage, waived any back premiums owed to TennCare
  from previous enrollment, and waived any requirement about the length of time children had to be uninsured
  prior to TennCare enrollment. It is too early to tell what impact these changes will have on the number and
  percentage of uninsured children in Tennessee.

      

                                


    Mrs. Johnson of Connecticut. Mr. Purcell, How do you 
respond to the issue of over 50,000 people who don't carry 
insurance? Do they have children?
    Mr. Purcell. If you will note, in that group of tables I 
think it says about three-fourths of the families included have 
children. The reason I did the table with that particular group 
is because I was under time constraints preparing for the 
hearing. We are going to reproduce that whole table focusing 
particularly on families with uninsured children.
    Mrs. Johnson of Connecticut. Thank you, Mr. Chairman.
    Chairman Thomas. Does the gentleman from California, Mr. 
Becerra, wish to inquire?
    Mr. Becerra. Thank you, Mr. Chairman.
    I note in an Urban Institute report recently the Institute 
found that, regardless of industry, employer-sponsored coverage 
is falling for all groups. According to the Institute's report, 
from 1988 to 1993 employers provided coverage for employees 
between the ages of 18 to 34 in all sectors at a rate that was 
7 percent less. For children zero to 10, during that same 
period, coverage fell by 8 percent.
    Question to the panelists, whether any of you believe this 
is a trend that will continue and what is it about service 
industry employment which seems to be the trend, especially in 
the areas like the West, that leads to lower rates of coverage?
    Ms. Bilheimer. In terms of whether it will continue, 
surveys of employers show an increasing unwillingness to pay 
for much more than 50 percent of family coverage--and, in some 
cases, less. So I don't think anyone is very sanguine about the 
trend slowing.
    In terms of service occupations, these are low-compensation 
jobs. But one of the reasons they provide little coverage is 
they are often part-time work; they are often contract 
companies. These new types of employment arrangements or part-
time arrangements are much less likely to provide fringe 
benefits, and we are seeing more low-income workers in those 
types of jobs.
    Mr. Becerra. What about those working for a computer 
company? That is service in many respects as well. If you work 
for America On-Line doing some service work, that is fairly 
high paid but oftentimes without the benefits as well.
    Ms. Bilheimer. I don't know what to say on that. I don't 
know whether anybody else on the panel has any insight on that.
    Mr. Purcell. There is some anecdotal evidence I recently 
discussed with another analyst at CRS. In that particular 
industry, there is an increasing trend, for instance, among 
programmers to hire people under contract rather than full-time 
employees. One of the reasons being they do not offer any 
benefits, it is strictly a wage deal.
    Mr. Scanlon. I think another factor is that this is also a 
group of people who are in an age range where they sometimes 
choose to forgo insurance. When offered a flexible spending 
contract, what they do is choose other kinds of benefits rather 
than health insurance. And you may see, in terms of looking at 
a particular company, that a portion of their employees do not 
have insurance from their company but they are actually insured 
because they also have a working spouse that provides them 
coverage.
    Mr. Becerra. I don't know if any study shows this, but it 
seems to me if you take a look at where you find those 
industries that are most successful in providing coverage to 
their employees, it seems to be the northeastern manufacturing 
industries which seem to be the most unionized; and where you 
find the least amount of coverage is in the newer industries, 
the service-sector industries, that seem to be least unionized. 
Would that be a fair or unfair assessment to make?
    Ms. Bilheimer. If you look at industries in general, that 
seems to be the case, yes.
    Mr. Becerra. Any comment of the panelists on whether the 
cost of not insuring the children is real or speculative? If 
every day we do not insure the 10 million children in this 
country, is there a real cost or are we just speculating?
    Ms. Bilheimer. One of the questions Mrs. Johnson asked was, 
Do we know where children are actually receiving health 
services? And, do we know what health services they are 
actually getting? Insofar as children are not receiving 
preventive health services, that obviously affects their health 
status as children and maybe later in life. But we don't know 
the extent to which uninsured children do receive some services 
from local health departments, community health centers, or 
school clinics. So your question is a very difficult one to 
answer.
    Mr. Scanlon. I think we also have a concern that as we want 
to think about better management of care, greater continuity of 
care, both in terms of controlling cost and ensuring quality of 
service, that is, if children do not have a regular source of 
care and regular source of financing for care, there will be a 
tendency to use services only when they are needed on an 
emergency basis or on some more urgent basis. And you end up 
spending more in those situations than you would have if the 
person had continuous care.
    I know that managed care firms are very concerned that if 
they are going to participate in the Medicaid Program, they 
would rather not have the emergency room be the point of entry 
to Medicaid eligibility. They would like to engage in provision 
of primary preventive care so that they can better control the 
cost of care.
    Mr. Becerra. Mr. Chairman, if I could continue for just a 
moment longer.
    If I could get both Dr. Scanlon and Dr. Bilheimer to 
attempt to respond to the question, to give me a more direct 
response to the fact that we have children in this country that 
are not insured, a cost associated with that. In our ultimately 
providing health services nationwide, do we save more money by 
seeing these kids remain uninsured? Because, obviously, we 
don't have to federally or through private insurance provide 
premium coverage for that individual child. Or are we incurring 
a cost because the child not having health insurance may not be 
receiving health benefits which ultimately may be received at a 
later date at a higher cost?
    Ms. Bilheimer. I don't think we know how the total costs 
net out. We do know that uninsured children use fewer health 
services of a preventive nature. But they do still receive a 
lot of health services, some of them in the emergency room, 
when they are sicker. But I don't think anybody has done a 
study of what the net costs are of children remaining 
uninsured.
    Mr. Scanlon. I would agree completely. I think our problem 
is that, while we can identify the source of higher costs, 
namely the use of more expensive services, the exacerbation of 
certain conditions, we have not been able to weigh that against 
what the cost would be of an effective strategy to expand the 
insurance coverage to the majority of these uninsured children.
    Mr. Becerra. Isn't it true, though, that the CDC and other 
research institutes have actually done some studies that show, 
for example, that providing a woman with prenatal services--a 
low-income woman with prenatal services probably would save us 
at least $3 for every $1 spent on prenatal services?
    I know there is another study that shows that the outcome--
the death outcome or death rate of a similar-situated patient 
who is going into a hospital is much different for the insured 
white patient versus the uninsured white patient or the 
uninsured minority patient, so that what we see is that people 
go in for the same problem and a lot fewer of the minority or 
poor--or the white poor come out than do the insured, 
especially the insured white.
    Mr. Scanlon. I think those situations are exactly what you 
are pointing to, exactly the kind of situation where we can 
demonstrate that in those instances there is cost effectiveness 
in terms of providing more timely services.
    I think what Dr. Bilheimer and I were referring to, though, 
was to weigh that against insuring a large population that may 
not have as intensive a need for services as either pregnant 
women or some persons that are hospitalized. The larger 
population will gain some benefits. What we don't know in terms 
of the cost savings associated with those benefits is whether 
we are going to have a net effect or not.
    Mr. Becerra. Thank you, Mr. Chairman.
    Mr. Ensign [presiding]. Before I go to the gentleman from 
Texas, just one comment on the line of questioning from the 
gentleman from California. That is, from what I understand, the 
two areas where we know for sure there are cost savings, one is 
more children and coverage, one is with vaccinations, the other 
is with prenatal care.
    With all the other services, I don't know that there is a 
cost savings. As a matter of fact, from what I understand, 
there is probably a cost increase for covering all children. 
But for those two areas, that are the cheapest areas, by the 
way, to provide care, those are the areas that we know that 
there are cost savings.
    Mr. Scanlon. I think for very prevalent conditions, those 
are two of the most prominent in terms of cost savings. For 
more rare or sort of less frequent conditions, there is also 
potential for cost savings. Good management of conditions like 
asthma and diabetes can be effective in terms of reducing 
health utilization and also having better outcomes, but the 
number of children that suffer from those types of conditions 
is small compared to the overall child population.
    Mr. Ensign. The gentleman from Texas.
    Mr. Johnson of Texas. I would like to follow up on Mr. 
Ensign's question earlier about people who have access to 
health care but don't get it, and back to the EITC.
    Do you think penalizing people by deducting an amount from 
their EITC would motivate them to enroll? We have already tried 
to increase their deduction, and it hasn't worked according to 
you. And you say three-fourths of all the uninsured children 
are below the poverty level, so I would presume they would be 
almost eligible for Medicaid anyway.
    Ms. Bilheimer. With regard to deductions from the EITC, I 
think it really depends on what tax credit people get. For 
people who are getting the maximum of about $3,000, which is 
for families with income between $9,000 and $12,000, obviously 
it would still be well worth their while to participate in the 
EITC, even if an amount were deducted to pay for health 
insurance.
    I think the concerns would be, first of all, that it would 
take a significant amount out of their total income. Second, if 
it were known you were going to get $500 taken out for each 
child who was not insured, insurance companies would start 
offering packages for around $500 to cover children. And as I 
said earlier, when we had the health insurance tax credit 
earlier in this decade, some not very good insurance policies 
got sold to low-income people under the guise of the EITC.
    And then, for people who were higher up in the phaseout 
ranges of the EITC, you would reach a point at which the cost 
of insurance would exceed the amount they would get from the 
tax credit anyway. So, this would probably not be worth their 
while to participate in.
    Mr. Johnson of Texas. The bulk of those are eligible for 
Medicaid anyway, aren't they?
    Ms. Bilheimer. A significant percentage of families who get 
the EITC would have children who were eligible for Medicaid, 
but by no means all of them. I think about one-third of EITC 
recipients currently do not have health insurance, something 
like that.
    Mr. Johnson of Texas. One-third of them?
    Ms. Bilheimer. I think that is correct, yes.
    Mr. Johnson of Texas. Are those one-third also eligible for 
Medicaid?
    Ms. Bilheimer. We have not looked into that. We can 
certainly see what we can find out on that issue.
    [The information follows:]

    We have looked into the question of how many uninsured 
children in families receiving the EITC are eligible for 
Medicaid. Unfortunately, we do not have reliable data that 
allow us to determine who is jointly eligible for those two 
programs. Over time, however, as the states continue to expand 
their Medicaid coverage of children, a growing proportion of 
children in families receiving the EITC will become eligible 
for Medicaid.
      

                                


    Mr. Johnson of Texas. On a different subject, following up 
on Mrs. Johnson's questioning, the percentage of uninsured vary 
so much from State to State. There is a bigger burden. I think 
you indicated that, Mr. Purcell, in your study when you said 
the South and Southwest had more, at least from your 
statistics, than the rest of the country.
    And she was asking about cities. You also made the comment 
that New York City had a large percentage of them, too. So it 
would follow, I think, that some of the major metropolitan 
areas also would fall into that category, if they have low-
income people as part of their population. Would you agree with 
that?
    Mr. Purcell. In general, I think that is true.
    I was surprised yesterday to look at some statistics for a 
city in the Midwest and found that its rate of uninsured for 
the whole metropolitan area was actually lower than the 
national average. I think it varies a great deal from State to 
State, and whether you are looking at the center city or the 
whole metro area, which includes the suburbs.
    Mr. Johnson of Texas. Yes. Well, most States have already 
implemented some form of program to provide children with 
health insurance. Do you think we are in danger of preempting 
the States before we know what the States have done and what 
works best?
    Mr. Scanlon. I think the States have been both innovative 
and have responded very well to the problem of the uninsured. I 
think we need to be careful in terms of crafting a Federal 
response, that we do something that will be compatible with the 
variation that goes on within the States. They are using 
different combinations of Medicaid and non-Medicaid sources for 
insurance; and given the amount of innovation and some of the 
successes they have had, it would be regrettable to do 
something that dramatically hampered some of those activities. 
I think you are right, that we need to be careful about that.
    Mr. Johnson of Texas. Thank you.
    Also, Mrs. Johnson made the point that in the case of 
Tennessee, I guess, they have a program which, according to 
her, and you agreed, Tennessee does not have the problem; and 
yet you list 11.9 percent as the uninsured rate in Tennessee. 
Can you explain that?
    Mr. Scanlon. Tennessee was able to reduce their uninsured 
rate to about 5 percent when the program was initially 
introduced, when they had an open enrollment period and were 
allowing anyone who had no insurance for a period of time to 
enroll. Since then, they have not been able to have open 
enrollment periods. Therefore, as we note there, the number of 
uninsured has increased; and the proportion of uninsured has 
increased as well.
    Mr. Johnson of Texas. Are you all going to investigate 
those States that have done programs like that with an attempt 
to try to get us some statistics on it, as she requested?
    Mr. Scanlon. We certainly will, yes.
    Mr. Johnson of Texas. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Ensign. I would like to thank the panel very much. Very 
informative. And you are dismissed.
    I would like to call the next panel up, which includes 
Jonathan Gruber, associate professor of economics, 
Massachusetts Institute of Technology, faculty research fellow, 
the National Bureau of Economic Research; Lisa Dubay, senior 
research associate with the Urban Institute; and Richard 
Curtis, president, Institute for Health Policy Solutions.
    Chairman Thomas [presiding]. Let me tell each of the panel 
members that any written testimony you have will be made a part 
of the record, and you may address it in any way you see fit in 
the time that you have.
    Mr. Curtis, why don't you, notwithstanding the list of the 
panel in a different order, just begin--no, let's do it the way 
it is listed. Because, in reading the material, you really do 
an overview of the literature and include Dr. Gruber and Ms. 
Dubay's testimony. Let's do it that way and keep it the way it 
is structured.
    We will start with Dr. Gruber, go to Ms. Dubay; and Mr. 
Curtis, you come back and clean up.

STATEMENT OF JONATHAN GRUBER, ASSOCIATE PROFESSOR OF ECONOMICS, 
MASSACHUSETTS INSTITUTE OF TECHNOLOGY FACULTY RESEARCH FELLOW, 
              NATIONAL BUREAU OF ECONOMIC RESEARCH

    Mr. Gruber. Thank you. Thank you for allowing me to speak 
to you today about the problems of uninsured children in the 
United States.
    There are currently 10 million children in the United 
States without health insurance. This figure has risen 
relatively slowly over the past decade, but this slow rise in 
the number of uninsured children masks two important trends, a 
rapidly declining rate of public insurance coverage and a 
correspondingly rising rate--a rapidly declining rate of 
private insurance coverage and a corresponding rising rate of 
public insurance coverage.
    These trends correspond to a dramatic expansion of the 
Medicaid Program, which provides insurance for low-income 
children. Traditionally limited to very poor children living in 
single female-headed families, this program has been expanded 
to cover all children under age 6 in families below 133 percent 
of the poverty line and all children under age 13 in families 
below the poverty line.
    By my estimates, fully one-third of all children in the 
United States today are eligible for the Medicaid Program. In 
fact, the expansion of the Medicaid Program may be part of the 
root cause of these trends in private and public insurance 
coverage, through the crowdout mechanism we have been 
discussing.
    The typical privately insured family pays roughly one-third 
of their medical costs between copayments, deductibles, 
premiums, and uncovered costs such as prescription drugs. But 
Medicaid is totally free. There are no copayments, no 
deductibles, and many extras such as prescription drugs are 
covered in all or almost all States. As a result, upon 
eligibility for Medicaid, many privately insured families may 
find it attractive to drop their insurance and sign up for the 
public program.
    In recent research with David Cutler of Harvard University, 
I investigated the magnitude of this crowdout phenomenon. Our 
results are striking. We find that for every two persons that 
joined the Medicaid Program due to these expansions, one person 
dropped private health insurance coverage, for a crowdout of 50 
percent.
    The mechanism for this crowdout does not appear to be 
employers dropping their insurance coverage when their 
employees become eligible for the program, however. Rather, it 
looks like it is employees not taking up insurance where they 
must pay a share of the cost, preferring instead to join the 
public program.
    Now the existence of this crowdout does not mean that 
expanding Medicaid was a bad idea. In fact, in other research 
with Janet Currie of UCLA, I found enormous health benefits to 
low-income populations from expansion of this program. We found 
that the Medicaid expansions dramatically increase health care 
utilization among low-income populations. For example, becoming 
eligible for Medicaid lowered the odds that a child went 1 year 
without a doctor's visit by over 50 percent.
    Correspondingly, we found striking health benefits from 
this expansion in insurance coverage. We found that the 
Medicaid expansions lowered the infant mortality rate by 8.5 
percent, averting nearly 4,000 infant deaths per year; and we 
found that it lowered the child mortality rate by 4.5 percent, 
averting over 1,400 child deaths per year.
    Thus, despite the crowdout, expanded Medicaid yielded 
impressive benefits in terms of improved health of the low-
income population.
    The key point is that crowdout determines the cost at which 
these benefits are achieved. Any expansion in Medicaid will 
provide insurance to some insured children and, as a result, 
will have health benefits. Crowd-out does not negate these 
accomplishments. It just simply dictates how much they will 
cost. Thus, crowdout acts to reduce Medicaid's bang for the 
buck, the health benefits to children per dollar of spending.
    This concept is obviously an important one for thinking 
about the future direction for policy in this area. Policy 
initiatives will have the highest bang for the buck, if they 
can focus their action on the populations that are likely to be 
uninsured as opposed to privately insured.
    This insight suggests that, clearly, the priority for 
Medicaid policy should be to increase takeup among existing 
eligibles, not near-eligible populations. Currently, there are 
10 million children living below 133 percent of the poverty 
line who are not on the Medicaid Program. Among those children, 
over one-half, or 5.4 million, are uninsured. This is a 
population for which the bang for the buck is likely to be 
quite high.
    Contrast this with another population of interest, those 
living between 133 and 200 percent of the poverty line. There 
are currently 8.3 million children living in this income range 
that are not on the Medicaid Program. Among these children, 
only 27 percent, or 2.2 million, are uninsured. This is a group 
for which the bang for the buck will be much lower. That is, 
among the poorest children who are not on Medicaid already, for 
every uninsured child you make eligible, you make one insured 
child eligible. But among the higher income group, for every 
uninsured child you make eligible, you make three insured 
children eligible. This will increase crowdout and lower the 
bang for the buck.
    This implies that the first priority for the policy in this 
area has to be to increase utilization of the Medicaid Program 
by those poor children who are eligible but not currently 
enrolled. Policy initiatives in this area are relatively 
straight forward and involve outreach potentially through 
school-based programs.
    But this discussion should not be taken to imply that we 
should ignore families further up the income scale. In fact, I 
would argue that the second priority for policy in this area 
should be a limited expansion of the Medicaid Program up to 200 
percent of poverty. But expansions in this range face a larger 
crowdout problem, so the goal here should be to minimize 
crowdout.
    The core of the crowdout problem, if you think about it, is 
that the Government is offering insurance that is free to 
people who are paying for their insurance now. This problem can 
be mitigated by reducing the generosity of Medicaid that is 
offered to higher income families.
    For example, a typical government policy in this area could 
be to introduce income-related premiums. The program could be 
free below 133 percent of the poverty, with a subsidy that 
phases out up to 200 percent of the poverty line. This would 
impose a relatively limited cost on families but would likely 
minimize the crowdout.
    Let me just sort of conclude my comments by just 
highlighting two points. First, insurance among children in the 
United States is an important problem with real health 
consequences. Discussions of crowdout should not miss the 
essential point that, because of the Medicaid Program, there 
are 4,000 fewer infants and 1,400 fewer children dying in the 
United States.
    Nevertheless, combating uninsurance in a cost-effective 
manner requires focusing on those populations where the bang 
for the buck is likely to be highest, groups with a high rate 
of uninsurance. This suggests the first priority for 
policymakers is to focus on eligibles who are not taking up and 
then to worry about expanding up the income scale.
    Thank you very much. I am happy to answer any questions.
    [The prepared statement follows:]

Statement of Jonathan Gruber, Associate Professor of Economics, 
Massachusetts Institute of Technology Faculty Research Fellow, National 
Bureau of Economic Research

    Thank you for allowing me to speak to you today about the 
problem of uninsured children in the U.S. There are currently 
10 million children in the U.S. without health insurance. This 
figure has risen relatively slowly over the past decade, But 
this slow rise in the number of uninsured children masks two 
important trends: a rapidly declining rate of private insurance 
coverage and a corresponding rising rate of public insurance 
coverage. The share of children with private coverage has 
fallen by 8 percentage points over the past decade, while 
public coverage has grown by an offsetting 7 percentage points.
    These trends correspond to a dramatic expansion of the 
Medicaid program, which provides insurance for low income 
children. Traditionally limited to very poor children living in 
single female headed families, this program has been expanded 
to cover all children under age 6 in families below 133% of the 
Federal poverty line, and all children under age 13 below 100% 
of the Federal poverty line. By my estimates, fully one-third 
of all children in the U.S. today are eligible for the Medicaid 
program.
    In fact, the expansion of the Medicaid program may be part 
of the root cause of these trends in private and public 
insurance coverage, through the ``crowdout'' mechanism. 
Privately insured individuals who become eligible for Medicaid 
may find it attractive to drop their private coverage and join 
the Medicaid program. The typical privately insured family pays 
roughly one-third of their medical costs, between copayments, 
deductibles, premiums, and uncovered costs such as prescription 
drugs. But Medicaid is totally free: there are no copayments or 
deductibles, and many extras such as prescriptions are covered. 
As a result, upon eligibility for Medicaid, privately insured 
families may find it attractive to drop their private coverage 
and sign up for the public program.
    In recent research with David Cutler of Harvard University, 
I have investigated the magnitude of this crowdout phenomenon. 
Our results are striking: for every two persons who joined the 
Medicaid program due to these expansions, one person lost 
private insurance coverage, for a ``crowdout'' of 50%. The 
mechanism for this crowdout does not appear to be employers 
dropping their insurance coverage when their employees become 
eligible for the program. Rather, it is employees not taking up 
insurance where they must pay some share of the costs, 
preferring instead to join the public program.
    The existence of crowdout does not mean that expanding 
Medicaid was a bad idea. In fact, in other research with Janet 
Currie of UCLA, I have found enormous health benefits to low 
income populations from the expansion of the Medicaid program. 
We found that the Medicaid expansions dramatically increased 
health care utilization among the low income population: 
becoming eligible for Medicaid lowered the odds that a child 
went a year without a doctor's visit by over 50%. 
Correspondingly, we found striking health benefits from this 
expansion in insurance access: the Medicaid expansions lowered 
the infant mortality rate by 8.5%, averting nearly 4000 infant 
deaths per year. And they lowered the child mortality rate by 
4.5% as well, averting over 1400 child deaths per year. Thus, 
despite crowdout, expanding Medicaid yielded impressive 
benefits for the health of children in the U.S.
    The key point is that crowdout determines the cost at which 
these successes are achieved. Any expansion in the Medicaid 
program will provide insurance to some uninsured children, and 
as a result have health benefits; crowdout does not negate 
those health benefits. What crowdout does is to raise the costs 
of these accomplishments, since along with these previously 
uninsured children who see improved health, we also cover some 
previously insured children who see no health benefit. That is, 
crowdout reduces Medicaid's ``bang for the buck'': the health 
benefits to children per dollar of spending.
    This concept is an important one for thinking about future 
direction for policy in this area. Policy initiatives will have 
the highest bang for the buck if they focus on populations 
which are likely to be uninsured, as opposed to populations 
that are primarily privately insured.
    This insight suggests that the priority for Medicaid policy 
should be to increase takeup among existing eligibles, rather 
than expanding the program up the income scale. Currently, 
there are 10 million children living below 133% of the Federal 
poverty line who are not on the Medicaid program. Among these 
children, 53%, or 5.4 million, are uninsured. This is a 
population in which the bang for the buck is likely to be quite 
high: there is relatively little private insurance coverage to 
be crowded out.
    Contrast this with another population of interest: those 
between 133% and 200% of poverty. There are currently 8.3 
million children living between 133% and 200% of the Federal 
poverty line who are not on the Medicaid program. Among these 
children, 27%, or 2.2 million are uninsured. This is a group 
for which the bang for the buck will be much lower. That is, 
among the poorest children who are not already on Medicaid, for 
every uninsured child made eligible, you make one insured child 
eligible. But among this higher income group, for every 
uninsured child made eligible, you make three insured children 
eligible. This will increase crowdout and lower the bang for 
the buck.
    This implies that the first priority for policy in this 
area should be to increase utilization of the Medicaid program 
by those poor children who are eligible but not currently 
enrolled. Policy initiatives in this area should include 
extensive outreach programs. A natural locus of such outreach 
would be schools. America has had fantastic success with 
immunization among school age children, since almost all 
children come in contact with our public and private school 
systems. Similar success could perhaps be achieved with 
Medicaid takeup if we ensured that families of school children 
were informed of their eligibility for this valuable benefit.
    This discussion should not be taken to imply, however, that 
we should ignore families further up the income scale. Indeed, 
the second priority for policy in this area should be a limited 
expansion of the Medicaid program up to 200% of poverty. 
Expansions of the program in this range do face a larger 
crowdout problem, but crowdout can be minimized by reducing the 
generosity of the program. The core of the crowdout problem is 
that the government is offering insurance that is both more 
generous than the typical private insurance policy, and 
cheaper, to a population that is largely privately insured. 
This problem could be mitigated by reducing the generosity of 
the Medicaid policy that is offered to higher income families.
    For example, the government could introduce income related 
premiums: the program could be free below 133% of poverty, with 
the subsidy then phasing out up to 200% of poverty, reaching 
(for example) a cost of $500 per child at 200% of poverty. For 
a family with two children living at 200% of poverty, this 
would amount to less than 3% of their family income. But a cost 
of $1000 would likely be enough to deter privately insured 
families from dropping their coverage to join the program.
    Income-related premiums are only one alternative for 
reducing generosity. Alternatives include introducing 
copayments or deductibles at the point of utilization, or a 
continued shift to managed care; both of these policies would 
have the added virtue of increasing the efficiency with which 
medical care is delivered to the poor. The key point is that 
policies such as these decrease the attractiveness of the 
program to the privately insured, while maintaining its 
essential insurance features for those who truly need coverage.
    This discussion also has implications for non-Medicaid 
alternatives for covering uninsured children. One popular 
alternative is tax credits for children's insurance. But tax 
credits are likely to have a particularly low bang for the 
buck, since most children have private insurance coverage. 
Indeed, there are five insured children for every uninsured 
child in the U.S. Thus, an unlimited tax credit would largely 
serve to subsidize the insurance purchase of children who are 
already privately insured.
    Moreover, it is doubtful that such a credit would have much 
impact on the current set of uninsured children. There is 
currently no market for purchasing insurance for children only. 
As a result, a subsidy to the insurance coverage of children 
would probably only impact those families where the parent is 
already insured. But children in these families with at least 
one insured parent represent only 22% of uninsured children. 
The impact of this credit would also be limited unless it was 
refundable, as 40% of uninsured children live in families with 
no taxable income.
    This discussion suggests that, should the tax credit 
approach be pursued, the credit should be very tightly focused 
on the potentially uninsured population. For example, a 
refundable credit for those with incomes up to $20,000 would 
apply to 8.3 million of the currently uninsured children, which 
is 78% of the total number of uninsured children. But it would 
only apply to 16.9 million of currently insured children, which 
is 33% of the total number of privately insured children.
    In conclusion, I want to highlight two points. First, 
uninsurance among children in the U.S. is an important problem 
with real health consequences, as witnessed by the striking 
health benefits of the Medicaid expansions. Discussions of 
crowdout should not miss the essential point that, because of 
Medicaid policy over the 1980s and 1990s, there are 4,000 fewer 
infants and 1400 fewer children dying each year in the U.S.
    Nevertheless, combatting uninsurance in a cost effective 
manner requires focusing on those populations where the bang 
for the buck is likely to be highest: groups with a high rate 
of uninsurance. This suggests that the first priority for 
policy makers is to increase enrollment in the Medicaid program 
among those low income children who are already eligible. 
Additional steps, such as further expansions to higher income 
children or tax credits, should be limited in a manner which 
focuses their impact on the uninsured. This could be 
accomplished through income related premiums for Medicaid, and 
through relatively low income cutoffs for tax credits.
      

                                


    Chairman Thomas. Well, thank you, Dr. Gruber.
    Ms. Dubay.

   STATEMENT OF LISA DUBAY, SENIOR RESEARCH ASSOCIATE, URBAN 
                           INSTITUTE

    Ms. Dubay. I want to thank the Members of the Subcommittee 
on Health for providing me with this opportunity to comment on 
the issue of health insurance coverage for children.
    Today, I am going to talk about the lessons we have learned 
from the Medicaid expansions for pregnant women and children 
that have been unfolding over the past decade and how these 
lessons are relevant for today's policy debate. In particular, 
I will be addressing the issue of crowdout, that is the 
substitution of public coverage for private coverage that may 
occur when new public programs are implemented.
    I am going to organize my talk around four main questions 
and draw on research that I conducted with Genevieve Kenney at 
the Urban Institute, and I should say that the opinions I will 
be expressing today are my own, and they do not represent the 
views of the Urban Institute or its sponsors.
    The first question is, Can programs that subsidize health 
insurance coverage for children reduce the number of uninsured? 
And the answer is, Yes, they can.
    In our research, we examined the impact of the Medicaid 
expansions on changes in insurance coverage of low-income 
children and pregnant women using the current population 
survey. We found that without the Medicaid Program, more than 3 
million more children would have been uninsured. However, we 
found that the program participation rates were low, even 
though Medicaid offered coverage at a 100-percent subsidy. We 
found that only 69 percent of the children and 44 percent of 
the pregnant women eligible under the expansions and without 
employer-sponsored coverage enrolled in the Medicaid Program.
    The second question is, Will the new programs that provide 
subsidies for health insurance coverage displace private 
coverage?
    The answer is, Yes, they will; but the magnitude of this 
effect depends on, among other things, the income eligibility 
threshold of the program.
    We estimated the amount of crowding out that occurred with 
the expansions and found that only 17 percent of the increase 
in Medicaid enrollment of young children and 14 percent of the 
increase in enrollment of pregnant women was attributable to 
crowdout. And I should note that these effects are much lower 
than those just presented by Jonathan Gruber, but they are much 
higher than the two other studies that have found no 
displacement effect.
    But the insight that comes out of our work is that we found 
there is no evidence of crowding out for pregnant women below 
poverty and very little crowding out for children below 
poverty. We did find crowdout effects above poverty, and these 
effects were higher for pregnant women than for children 
because pregnant women are covered up to 185 percent of poverty 
and children were only covered up to 133 percent of poverty.
    Based on these findings, we conclude that programs that 
limit coverage to lower income groups will find that a 
relatively small percentage of new public dollars will be 
replacing employer and individual contributions; and programs 
that offer coverage to children at higher incomes could 
potentially see a large share of public dollars replacing 
private dollars.
    The third question is, What can be done about crowding out?
    Well, we really don't know; and, unfortunately, many of the 
solutions may create new equity problems.
    Given current Federal budget constraints, it is important 
that new public programs that subsidize health insurance 
coverage of children be appropriately targeted. What can be 
done to prevent crowdout? We can limit eligibility to 
individuals who have been uninsured for a period of time or to 
those who do not have an offer of employer-sponsored coverage.
    The problem is that we don't know how effective these 
strategies would be at minimizing crowdout. Moreover, these 
types of initiatives might also mean that families that lost 
their employer-sponsored coverage for reasons beyond their 
control or who face premium contributions that represent a 
large financial burden, could not participate, thus creating 
new equity issues.
    Sliding-scale premium contributions could also reduce such 
substitution. However, smaller subsidies are also likely to 
deter uninsured families from participating in the program.
    The fourth and final question is, What should policymakers 
do? And the answer depends on how much we are willing to spend 
to reduce the number of uninsured children.
    The conundrum facing policymakers today is how to cover a 
substantial number of uninsured children without also covering 
children who would otherwise be insured. On the one hand, other 
research indicates that subsidies will have to be large in 
order to achieve significant reductions in the number of 
uninsured children. At the same time, concern about the 
substitution of public coverage for private coverage is a real 
issue from a budget perspective; and it is not clear how to 
prevent it.
    The fact that uninsured children are not concentrated at 
the low end of the income distribution makes this a very 
challenging problem. Covering children under poverty is a win-
win option--there will be almost no crowding out--but these 
children do not constitute a large percentage of the uninsured. 
New programs that subsidize coverage for children in families 
with incomes up to 185 percent of poverty may produce 
acceptably low levels of crowdout but will still leave 46 
percent of uninsured children uncovered, and the majority of 
new dollars will go to covering children who are uninsured.
    In contrast, programs that include children in families 
with incomes up to 300 percent of poverty would make more than 
80 percent of all uninsured children eligible. Yet, under such 
programs, the share of participants that previously had private 
coverage will likely be large unless mechanisms to limit the 
substitution of public for private coverage are effective.
    But even if a significant number of working families do 
drop their private coverage and take advantage of the new 
program, this may have important benefits to children, such as 
providing them with greater insurance security and more 
comprehensive coverage and offering financial relief to their 
families.
    Therefore, in order to ensure that more children in this 
country have health insurance coverage, it may be necessary to 
accept a greater public role in financing health insurance 
coverage for children.
    [The prepared statement and attachments follow:]

Statement of Lisa Dubay,* Senior Research Associate, Urban Institute; 
and Genevieve Kenney,* Senior Research Associate, Urban Institute

                            I. Introduction

    Extending health insurance coverage to more children is 
currently of considerable policy interest as evidenced by the 
number of bills so far introduced in the 105th Congress.\1\ 
These legislative initiatives propose a range of mechanisms for 
reducing the number of uninsured children including: tax 
credits and vouchers for families to assist them in purchasing 
insurance coverage for their children, grants to states to 
design and finance new health insurance coverage programs, and 
a new entitlement program. The motivation behind these 
initiatives is the belief that providing health insurance 
coverage to uninsured children will improve access to and use 
of health care which will in turn lead to improved health. In 
addition, these initiatives seek to provide some financial 
relief to working uninsured families.
---------------------------------------------------------------------------
    * The research presented in this statement was funded by the Robert 
Wood Johnson Foundation and the Health Care Financing Administration. 
This statement represents the views of the authorities alone and not of 
the Urban Institute, its sponsors or its trustees. We are grateful for 
helpful comments from our colleagues John Holahan and Stephen 
Zuckerman. Beth Kessler provided outstanding research assistance for 
this testimony.
    \1\ These bills include: the Children's Health Coverage Act (S. 13, 
Daschle, D-SD); the Health Assurance Act (S. 24, Spector, R-PA); the 
Healthy Children's Pilot Program Act (S. 435, Spector, R-PA); the 
Healthy Start Act (H.R. 560, Stark, D-CA): the Children's Health 
Insurance Act (H.R. 561, Stark, D-CA); the Child Health Insurance and 
Lower Deficit Act (Hatch, R-UT, Kennedy, D-MA). In addition the Family 
and Child Health Assurance Act (Gramm, R-TX and Coverdell, R-GA) will 
be introduced and the President's FY 1998 budget addresses health 
insurance coverage for children.
---------------------------------------------------------------------------
    While only one of the legislative initiatives on child 
health insurance coverage proposes expansions of the Medicaid 
program, the experience of the Medicaid expansions for children 
and pregnant women is relevant for today's policy debate. The 
Medicaid expansions provided full subsidies for the health 
insurance coverage of certain low-income children. Many of the 
proposed initiatives would provide full or partial subsidies of 
health insurance coverage for children who live in families 
with incomes that exceed current Medicaid eligibility 
thresholds, with the more generous including families up to 300 
percent of poverty. The expansions provide important lessons 
regarding the ability of programs that provide health insurance 
coverage to reach their target population and reduce the number 
of uninsured children. In addition, they can shed light on the 
amount of ``crowding-out'' that can be anticipated.
    Crowding-out is a phenomenon whereby new public programs or 
expansion of existing public programs designed to extend 
coverage to the uninsured prompt some privately insured persons 
to drop their private coverage and take advantage of the 
expanded public subsidy. The issue of crowding out can be 
important because it may lead to fewer improvements in access 
to care and greater program costs than expected.
    Our testimony today will provide information on the extent 
and nature of the population of children without health 
insurance and describe the lessons learned from the expansions 
in Medicaid coverage for children and pregnant women that 
occurred over the last decade. We will also identify areas 
where more information is needed in order to make informed 
policy choices.
    Our testimony can be summarized by the following six 
conclusions:
     Policy solutions aimed at reducing the number of 
uninsured children must take a multi-pronged approach. This 
type of approach is necessary because about a quarter of 
uninsured children are currently eligible for Medicaid but not 
enrolled, older children living in poverty will not all be 
covered by Medicaid until 2002, and the remainder, almost three 
quarters of all uninsured children, live in families with 
incomes above poverty.
     New programs that provide public subsidies for 
health insurance coverage will result in some crowding out of 
private coverage. The magnitude of this effect will depend on 
the income eligibility level of the program, the success of the 
attempts made to minimize the substitution of public coverage 
for private coverage, the magnitude of premium cost-sharing for 
employer-sponsored coverage faced by those eligible for the new 
program, and the generosity of the benefit package under the 
new program relative to under employer-sponsored coverage.
     Programs that limit coverage to lower income 
groups will find that a relatively small percentage of new 
public dollars will be replacing private employer and 
individual payments. Programs that offer coverage to children 
at higher incomes could potentially see a large share of public 
dollars replacing employer and individual contributions thus 
affecting the distribution of who pays for health insurance 
coverage.
     In an era of scarce resources, it is important to 
reduce the incentives to substitute public dollars for private 
dollars. While mechanisms to reduce this crowdout effect are 
important, it is difficult to prevent substitution without 
creating inequities in access to coverage.
     While programs that phase out subsidies as income 
increases will discourage the substitution of public coverage 
for private coverage, they may also discourage families with 
uninsured children from purchasing insurance for their 
children. Without large subsidies, the ability of a new program 
to reduce the number of uninsured children may be compromised.
     In order to assure that most uninsured children 
receive health insurance coverage, we may need to accept a 
shifting of the distribution of who pays for such coverage from 
the private to the public sector as part of the cost of this 
coverage.

                            II. The Problem

    According to 1994 estimates from the Current Population 
Survey (CPS), more than seven million children lack health 
insurance coverage. Uninsured children come from all income and 
age groups (see Table 1). Altogether 54 percent of uninsured 
children live in households with income less than 185 percent 
of the federal poverty line and almost 23 percent of uninsured 
children live in households below the federal poverty line.


                              Table 1.--The Composition of uninsured Children, 1994
                                                   [By Income]
----------------------------------------------------------------------------------------------------------------
                                                    Total
             Percentage of Poverty                (Millions)      0-5          6-12        13-18         All
----------------------------------------------------------------------------------------------------------------
0-99%..........................................         1.67       20.55%       21.51%       25.78%       22.73%
100-133%.......................................         0.88        9.83%       13.52%       12.31%       12.07%
134-185%.......................................         1.46       18.94%       20.85%       19.51%       19.85%
186-299%.......................................         2.02       29.88%       27.21%       25.95%       27.52%
300%+..........................................         1.31       20.81%       16.91%       16.44%       17.84%
All............................................         7.35       28.05%       37.20%       34.75%      100.00%
----------------------------------------------------------------------------------------------------------------



                                                    [By Age]
----------------------------------------------------------------------------------------------------------------
                                       Total
                Age                 (Millions)    0-99%     100-133%   134-185%   186-299%    300%+       All
----------------------------------------------------------------------------------------------------------------
0 to 5............................        2.06     25.36%     22.85%     26.77%     30.46%     32.73%     28.05%
6 to 12...........................        2.73     35.21%     41.69%     39.07%     36.77%     35.25%     37.20%
13 to 18..........................        2.55     39.42%     35.46%     34.16%     32.77%     32.02%     34.75%
All...............................        7.35     22.73%     12.07%     19.85%     27.52%     17.84%    100.00%
----------------------------------------------------------------------------------------------------------------
Source: Urban Institute tabulations from the TRIM2 edited version of the March Current Population Survey, 1995.
Note: Percentages may not sum to 100 because of rounding. The population excludes the elderly, the
  institutionalized and families with an active military member. ``Other'' coverage covered through groups
  include the non-elderly Medicare, VA, CHAMPUS, and military health.


    The distribution of insurance coverage for children varies 
by household income and age of child (Table 2). The risk of 
being uninsured increases with the age of the child, 
particularly in poorer families. Overall, children age 13 to 18 
are a third more likely than those under 6 to lack health 
insurance. In households with incomes below the federal poverty 
line, older children were three times as likely to lack health 
coverage relative to the younger children. For children of all 
ages, lower rates of uninsurance occurred at the very bottom 
and top of the income ranges; living in households with incomes 
between 133 and 185 percent of the federal poverty level puts 
children at the greatest risk of not having health insurance 
coverage.

                                 Table 2.--Insurance Coverage of Children, 1994
                                          [All Children through Age 18]
----------------------------------------------------------------------------------------------------------------
                                       Total         Employer                       Private and
          Poverty Level             (millions)       Sponsored       Medicaid          Other         Uninsured
----------------------------------------------------------------------------------------------------------------
0-99%...........................           16.33          15.96%          72.09%           1.73%          10.23%
100-133%........................            5:51          39.06%          41.37%           3.49%          16.09%
134-185%........................            7.72          58.83%          17.21%           5.07%          18.89%
186-299%........................           15.36          76.13%           4.92%           5.78%          13.17%
300%+...........................           71.85          62.69%          22.95%           4.14%          10.23%
All.............................           71.85          62.69%          22.95%           4.14%          10.23%
----------------------------------------------------------------------------------------------------------------



                                                    [0 to 5]
----------------------------------------------------------------------------------------------------------------
                                       Total         Employer                       Private and
          Poverty Level             (millions)       Sponsored       Medicaid          Other         Uninsured
----------------------------------------------------------------------------------------------------------------
0-99%...........................            6.76          13.68%          78.76%           1.30%           6.27%
100-133%........................            2.01          38.15%          50.04%           1.74%          10.07%
134-185%........................            2.64          56.04%           25.75           3.43%          14.78%
186-299%........................            4.86          74.70%           7.33%           5.31%          12.67%
300%+...........................            7.67          87.55%           1.81%           5.50%           5.59%
All.............................           23.95          56.46%          31.34%           3.59%           8.61%
----------------------------------------------------------------------------------------------------------------



                                          [Children Age 6 to 12 Years]
----------------------------------------------------------------------------------------------------------------
                                       Total         Employer                       Private and
          Poverty Level             (millions)       Sponsored       Medicaid          Other         Uninsured
----------------------------------------------------------------------------------------------------------------
0-99%...........................            5.96          17.50%          71.27%           1.35%           9.87%
100-133%........................            2.07          41.22%          38.28%           2.68%          17.83%
134-185%........................            2.94          61.45%          13.84%           5.35%          19.36%
186-299%........................            6.05          78.17%           4.21%           5.32%          12.30%
300%+...........................            9.78          90.11%           1.17%           3.99%           4.73%
All.............................           26.80          64.34%          21.70%           3.75%          10.20%
----------------------------------------------------------------------------------------------------------------



                                          [Children Age 13 to 18 Years]
----------------------------------------------------------------------------------------------------------------
                                       Total         Employer                       Private and
          Poverty Level             (millions)       Sponsored       Medicaid          Other         Uninsured
----------------------------------------------------------------------------------------------------------------
99%.............................            3.62          17.70%           60.94           3.14%          18.21%
100-133%........................            1.43          37.20%          33.62%           7.14%          22.04%
134-185%........................            2.14          58.69%          11.31%           6.70%          23.30%
186-299%........................            4.45          74.94%           3.23%           6.93%          14.90%
300%+...........................            9.48          89.88%           1.04%           4.65%           4.43%
All.............................           21.10          67.65%          15.01%           5.25%          12.10%
----------------------------------------------------------------------------------------------------------------
Source: Urban Institute tabulations from the TRIM2 edited version of the March Current Population Survey, 1995.
Note: percentages may not sum to 100 because of rounding. The population excludes the elderly, the
  institutionalized and families with an active military member. ``Other'' coverage groups include the
  nonelderly covered through Medicare, VA, CHAMPUS, and military health.


    Patterns of insurance coverage are influenced by Medicaid 
eligibility policies which offer protection to all poor 
children under 14 years of age. In response to evidence 
indicating declining health status for low-income children and 
growing disparities in access to health care between the 
insured and the uninsured, Medicaid coverage for children was 
expanded in the late 1980s. Congress permitted and eventually 
mandated states to provide phased-in Medicaid coverage for 
children up to age six in families with incomes up to 133 
percent of the federal poverty level and to all children born 
after September 30, 1983, in families with incomes at the 
poverty line or below. Under the phase-in, all children under 
age 18 living in households beneath the federal poverty line 
will be eligible for Medicaid by the year 2002. States were 
also given the option to cover infants with family incomes up 
to 185 percent of poverty.\2\ These expansions represented a 
dramatic change from the past, when children qualified for 
Medicaid only if their families' incomes were below AFDC 
thresholds (which had averaged only about 50 percent of the 
poverty level prior to the expansions).
---------------------------------------------------------------------------
    \2\ In addition, using other provisions of Medicaid law (Section 
1902(r)(2) and Section 1115), some states have chosen to offer coverage 
to children in households with higher income levels than specified in 
the expansions.
---------------------------------------------------------------------------

III. What Did We Learn From the Medicaid Expansions for Pregnant Women 
                             and Children?

    The expansions in Medicaid coverage for pregnant women and 
children that took place in the late 1980s and early 1990s 
provide important lessons regarding the ability of programs 
that subsidize health insurance coverage to enroll eligible 
children and reduce the number of uninsured children, as well 
as the amount of crowding-out that can be anticipated under 
such programs.
    The intent of the Medicaid expansions was to reduce the 
number of uninsured children and pregnant women, increase 
access to health care, and thus, improve children's health. 
Between 1988 and 1993, the number of children receiving 
Medicaid-covered services grew by 10.7 to 16.5 million a 54 
percent increase (unpublished tabulations of HCFA Form 2082 
data). The number of births financed by Medicaid also increased 
substantially (Sing, Gold, and Frost, 1994).
    Over the same period, which also witnessed an economic 
recession, employer-sponsored insurance coverage was declining 
(Holahan, Winterbottom, and Rajan, 1996; Peat Marwick, 1994), 
and the number of uninsured children grew (Dubay and Kenney, 
1996). The simultaneous decline in employer-sponsored coverage 
and increase in Medicaid coverage of children, coupled with the 
increase in uninsured children has led some observers to 
suspect that the Medicaid expansions for children and pregnant 
women ``crowded-out'' employer-sponsored coverage. To try to 
identify whether, and if so how much, the expansions crowded 
out private coverage, researchers at the Urban Institute 
conducted the following analysis.

The Dubay-Kenney Study

    In the this study, we examined changes in health insurance 
coverage for children and pregnant women using CPS data edited 
by the Urban Institute's Transfer Income Model (TRIM2) and 
representing 1988 and 1991/1992.\3\ We focused our analysis on 
the target population of poor and near poor pregnant women and 
children ages 10 and under. Our overall approach in assessing 
the impact of the expansions on insurance coverage was to 
examine aggregate changes in health insurance coverage 
separately for pregnant women and children 10 years old and 
younger by income group.
---------------------------------------------------------------------------
    \3\ Dubay and Kenney use 1991 data for their analysis of pregnant 
women and 1992 data for their analysis of children as their post-
expansion period.
---------------------------------------------------------------------------
    We first assessed the extent to which the expansions were 
covering the target population. We found participation rates 
for expansion eligible children and pregnant women to be less 
than that under the traditional Medicaid program where over 90 
percent of those eligible enroll. Only 44 percent of pregnant 
women eligible for the expansions who did not have employer-
sponsored insurance enrolled in Medicaid. Sixty-nine percent of 
the children eligible under the expansions who did not have 
employer-sponsored coverage enrolled in the Medicaid program. 
Whether the lower participation rates for the expansion 
population are due to lack of knowledge about the new 
eligibility rules, unwillingness to enroll in Medicaid, or 
persisting problems with the Medicaid eligibility determination 
process is unclear. The fact that such a large percentage of 
uninsured children are Medicaid eligible suggests that large 
inroads into the problem could be made by increasing Medicaid 
participation rates and illustrates the importance of 
understanding why the participation rate is so low.
    We then estimated the extent to which the expansions 
crowded out employer-sponsored insurance. We compared the 
declines in employer-sponsored coverage for children and 
pregnant women to the declines for men ages 18-44--a group 
unlikely to be affected by the expansions. We did this to 
control for the portion of the decline in employer-sponsored 
coverage for children and pregnant women that would have 
occurred in the absence of the expansion. The difference 
between the decline in employer-sponsored coverage for children 
and pregnant women and that for men is the amount of the 
decline in employer-sponsored coverage for children and 
pregnant women attributable to crowdout. We then divided this 
decline by the increase in Medicaid enrollment. This provides 
our estimate of how much of the Medicaid enrollment increase 
resulted from crowdout.
    About 14 percent of the increase in Medicaid enrollment of 
pregnant women and 17 percent of the increase in enrollment of 
young children was attributable to crowdout, according to our 
estimates. These estimates represent the degree to which public 
funds substituted for private funds over the period. We find no 
evidence of crowding out for poor (that is, below the poverty 
line) pregnant women and very little crowding out for poor 
children. For pregnant women and children with household 
incomes above the poverty line (that is, 100-185 percent of 
poverty for pregnant women and 100-133 percent of poverty for 
children) we find the crowdout effect to be 45 and 21 percent 
respectively. The higher crowdout estimate for pregnant women 
suggests that more crowding out occurs as income eligibility 
thresholds increase.
    We also found that more than 75 percent of the increase in 
Medicaid enrollment over the expansion period was for children 
and pregnant women who would otherwise have been uninsured or 
would have lost their insurance as a result of secular declines 
in employer-sponsored coverage. This means that, without the 
Medicaid program, an additional 3 million children would have 
been uninsured in 1992.
    Study Limitations. Using men ages 18-44 is not a perfect 
control for how the health insurance coverage of children and 
pregnant women would have changed in the absense of the 
expansions. For example, if the secular declines in coverage 
were greater for children and pregnant women than for men, we 
may over-estimate the extent of crowding out. In fact, there is 
evidence to suggest that this is the case: between 1989 and 
1993, employee health insurance contributions rose by twice as 
much for family coverage as for individual coverage, providing 
a much more substantial disincentive to continue employer-
sponsored coverage of dependents.\4\
---------------------------------------------------------------------------
    \4\ Authors' computations of the percentage change in average 
monthly employee contributions towards health insurance premiums 
between 1989 and 1993 in medium and large firms. From the Bureau of 
Labor Statistics' Employer Benefits Survey, U.S. Department of Labor, 
Bulletins 2363 and 2456.
---------------------------------------------------------------------------
    It has also been claimed (Culter and Gruber 1997) that we 
underestimate the Medicaid crowdout effect by failing to count 
the spillover effect within families. This effect comes about 
when a family drops employer-sponsored coverage because some of 
the family members (pregnant mother and younger children) are 
eligible for, and choose to take advantage of, the Medicaid 
expansion--leaving the ineligible family members (older 
children) without insurance. Since these family members are 
ineligible for Medicaid, we do not consider this a crowdout 
effect. However, even with a broader interpretation of 
crowdout, the spillover effect is likely to be small. In work 
that we are currently doing, we find that less than 3 percent 
of the children living in families with Medicaid-covered 
children are uninsured. This 3 percent estimate is an upper 
bound on the spillover effect since some of these uninsured 
children would have been uninsured even in the absence of the 
expansions.
    This research, and much of the other literature on 
crowdout, uses the Current Population Survey which is a cross-
sectional database. A definitive analysis of the crowdout issue 
requires the use of a longitudinal database to shed light on 
the dynamic nature of health insurance coverage. In other 
words, in order to understand changes in insurance coverage 
over time, we want to be able to observe the transitions 
between one type of insurance coverage and another. When cross-
sectional data are used, the movement of one group out of 
employer-sponsored coverage and into the uninsured category 
combined with another group moving from the ranks of the 
uninsured into Medicaid might appear to be a movement from 
employer-sponsored coverage into Medicaid.
    In order to eliminate this problem, a new Urban Institute 
study by Blumberg, Dubay and Norton, is using the 1990 panel of 
the Survey of Income and Program Participation--a data base 
that follows the same households over a 2 and a half year 
period--to examine health insurance coverage transitions for 
poor and near poor children over the expansion period. The 
results of this analysis will be released in the near future.

        IV. What Lessons Are Relevant for Today's Policy World?

    As mentioned previously, some of the legislative 
initiatives currently in Congress propose to provide full or 
close to full subsidies to purchase health insurance coverage 
for children in families with incomes up to some specified 
level. In this way, the initiatives are similar to the Medicaid 
expansions and some lessons can be easily applied. At the same 
time, there are aspects of the initiatives that are unlike the 
expansions. For example, income eligibilty for many of the 
proposed programs would be substantially higher than under the 
Medicaid expansions and those with higher incomes would receive 
only partial subsidies.
    Four lessons stand out as important for today's policy 
discussion regarding federal programs to subsidize the costs of 
health insurance coverage for children.
     Programs that subsidize health insurance coverage 
for children will reduce the number of uninsured children.
     Even when the entire cost of health insurance 
coverage for children is subsidized, some eligible children 
will remain uninsured.
     Subsidizing insurance coverage for children in 
poor households will result in very little substitution of 
employer-sponsored coverage, in large part because this 
population has very little insurance coverage to begin with.
     The higher the income-eligibility cutoff, the 
greater will be the crowdout effect. This is because as income 
increases, the prevalence of employer-sponsored coverage 
increases and the proportion of households without insurance 
decreases. Therefore, even if only a small percentage of 
families substitute private for public coverage and 
participation by the otherwise uninsured is relatively high, as 
the income eligibility cutoff for a new program increases, the 
percentage of entrants into that program will increasingly come 
from those who previously had private coverage.
    These are important lessons. There are also a number of 
limitations in the applicability of these analyses to the types 
of health insurance programs currently being considered by 
Congress.
    1. Since the expansions were limited to children and 
pregnant women with incomes below 133 and 185 percent of 
poverty respectively, there is no evidence on how much public 
coverage would substitute for private coverage in programs with 
higher income eligibility levels.
    2. Since the expansions fully subsidized the costs of 
health insurance coverage, there is also no evidence from this 
literature regarding how premium cost-sharing would affect 
either participation in the program or the dropping of 
employer-sponsored coverage.
    3. The dynamics of family participation in a health 
insurance programs other than Medicaid may be quite different 
from those driving Medicaid participation, particularly if the 
stigma associated with the program is lower, the eligibility 
determination process is different, or the benefit package 
under the program is less comprehensive.
    4. There is little evidence that employers responded to the 
expansions by reducing their offers of and contributions to 
health insurance coverage (Cutler and Gruber 1996). The 
proposed initiatives that cover children up to 300 percent of 
poverty would make 60 percent of all children eligible for the 
program. Such large-scale initiatives could alter employer 
behavior, potentially further reducing employer contributions 
for dependent health insurance coverage.
    5. Finally, none of the studies tells us why those 
individuals who dropped their private insurance over this 
period did so. For example, it may be that the families who 
substituted Medicaid for private coverage were those with 
policies that had high deductibles and co-payments, covered 
only catastrophic illness, or did not cover preventive 
services. For some low-income families, the movement into the 
Medicaid program may have represented access to coverage that 
they did not previously have. Similarly, those families that 
dropped their private coverage may have faced premium 
contributions that represented large financial burdens.

V. What Can be Done to Appropriately Target New Programs and Limit the 
                        Extent of Crowding Out?

    Given the current federal budget constraints, it is 
important that new public programs that subsidize health 
insurance coverage of children be appropriately targeted in 
order to get the most ``bang for the buck.'' What do we know 
about the effectiveness of strategies to reduce the 
substitution effect? States have implemented a number of 
strategies designed to prevent crowding-out when they expanded 
insurance coverage (either through their Medicaid Section 1115 
waivers or though their state-only health insurance programs). 
These strategies have included limiting eligibility to 
individuals a) who have been uninsured for a period of time, b) 
who do not have an offer of employer-sponsored coverage, or c) 
who face premium cost-sharing greater than 50 percent for their 
employer-sponsored coverage. However, these programs are 
relatively new and the effectiveness of these mechanisms at 
reducing crowdout has not been assessed. States have also found 
these types of mechanisms administratively complex (Wooldridge 
et al 1997) making them difficult to implement.
    Moreover, these types of initiatives could also prevent 
families who lost their employer-sponsored coverage for reasons 
beyond their control, such as job loss or reductions in 
employer contributions to premiums, from taking up the new 
program. Thus, they potentially create inequities in who is 
eligible for the subsidy.
    Each of the bills introduced in Congress this year would 
require that some families contribute to the costs of health 
insurance coverage under the new program and would vary the 
subsidy based on family income. Families for which the offered 
subsidy is less than the cost sharing they currently face 
(including differences in benefit packages, co-payments, 
deductibles, and premium contributions) will be unlikely to 
substitute public coverage for private. Thus lower subsidies 
would tend to reduce the crowdout effect. However, the subsidy 
schedule will also affect the extent to which families with 
uninsured children will participate in the program. According 
to research by Marquis and Long (1995), in order for low-income 
working families to purchase insurance, subsidies must be quite 
high.

                            VI. Conclusions

    The conundrum facing policy makers today is how to cover a 
substantial number of uninsured children without also covering 
children who would otherwise be insured. On the one hand, 
evidence suggests that subsidies will have to be large in order 
to achieve significant reductions in the number of uninsured 
children. At the same time, concern about substitution of 
public coverage for private coverage is a real issue from a 
budget perspective and it is not clear how to prevent it.
    The fact that uninsured children are not concentrated at 
the low end of the income distribution makes this a very 
challenging problem. Covering children under poverty is win-win 
option--there will be almost no crowding out--but these 
children do not constitute a large percentage of the uninsured. 
New programs that subsidize coverage for children in families 
with incomes up to 185 percent of poverty may produce 
acceptably low levels of crowdout, but will still leave 46 
percent of uninsured children uncovered.\5\ And, the majority 
of new dollars would go to covering children who are uninsured.
---------------------------------------------------------------------------
    \5\ Assuming full participation.
---------------------------------------------------------------------------
    In contrast, programs that include children in families 
with incomes up to 300 percent of poverty would make more than 
80 percent of all uninsured children eligible. Yet, under such 
programs the share of participants that previously had private 
coverage will likely be large unless mechanisms to limit the 
substitution of public for private coverage are effective. But 
even if a significant number of working families drop their 
private coverage and take advantage of the new program, this 
may have important benefits to children, such as providing them 
with greater insurance security and more comprehensive 
coverage, and offering financial relief for their families.
    Therefore, in order to assure that more children in this 
country have health insurance coverage, it may be necessary to 
accept a greater public role in financing health insurance 
coverage for children.

                               References

    Blumberg, Linda, Lisa Dubay and Stephen Norton. 1996. ``Did the 
Medicaid Expansions for Children Displace Private Insurance?'' 
Presented at the 18th Annual Conference of The Association for Public 
Policy Analysis and Management, Pittsburgh, PA, November 2, 1996.
    Cutler, David, and Jonathan Gruber. 1996. ``Does Public Insurance 
Crowd Out Private Insurance?'' The Quarterly Journal of Economics, May.
    Cutler, David, and Jonathan Gruber. 1997. ``Medicaid and Private 
Insurance: Evidence and Implications.'' Health Affairs (16:1) January/
February.
    Dubay, Lisa and Genevieve Kenney. 1996. ``Revisiting the Issues: 
The Effects of Medicaid Expansions on Insurance Coverage of Children.'' 
The Future of Children 6:1 (Spring 1996).
    Dubay, Lisa and Genevieve Kenney. 1997. ``Did the Medicaid 
Expansions for Pregnant Women Crowd-Out Private Insurance?'' Health 
Affairs 16:1 (January/February).
    Holahan, John. Forthcoming. ``Expanding Insurance Coverage for 
Children.'' Urban Institute Monograph.
    Holahan, John, Colin Winterbottom, Shruti Rajan. 1995. ``A Shifting 
Picture of Health Insurance Coverage.'' Health Affairs 14:4 (Winter).
    KPMG Peat Marwick. 1993. Health Benefits in 1993. Newark, NJ:KPMG 
Peat Marwick.
    Marquis, M.S., and S.H. Long. 1995. ``Worker Demand for Health 
Insurance in the Non-group Market. Journal of Health Economics 14:1 
(May).
    Wooldridge, Judith, Leighton Ku, Teresa Coughlin, Lisa Dubay, 
Marilyn Ellwood, Shruti Rajan, Sheila Hoag. 1996. ``Implementing State 
health Care Reform: What Have We Learned from the First Year ? The 
First Annual Report of the Evaluation of Health Reform in Five 
States.'' Submitted to Office of Research and Demonstration, Health 
Care Financing Administration, December.
      

                                


    Chairman Thomas. Mr. Curtis.

STATEMENT OF RICHARD E. CURTIS, PRESIDENT, INSTITUTE FOR HEALTH 
                        POLICY SOLUTIONS

    Mr. Curtis. Mr. Chairman, I appreciate the opportunity to 
summarize findings of our study.
    As the two previous speakers' testimony has indicated, 
their findings, while the magnitude is different, are 
consistent in the following way: Both found that above poverty, 
especially, there was crowdout of private coverage due to 
Medicaid expansions, and that the farther you go up the income 
stream the higher the degree of crowdout.
    This might be viewed as somewhat ironic since, in 1990, 
Congress enacted a provision that was intended to prevent this 
by requiring State Medicaid Programs to, when it is cost 
effective to do so, pay the employee's share of coverage when 
employer coverage is available to the Medicaid applicant.
    I want to emphasize, as have the other panelists, that many 
modest-income working families need assistance to afford 
coverage, and that we should do what we can to help them get 
it. In fact, do what we can to cover uninsured children. But we 
need to do it cost effectively.
    Medicaid expansions in 1988 and 1989 seemed very sensible 
because only 7.6 percent of uninsured poor and near-poor 
children at that time had a parent with employer-based 
coverage. I might note that today it is similarly emphasized 
that four out of five parents of uninsured kids are themselves 
uninsured. But we need avoid the same mistake we made then and 
be careful to look at how many of these children in the target 
income ranges are actually already covered under employment-
based coverage.
    In 1995, 77 percent of children with family incomes between 
200 and 399 percent of poverty had employer-sponsored coverage. 
I believe between 150 and 200 percent, the number is 55 
percent. Dr. Gruber's and Dr. Dubay's findings do confirm that 
unless we are very careful in how we craft further expansions, 
there will be further crowdout, given these numbers.
    Now, why was it that at the State level, we did not succeed 
in avoiding crowdout? Well, unfortunately, the reasons are 
very, very complex. They do relate to the basic nature of 
Medicaid, as Dr. Gruber indicated, as an all-or-nothing 
program. So, very often people have been faced with a choice of 
free Medicaid or an employee contribution to obtain coverage. 
And, most States only were looking at high-cost diagnostic 
categories, a very limited number of people, for instance, with 
AIDS, and pursuing employer coverage only for those people. 
This meant that the vast majority of children with available 
employer coverage were really pursued.
    But where States attempted to do so, it got to be 
extraordinarily difficult. It was very difficult for them to 
get basic information on the availability of employer coverage, 
the benefit structure of that coverage, the employer 
contributions, and so forth. And there are a range of reasons 
that that is true. Our report goes into some of that.
    When States were able to get that information, eligibility 
period restrictions for private employer coverage often meant 
they could not avail the Medicaid eligible populations of that 
coverage. Then, further--and this is not a small item--it is 
very burdensome administratively, too, to get information for 
each individual applicant on whatever the benefit structure 
happens to be for that particular individual's employer, and 
then look at the employer's contribution policy and try to 
determine whether or not it is cost effective to pay the 
employee's share versus cover them under Medicaid. And in many 
States, as you know, just as at the Federal level, the dollars 
to expand administrative staff just are not there.
    So, for all of those reasons, it has not really worked very 
well. But as we move up the income stream and consider further 
expansions of uninsured children, certainly we can do better. 
And while I think it is true to say there will be some degree 
of crowdout no matter what we do, certainly what you do 
specifically will have a large influence on how much crowdout 
there is and, as Dr. Gruber indicated, how good the bang for 
the buck is.
    Some proposals before Congress basically would exclude 
children who are or have recently been eligible for sizable 
employer contributions. Our analysis is that that kind of 
approach would be both unfair and counterproductive in the 
longer run. It would be unfair because many of these children's 
parents are faced with very sizable contribution requirements. 
In fact, 30 percent of low-wage employees working for firms 
offering coverage in 1993 faced $2,400 or more in contribution 
requirements; and people in that income range simply cannot 
afford such outlays in most cases.
    It would further be counterproductive because it would 
basically place firms who offer coverage at a disadvantage 
relative to competing firms that pay the same wages but whose 
workers' coverage is financed by the public sector. The net 
result would be that over time more and more businesses would 
not finance family coverage. The population eligible for and 
receiving public subsidies under the new program would grow.
    In short, I think we all have to anticipate and certainly 
the Medicaid experience suggests this, that people in the 
market will respond to the incentives established by large 
national programs. This would also suggest that it would be 
better to structure financial incentives as a way to encourage 
continued private contributions while providing evenhanded 
assistance to individuals in families who require it whether or 
not they have employer-based coverage available to them. And 
your notions of looking at current tax policy and 
redistributions of current tax expenditures certainly have as 
much potential to do that as any other I have heard of.
    The one other point I would like to make--and several of 
the Members of your Subcommittee have made a similar point--is 
that families are not well served by programs which force them 
to have different family members in different health plans and 
to change health plans every time their job status or income 
changes. And the degree to which we can avoid that and allow 
families to easily access one plan--they only have to learn one 
set of rules and only have to learn how to access one network 
of providers--will certainly be better for them. I think, more 
importantly, create better incentives for health plans to 
provide cost-effective, preventive, and primary care service.
    It is a well-known problem in Medicaid that often HMOs do 
not have those incentives because of the high degree of 
turnover in the enrolled population. They never realize the 
benefits of preventive care because the patient has moved on to 
another plan or to become uninsured.
    Thank you.
    [The prepared statement follows:]

Statement of Richard E. Curtis, President, Institute for Health Policy 
Solutions

    Mr. Chairman and members of the committee, I am Richard E. 
Curtis, President of the Institute for Health Policy Solutions, 
a not-for-profit, non-partisan education and research 
organization that does not advocate specific legislation. The 
Institute was established to objectively analyze and develop 
approaches to solve health system problems, and brings special 
expertise and interest to policy approaches that complement or 
harness private sector roles to achieve goals that are in the 
public interest.
    We appreciate the opportunity to present our observations 
and findings regarding children's access to health coverage. 
These findings are presented in our report entitled Extending 
Health Care Coverage for Modest-Income Children and Pregnant 
Women: Public & Employer-Financed Coverage Lessons.
    While the details and methodologies vary, the research 
findings of Lisa Dubay and Genevieve Kenney as well as of David 
Cutler and Jonathan Graber both indicate that of the children 
and women above poverty who were newly brought into Medicaid 
coverage, a sizable portion would otherwise have been covered 
through employer plans.
    The possibility of this outcome was not entirely 
unanticipated. In fact, in 1990 Congress enacted a requirement 
that state Medicaid programs pay the employee share of costs 
for group coverage for a Medicaid-eligible worker or a worker 
with Medicaid-eligible dependents when it would be cost-
effective to do so--that is, when the cost of buying into the 
employer coverage is less than the expected cost of providing 
equivalent Medicaid benefits.
    But this provision has clearly not had its intended effect 
of preventing the ``crowdout'' of private coverage that has 
been reported. For a variety of reasons, most states have not 
aggressively pursued implementation of this provision, and 
those states which have face a number of hurdles that impede 
effective implementation.
    Many modest-income working families need assistance to 
afford coverage for their children. But the experience with 
Medicaid indicates that better approaches for coordinating low-
income subsidies with employer-financed private coverage are 
needed if available public dollars are to be efficiently used 
to cover additional children in need. Lessons can also be drawn 
to design policies which better afford access and continuity of 
care for children.
    As we note in the report, Medicaid expansions were a 
sensible strategy to reach uninsured low-income children at the 
time of their adoption. Only 7.6% of poor and near poor 
children in 1989 had a parent with employer-based insurance. 
Similarly, it is often noted today that 4 out of 5 parents of 
uninsured kids are themselves uninsured.
    But it is also critically important to observe that as one 
ascends the income scale to 150% of poverty and beyond, an 
increasing majority of children are eligible for employer 
coverage. In 1995 over 77% of children with family incomes 
between 200% and 399% of poverty had employer-sponsored 
coverage.
    Research findings such as those by Dubay and Kenny confirm 
that unless carefully crafted, public coverage expansions will 
increasingly substitute for existing private employer coverage 
as groups with somewhat higher incomes are targeted. For 
example, their estimates for the share of pregnant women 
covered under Medicaid enrollment increases who would otherwise 
be covered under employer plans are 0% for those beneath 
poverty, 27% for those from 100 to 133% of poverty, and 59% for 
those from 134% to 185% of poverty. It is interesting to note 
that for the 100% to 133% of poverty range, they found a 
similar ``crowdout'' percentage for children (22%) and pregnant 
women (27%). This may suggest that if Medicaid income 
thresholds were increased to 185% of poverty for children, it 
could similarly cause a much higher rate of ``crowdout'' of 
employer financed coverage for children.
    The reasons this occurred (despite a general federal policy 
to the contrary) are varied and complex. Our report identifies 
and assesses a number of these factors. They include a lack of 
clarity regarding cost-effectiveness across applicable 
populations, states' difficulty in identifying and getting 
information on employer plans, eligibility period restrictions 
even when such coverage was identified, and agencies' 
reluctance or inability to undertake the administrative burden 
of assessing such individual applicant's unique employment 
situation and verifying benefit plans.
    And the basic ``all or nothing'' structure of Medicaid 
makes it particularly difficult for states to design a sensible 
and efficient interface with employer-financed coverage. Many 
modest-income working parents (of Medicaid eligible children) 
and pregnant women are faced with a choice of free Medicaid or 
substantial contributions to obtain employer-sponsored 
coverage. Even when employer-sponsored benefits are generous 
and states pay the employee share of premium, states are faced 
with requirements to also enroll recipients in traditional 
Medicaid to obtain coverage for Medicaid benefits which are 
often broader than those offered under their employer's plan. 
States are also faced with administrative difficulty of 
coordinating Medicaid benefits with myriad different employer 
benefit plan variations. The Medicaid policies behind these 
requirements are clearly sensible, and to many of us desirable, 
for poor and near-poor persons. However, as we move up the 
income stream to reach more uninsured children, it will be 
important to consider alternative approaches that can better 
create a complementary relationship between public and private 
financing of coverage.
    In response to the Medicaid ``crowdout'' experience, some 
have suggested that any new expansions of children's coverage 
should simply exclude children who are, or have recently been, 
eligible for sizable employer contributions. Our analysis is 
that such an approach would be both unfair and 
counterproductive in the longer run. As the data in our report 
show, 30% of low-wage employees who work for firms that offer 
coverage would, if eligible, face $2,400 or more in annual 
employee contribution requirements to obtain family coverage. 
Without subsidies, most low-income families simply cannot 
afford such outlays, at least not without sacrificing other 
necessities. And subsidy policies that strongly favored 
families without access to employer coverage would also 
indirectly favor businesses who don't offer coverage.
    On the most basic and obvious level, government would be 
sending a message that it does not support employer 
contributions to dependent coverage, and in fact favors 
employers who do not. But beyond the obvious sentinel effect, 
such policies could create counterproductive economic 
incentives. Firms offering coverage could be placed at a 
disadvantage relative to competing firms that pay the same 
wages but whose workers' coverage is financed by the public 
sector. Such firms could afford to pay higher wages while firms 
that have traditionally offered coverage to employees would be 
incented to move to the use of contractual arrangements for 
workers without health coverage in lieu of direct employment. 
The net result would be that profits, jobs and employees would 
shift toward businesses that do not finance family coverage. 
And the population eligible for and receiving public subsidies 
would grow.
    Effects of this kind may seem merely hypothetical: outside 
the abstract realm where economists dwell, would millions of 
people immediately change their employment for a relatively 
small economic benefit? Would many businesses offering coverage 
fail while competing firms and start-ups that did not finance 
coverage grow quickly? Would a number of employers drop 
coverage and offer temporary wage increases to offset employee 
costs during any ``waiting period'' required between employer 
coverage and eligibility for public subsidies? Possibly not, at 
least in the short term. Over time, however, people do change 
jobs, and businesses do thrive or fail based on their response 
to economic incentives. In short, it must be expected that the 
market will respond to the incentives established by large 
national programs. If there is no advantage to workers who 
receive part of their compensation in the form of health 
benefits, the structure of compensation will change and public 
outlays for such programs would escalate.
    If the intent is to rely and build on parallel public and 
private financing and systems, erecting a wall between them 
will not work. People are going to shift from one kind of 
coverage to another as their circumstances change. And both 
employers and employees will find ways to respond to economic 
advantages given to some businesses and employee groups over 
others. The Medicaid ``crowdout'' experience would suggest that 
it would be better to structure financial incentives in such a 
way as to encourage continued private contributions while 
providing even-handed assistance to individuals and families 
who require it. But if a related goal is to optimize the use of 
public subsidies to achieve access to needed medical care, it 
will also be important to encourage the use of health coverage 
vehicles that have relatively low administrative costs and that 
do not magnify average per person or total public costs through 
risk selection. Simply subsidizing purchases through the 
traditional individual health insurance market could easily see 
a high proportion of public outlays going to insurance overhead 
while leaving those needing it the most unable to afford 
coverage.
    In addition, children and their families would be well 
served by policies which facilitated their ability to retain 
coverage through one health plan over time, rather than forcing 
a change in coverage source when their financial status 
changes. Shifts from employer to publicly sponsored plans often 
force a change in providers as well as a change in myriad 
benefit details and access rules. Further, health plans do not 
have positive incentives for the provision of even cost-
effective preventive care if turnover rates mean they usually 
won't realize the benefits. We are hopeful that lessons drawn 
from the Medicaid ``crowdout'' experience can lead to coverage 
expansions for children that are more cost-effective for 
government, and are better for children and their families.
      

                                


    Chairman Thomas. I want to thank all of you.
    Frankly, one of the reasons--your last comment, Mr. Curtis, 
that some of the managed care programs for the Medicaid group I 
think holds such great promise is if you can set up a structure 
which allows for an ongoing preventive care structure and try 
to deal with the product in a nonstigmatized way.
    You folk heard some of our earlier comments, and it carries 
through on your information. I guess I am less interested Dr. 
Gruber, Ms. Dubay, as to who is right, whether it is a 50-
percent crowdout or a 25-percent crowdout. I can't believe 
literature was initially adopted that said there was no 
crowdout. That, to me, is illogical.
    I noticed also that the focus was in the 185- to 200-
percent level. I guess if I said, What is your opinion of 
legislation that deals with a 300-percent poverty level, Ms. 
Dubay notwithstanding, the benefit of having the public 
program, that you would agree it begins to get fairly 
significant in terms of a public payment access question versus 
the private. Or would you like the 300 percent?
    Ms. Dubay. What I would say is that we have no evidence of 
what would happen above 185 percent of poverty. I would also 
say that I think the potential for crowdout above 185 percent 
of poverty there is enormous because such a large percentage of 
that population has private coverage. And so if a small 
percentage of those that have private coverage drop it and 
participation rates by the uninsured that are high, we may get 
a program where more dollars are going toward substitution of 
coverage than to new coverage.
    Chairman Thomas. And whether we like it or not, there is a 
clear relationship in terms of moving up the income level to 
people who pay attention to what programs they have, what 
benefits they get, the dollar amounts they are paying, the 
budgeting in terms of their family at that level, I begin to 
get concerned about the public policy of providing to a group 
of people a subsidized health care package that is clearly a 
better package than what is available to those folks who are 
trying to pay for it themselves and pay taxes to provide that 
package to others.
    So the crowdout becomes important to me because that is the 
area in which we have to be most creative in terms of providing 
options for people that either does not wind up in terms of a 
subsidy for some which draws them toward that subsidy that 
would otherwise not be the case or go back to some of the older 
tax credit approaches which, frankly, I don't think get you 
much for your money, and we have seen in the past don't work as 
well.
    But I am also concerned that the subsidy-nonsubsidy tends 
to be a government employer access debate. If it is a subsidy, 
it is government, if it is done out in the private sector, you 
get it from your employer.
    Have you looked at the question of purchasing pools? Now, 
schools were mentioned, but that creates the problem of 
separating the children from the parents in an insurance 
structure. But some States are offering insurance purchasing 
pools for small employers. I am wondering if you had any 
examination of alternate insurance packaging structures that 
might get us off of this employer-government access?
    Mr. Gruber. I think some States have tried voluntary pools. 
I think voluntary small business pools have not been very 
successful, if anything on a very, very limited scale, because 
of the adverse selection problems that were mentioned. It is 
difficult but a voluntary skill to make them work. So I think, 
at least my sense, maybe the other panelists know more about 
this, my sense is voluntary pools have not really gotten very 
far in terms of----
    Chairman Thomas. My problem is when we talk about adverse 
risk selection, I can't think of which is a worse one which 
does not necessarily do it in a traditional insurance sense but 
in which the people choose the public insurance versus the 
private because it is free versus expenses in the other. That 
is a very perverse structure.
    Mr. Gruber. I agree. In fact, I think the important point 
you brought out is not to forget the tax subsidy, which is a 
large public expenditure that certainly shouldn't fall out of 
this debate.
    Chairman Thomas. I do want to focus on that. Mr. Curtis 
mentioned it in his paper only as a concern; as we move forward 
that wouldn't be an academic one. But I am wondering why it 
couldn't be part of the policy decisionmaking, because I think 
that is where the current incentives create a maldistribution 
on the exclusions and deductions, and everybody just assumes 
that is a given and that is the way the world works. So, we 
have got to adjust it between the crowdout range that you are 
looking at. I am wondering why we don't look at the total 
public expenditure and talk about a redistribution.
    Interestingly enough, Senator Kennedy and the labor unions 
do this when they talk about income, and they want a 
progressive income tax for redistribution of wealth. But I have 
not heard them talk about a redistribution of the benefits in 
terms of the Tax Code, and that is because in large part unions 
get a significant benefit dealing with corporations, in my 
opinion, as to why they have not laid that in front of us.
    But I think, from a public policy point of view, to take a 
look at who currently is getting benefits on a percentage basis 
of income shows there is an enormous maldistribution. And we 
are arguing in an area in which there are clear, as you 
indicated, Mr. Gruber--notwithstanding your crowdout argument, 
there are clear benefits to make sure people have this 
insurance and utilize it. But I have a very difficult time 
looking at the current maldistribution and saying we will not 
look at that as part of the solution as we try to figure out 
how to deal with the people on the margin.
    Mr. Gruber. I mean--I very much agree. I think there are a 
number of problems with the tax subsidy. I think the only 
resolved questions the academics are still struggling with is 
that if you limited the tax subsidy, what would that do to 
employment-based pools? Would that break down employment-based 
pools? Which employment-based pools have a number of 
advantages?
    And what we don't know is to what extent is the tax subsidy 
the glue that holds them together and to what extent would they 
hold together otherwise because of other pooling benefits. 
Absent that issue, I think you are exactly right. There is no 
reason why we should be subsidizing at an increasing rate as 
taxes go up health insurance for high-income purchasers and 
worrying about crowding at the bottom.
    Chairman Thomas. Well, I would like to eventually get to 
your question. My problem is that with current cafeteria plans 
and others where you have more and more two-income households, 
that the decision of which spouse carries the insurance and 
what kind of an insurance program is offered by the employer 
and how you can up the other benefits under an open-ended 
fringe benefit package, to me are games that are being played 
at the higher income levels which get a disproportionate share 
of the writeoff in the first place.
    Again, that kind of a policy decision ought to be looked at 
by folks who are concerned about it in other areas; and I am 
just amazed that that seems to be a given without discussion on 
it.
    That is part of my concern about moving public dollars. If 
you are talking about bang for the buck, we have a lot of 
restructuring to do to make sure that the people at the lower 
end get a fair share. And it is not just looking at new public 
programs to move new public dollars into, but to reassess how 
our current public dollars are being spent to create a fair and 
equitable system.
    Thank you very much.
    Mr. Stark.
    Mr. Stark. Thank you, Mr. Chairman.
    I want to thank the witnesses for an interesting 
presentation. It seems to me, Dr. Gruber, that you have 
testified before us at some point in the past.
    Mr. Gruber. Yes.
    Mr. Stark. So, I probably told you then that even though 
MIT flunked me out before you were born, I hold no grudge. But 
I would like to know----
    Mr. Gruber. Toward him personally?
    Mr. Stark. Or the rest. Because I later got a degree out of 
them. But there is a battle between Lester Thurow and whom?
    Mr. Gruber. Paul Krugman.
    Mr. Stark. Who do you sign up with?
    Mr. Gruber. I am with Paul Krugman.
    Mr. Stark. All right. I don't know what difference that 
makes, but I just read that article recently. Is that 
destroying the program?
    Mr. Gruber. Is that what?
    Mr. Stark. Is that really causing real problems?
    Mr. Gruber. No, not really.
    Mr. Stark. OK. I am really going to ask each of the three 
of you, do you know--whatever we call it----
    Mr. Gruber. Crowd-out.
    Mr. Stark. Crowd-out and the fact that we might have to tax 
somebody or might have to do a variety of things 
notwithstanding. If, in fact, each of you today had to figure 
out a way to insure the 10 million kids by the end of the year, 
what would you do? And nothing is not acceptable.
    But then, before we do that, I wanted to ask Dr. Gruber if 
he ever included Jonathan Swift in his research?
    Mr. Gruber. I don't understand that context.
    Mr. Stark. Well, you did a paper; and you discussed the 
value of saving an adult life; but you say that for kids it 
ain't so clear because we have not invested a lot in the 
children. So, therefore, little children might not be worth as 
much. And I would commend to you Jonathan Swift's modest 
proposal. You haven't read it?
    Mr. Gruber. No, I have not. I must admit I am impressed you 
have read my research so carefully.
    Mr. Stark. Well, please do; and you will see why I 
suggested it, and you may get a chuckle out of it. But I just 
wanted to add that. Jonathan Swift's modest proposal.
    Mr. Gruber. I will take a look.
    Mr. Stark. I would like to know if that figures into your 
proposal.
    And then, also for my colleagues, what you are saying is 
that if we expand health insurance for poor women and children, 
that this is going to expand marriage. Is that right? Didn't 
you say that?
    Mr. Gruber. Yes.
    Mr. Stark. OK. What I am saying is that not only will we 
insure these kids, but we are going to decrease the level of 
illegitimacy, because so many people will not stay unmarried to 
keep the benefits of Medicaid.
    Mr. Gruber. This is something that has not come up in the 
hearing, but one thing that economic researchers paid a lot of 
attention to in the last couple of years, expanding Medicaid to 
other benefits besides health, it gets people off the welfare 
program because now they don't have to stay on welfare to get 
their health insurance.
    Mr. Stark. We are going to need all the help we can get, 
and that might get us a vote or two.
    Now the real question for each of you--Ms. Dubay, Dr. 
Gruber, Dr. Curtis--if we were to do it tomorrow, real quick, 
how would you expand? How would you do it? Expand Medicaid? 
Subsume Medicaid into Medicare? Do it all through private 
health insurance and have a tax credit? What would you do? Ms. 
Dubay--in 25 words or less.
    Ms. Dubay. I think, obviously, there are a lot of options. 
I would start by making some real efforts to increase Medicaid 
participation rates. I would phase in the coverage of older 
kids up to 100 percent of poverty immediately, and I would 
extend Medicaid up to 133 percent of poverty for those kids 
that are 6 to 18, and that would cover 61 percent of uninsured 
children.
    Mr. Stark. How would we deal with the other 39 percent?
    Ms. Dubay. There are a range of options. There are 
certainly six or seven plans that have been introduced in 
Congress. I think there are many ways to cover the remaining 
uninsured children. What the different plans deal with are 
different mechanisms for financing and administration; and I 
think all of them have their pluses and minuses.
    Mr. Stark. Which one has the least minuses? Income relating 
to subsidy?
    Ms. Dubay. I think income related subsidies are essential, 
if we want to ensure children have health insurance coverage.
    Mr. Stark. Dr. Gruber.
    Mr. Gruber. I would do three things. I would make every 
effort to sign up the eligibles who aren't taking up, 
particularly focusing in schools. I would extend Medicaid to 
all children below 133 percent of poverty up to age 18, and I 
would make it available to up to 200 percent of poverty but 
increase premiums so that by 200 percent of poverty, they pay 
the actual average per child premium, which I think is still--
if you look at--if you call that $500 per kid, a family of 
twice poverty, that is less than 3 percent of their family 
income. If they have two kids, they can insure two kids for 
less than 3 percent of their family income and pay the average 
cost.
    Mr. Stark. I think we can only get the cost that low if the 
program were mandated to do so and there was no adverse 
selection.
    Mr. Curtis, how would you do it?
    Mr. Curtis. I, too, would probably expand Medicaid up to 
133 percent of poverty. Beyond that I would go with a program 
with somewhat less generous benefit structure, with sliding 
scale contributions that made it affordable to people who do 
not have employer coverage available and that benefited people 
who do have employer contributions available. That is, the more 
the employer contribution is, the less the net amount the 
individual would pay; and, therefore, you would be encouraging 
employer contributions.
    In addition, and we have been doing this over the last 
couple months, I would work with small employer purchasing 
pools and with States on a more elegant interface between 
private and public coverage. And I also believe these kind of 
purchasing pool approaches have substantial potential as a 
vehicle to combine multiple employer contributions where you 
have a two-worker family with contributions available from both 
employers but not adequate enough from either to make coverage 
affordable.
    Mr. Stark. One final question. Maybe you could each comment 
on this.
    In the past, we have had some agreement on both sides of 
the aisle about the idea of subsuming Medicaid into a Medicare 
or Medicare Program for kid care, and keep the trust funds and 
everything separate from the seniors' Medicare. And with the 
changes in block grants and all the implications that welfare 
reform might have on eligibility, would any of you answer any 
differently if we, in effect, did away with Medicaid for kids 
and made it a Medicare? Because then, basically, what we are 
getting almost all children into it?
    Ms. Dubay. I think there are some advantages to that 
concept. Medicare is a program that is very well received, very 
well liked in this country.
    Mr. Stark. And can you buy private insurance with it or go 
into managed care?
    Ms. Dubay. As much as the Medicaid Program provides an 
important safety net for poor children, there are clear access 
problems within the program; and I think a Medicare Program--a 
Medicare-like program could potentially solve some of these 
access issues.
    Mr. Stark. Since Chairman Thomas gets jurisdiction, that is 
not a significant factor in this.
    Anybody else?
    Mr. Gruber. I think if you were going to do that, it would 
be a great opportunity to fix the things that are wrong with 
Medicare, that are hard to deal with for the existing Medicare 
Program, do things like increasing use of managed care and 
other beneficial things. It might be a good--starting fresh 
might be a good time to fix those things if you are going to 
deal with kids. With that, I sort of agree with what Lisa said.
    Mr. Curtis. I would leave the children's population with 
expanded Federal financing, whether it is redistributed tax 
dollars or others at the State level, for the following 
reasons: For the children without a connection to the work 
force, approaches through school systems make sense. Those are 
State and local. Children's families are often changing job 
status and income; and it just makes sense, if we are 
interrelated with the private sector employer-based coverage, 
that it is just far easier to do that at the State and local 
level.
    If we are going to expand Medicare to cover some 
populations now under Medicaid, I would pick up the SSI 
supplemental population, the elderly and disabled. I always 
felt that is screwy to operate that program at the State level 
rather than the Federal level.
    Mr. Stark. Thank you. Thank you, Mr. Chairman.
    Chairman Thomas. The gentlewoman from Connecticut.
    Mrs. Johnson of Connecticut. How much do you know about 
where the uninsured live?
    Ms. Dubay. I personally have not looked at that. My 
impression is that they live everywhere.
    Mrs. Johnson of Connecticut. Well, certainly they do live 
everywhere to some extent, no question about that. But, 
obviously, any information you can give us I think would be 
very important. Because just as the Medicaid population is 
concentrated, there may be concentrations that would help us at 
looking at where the answers lie in this issue.
    I would like to have your best effort on where these kids 
are and also what they are getting now. How many of them 
actually do participate in the school-based health care plans? 
How many are in community health centers, community health 
center programs? How many are emergency room care people? You 
must be able to find out something about the care that the 
uninsured children are currently getting. Because unless we 
know that, we don't know what funds to redivert.
    Mr. Gruber. I don't have the facts on the geographical 
distribution, but your comments actually raise a very important 
point which I think is largely ignored in this debate. The 
debate is focused on what economists call the demand side. 
Let's get these people insurance. There is a supply side out 
there which is a lot of doctors won't see Medicaid patients. 
One-third of doctors will not see Medicaid patients, and one-
third only see a very limited subset. Only about one-third of 
doctors will see Medicaid patients.
    Mrs. Johnson of Connecticut. And why is that, Dr. Gruber?
    Mr. Gruber. One main reason is the low fees. Medicaid pays 
typically one-half or less what private insurance pays, and in 
some research I have done we actually found there is a lot----
    Mrs. Johnson of Connecticut. But we are also beginning to 
go down that track with Medicare as well.
    Mr. Gruber. True.
    Mrs. Johnson of Connecticut. I think it is important to see 
where they are being seen now. Why are voluntary vaccine 
programs not working? We need to know why what we are doing now 
to reach these kids is not working, because otherwise we--the 
crowding out problem is real; but I think it is only going to 
get bigger. Because I think once you get into there and small 
employers figure out, Hey, I don't have to cover these guys, 
that you are going to get massive reaction.
    But, more importantly, even if you cover them, if 
physicians won't treat them--we had the discussion with the 
preventive panel--if you drop the reimbursement for some of the 
preventive studies so low and it is only a certain kind of 
office physicians that provides that preventive study, then you 
catch that physician between giving millions of preventive 
tests for which he essentially gets no reimbursement or seeing 
a person that really has a serious disease, needs a lot of 
attention, and for which he will get reimbursement.
    So I think you have got to be careful about--there are a 
number of aspects about the crowding out issue that we are not 
looking at when we just look at the data about small employers 
versus Medicaid.
    But Mr. Curtis, you made a very interesting comment. You 
said you would recommend a stripped-down Medicaid package. This 
is an aspect of the crowding out issue that reverses the role 
we have not talked about, and that is that the Medicaid benefit 
package is far richer than most small employers offer. So what 
impact--if we really go at this, what impact is that going to 
have on crowding out in a sense for legitimate reasons because 
you can get better health care for your children?
    Mr. Curtis. Well, actually, it relates to crowding out in 
another important way; and that is, under current law, even 
where a State identifies and buys into employer-sponsored 
coverage, they also have to enroll them in traditional Medicaid 
for any service covered to any degree beyond what the employer 
package covers, even if it is a high option HMO package. That 
is very, very difficult administratively, as you can imagine, 
doing that benefit package by benefit package with myriad 
employers' plans; and it has been a big impediment to States 
even trying to coordinate.
    So beyond the obvious incentives of a more generous benefit 
package here versus a somewhat less generous benefit package 
over there, there is that administrative impact as well.
    I believe Medicaid's coverage policies are very well 
structured for poor and near poor children. I think as you move 
up the income stream, parents can afford modest cost-sharing 
requirements and the other kinds of modest limitations in a 
typical HMO benefit package from a typical employer, and that 
they would not be impediments to children's access to 
preventive and primary care.
    Mrs. Johnson of Connecticut. Do you think we should amend 
the 1990 law to make it far easier to administer at the same 
time that we look at the issue that you pointed to with the 
need to help small employer groups and States integrate those 
Medicaid and small employer options?
    Mr. Curtis. In retrospect, we certainly could have done 
much better in designing the 1990 law.
    Mrs. Johnson of Connecticut. I read your testimony as if it 
is basically nonfunctional.
    Mr. Curtis. There are a few States that are doing 
everything they can; but even those only get, for example, 
responses back from a small minority of employers they inquire 
of.
    Mrs. Johnson of Connecticut. For national law, if a few 
States do it to a limited degree, I don't consider that 
success.
    Mr. Curtis. No, it is clearly not a success.
    Mrs. Johnson of Connecticut. But this was an idea that you 
are saying has some merit, and I would like to have your help 
in looking at that. Because I think small employer groups are 
very important, and I think this interface with Medicaid and 
small employer groups has got to be looked at much more 
realistically.
    But I would ask you--see, community health centers can 
offer that whole package of Medicaid benefits, which is a 
broader package. Are you aware of any effort to use that as a 
delivery vehicle because it is also a setting in which managed 
care and the benefits of managed care can be offered?
    Mr. Curtis. I am not familiar with that, but I would point 
out a couple of related factors. Most children with employer-
sponsored coverage available through their working parent have 
a parent working for a larger employer, not a smaller employer, 
first.
    Second, as we are looking at extending coverage to children 
moving up to, let's say, 200 or 300 percent of poverty, many of 
these working families do not live in areas that most 
traditional Medicaid clients reside in; and I have to imagine 
that they are in many cases not proximate to a community health 
center for similar reasons. These are modest income, working, 
middle-class families.
    Mrs. Johnson of Connecticut. I agree, Mr. Curtis. That is 
why I want to understand who lives where and what. Because we 
have no idea, really, what percentage of these could be served 
by a modest expansion of the community health centers.
    In Hartford, Connecticut, in working with the community 
health centers a few years ago, with two community health 
centers, they felt they could cover the whole low-income 
population of Hartford. Now, we didn't allow that, so they have 
not done that.
    But I think we have to look at what kind of infrastructure 
investment would we have to make to make that available, and 
then how do we get employers involved in helping their 
employees participate in that, which isn't as expensive as 
insurance. So I think there is some--we need to know where 
people live, because we need to know what access they are going 
to have. Because you can give them insurance, and if there is 
nobody that takes Medicaid, they still have no access.
    Mr. Curtis. That sounds reasonable. The only hesitation I 
have--and it is a significant one--is, again, I believe we 
should find ways for families to be in the same access and 
coverage vehicle so that they do not have to figure out a 
different way of accessing needed care for every member of the 
family. I think that is unnecessarily burdensome.
    Mrs. Johnson of Connecticut. I think that is a very good 
point. Thank you.
    Thank you, Mr. Chairman.
    Chairman Thomas. Gentleman from Georgia wish to inquire?
    Mr. Lewis. Thank you, Mr. Chairman. Mr. Chairman, I will be 
very brief.
    I want to thank the members of the panel for being here. I 
know between the three of you there is not any debate or 
conflict about the number of uninsured children. I think you 
tend to agree that the number is about 10 million. Is there any 
conflict, any debate there?
    And I know something about your background and your 
history. You are very smart. You spend a great deal of time 
looking at the whole issue of health care for children, the 
question of providing insurance for children.
    I guess where I am at this point, this is 1997; and we are 
moving toward the 21st century in our country, on this world, 
on this little planet; and I guess I want to see a revolution 
in this whole area. I don't want to be patient. And I guess the 
question I want to ask here, What else can we do as a nation, 
as a Congress, in a short time, in a very dramatic fashion, to 
bring in the children that have been left out, left behind into 
Medicaid? What can we do?
    Mr. Gruber. Well, I think one place that we can all get 
behind that, presumably it will be quick and presumably not 
that expensive, is we have these 3 million kids out there that 
are eligible for this program and who, for some reason we don't 
quite understand, are not taking it up. And the experience of 
some States like New York and I think to some extent Florida to 
take effective advertising, effective use of schools, something 
we can do in a relatively short time that is not that expensive 
and presumably not that controversial, that can have a dramatic 
impact. After all, we are talking about 30 percent of the 
number of uninsured kids that can have a dramatic impact in a 
very short time. I think that has obviously got to be the first 
step.
    Ms. Dubay. Part of the problem is that we do not know why 
they are not enrolling. We don't know if it is because the 
Medicaid eligibility determination process is very difficult. 
We don't know if they don't know about the program. It is 
really the parents of these children acting as agents for the 
children; and we don't really know why they are not enrolling 
their children in Medicare. Until we figure that out, we can't 
find a solution to the problem. And I think that is probably 
the first step, trying to figure out why children are not 
enrolling.
    And I think Jonathan's point is good, there are some States 
working through the schools to make eligibility determinations 
there for Medicaid coverage, and I think that that is an 
important way to reach many of these kids.
    Mr. Curtis. My understanding is that in Florida their 
program--piggybacks eligibility on the school lunch programs. 
So it is very simple. People know if they are eligible or not. 
And, of course, they are reaching them through the schools 
rather than the welfare offices, which is a good way to reach 
most of these people, we think.
    Mr. Lewis. Is there something you would recommend to the 
Congress that we can do that would not cost a lot of money in 
terms of involving the private sector in a major media-type 
campaign in an effort to educate and to open the lines of 
communication to the American people to enroll their children, 
saying to the American people that if we don't take care of our 
children on the front end we are going to pay more on the back 
end?
    Ms. Dubay. I think that in some local areas, particularly 
with the Medicaid expansions for pregnant women, there were 
some public-private partnerships where private dollars were 
leveraged to do that sort of outreach campaign; and in some 
places they were very effective.
    Mr. Lewis. Thank you.
    Thank you, Mr. Chairman.
    Chairman Thomas. Thank you.
    Does the gentleman from California wish to inquire?
    Mr. Becerra.
    Mr. Becerra. Let me ask the panel the same question I asked 
the first panel, and that is the trend of seeing employers 
providing less options of health coverage to their employees. 
Do you believe that the trend will continue where we see fewer 
and fewer employers providing health insurance--meaningful 
health insurance coverage to their employees?
    Mr. Gruber. I think there are two points.
    First of all, one place that both Lisa and I agree is that 
the majority of that trend is not due to Medicaid. Even though 
crowdout is large, by my estimation over 830 percent of that 
trend is not due to Medicaid. Over 830 percent of that trend is 
due to other factors in the economy, and I see no reason for 
those factors to reverse. It has been going on a decade or 
more. Now we see this rapid deadline, and I see no reason for 
those--regardless of what government policy is on Medicaid, I 
see no reason for those other factors to reverse.
    Ms. Dubay. One thing I would like to mention----
    Mr. Becerra. If I could followup with Dr. Gruber before I 
get to you, Ms. Dubay.
    We see both employers reducing coverage and we see 
employees through this crowdout phenomena also perhaps leaving 
their employers to try to go to the public sector?
    Mr. Gruber. Yes, I think both are going on. I think if you 
look at the time series that the majority is not Medicaid, the 
majority is--both employers and also employees are not taking 
it up. It can be very expensive, particularly for dependents, 
even if they don't move on to public programs, just choose to 
not have their kids insured rather than paying the cost.
    Ms. Dubay. The point I was going to make--and I think it 
really illustrates what was going on over the period of 
Medicaid expansions--was that between 1989 and then 1992--
employee contributions for individual policies rose by 25 
percent, while employee contributions for family policies rose 
by 50 percent. So we were seeing a much faster decline in the 
dependent coverage.
    I think that is part of what was going on with the 
displacement we are seeing, was that individuals were dropping 
their employer-sponsored coverage in response to these 
increased employee shares of premiums. And there is no evidence 
that suggests that this increase in premium contributions is 
going to decline or stop.
    Mr. Curtis. I feel compelled to point out that the erosion 
in employer contributions to family coverage which was dramatic 
in the late eighties and very early nineties has not continued. 
At least there is not consistent evidence from the employer 
surveys from, say, 1991 to the present.
    In fact, the Foster-Higgins survey shows virtually no 
erosion in employer contributions to family coverage during 
that period; and it makes some intuitive sense because, of 
course, health plan premiums stabilized. Employers weren't 
facing rising premiums. There is evidence now that premiums are 
rising again, and I expect we will see some of that erosion 
again.
    But in addition to responses to rising health care costs, 
we have seen far more aggressive action by employers to avoid 
cross-subsidizing other employers. And there has been some 
understandable but unfortunate gaming going on by either 
reducing contributions to family coverage or--and this is the 
kind of thing that does not show up in any of the surveys--
making it beneficial to the employees to not take advantage of 
employer coverage when other coverage is available, either 
through flexible spending accounts or through things like a 
smaller firm increasing a person's wages who doesn't take the 
health benefits. Large employers became painfully aware that a 
lot of small employers that do not offer coverage were doing so 
at the expense of the larger employers who employed their 
spouse, and a number larger employers decided that was not fair 
and responded accordingly.
    Frankly, my guess would be what we see in the way of 
erosion in family contributions over the next 5 or 6 years will 
directly reflect what happens with health insurance premium 
prices. I think those other factors have probably played out 
now.
    Mr. Becerra. Let me ask you then this question. Unless we 
get a total grip on the cost of health care, we are going to 
continue to see employers brought to the margin in terms of 
being able to provide coverage to the employees and employees' 
families; and so we will probably see some diminished capacity 
by the employers in the Nation to provide good coverage.
    We have that pool of poor individuals, and even if we take 
into account the three or so million children that we already 
know are eligible for Medicaid, say we get them all covered, we 
still have a pool of poor or fairly poor individuals who don't 
have coverage.
    The more we make an effort to try to cover those very poor, 
in other words, go up the ladder to provide coverage for the 
very poor, the more we end up with this dynamic where folks are 
going to be pulled by that magnet of having public health care 
to stay away from the employer type of coverage, or the 
employer deciding it is better for me not to provide it. So 
that there will be a constant pull to have the public sector do 
it.
    But you are always going to seem to have that in between 
population of people that do not qualify as poor, can't afford 
the employer based. And every time policymakers are going to be 
asked to try to resolve the problems for that in between 
population, we are going to have to constantly drive up the 
public sector cost.
    It seems to me, from everything I keep hearing, that means 
the private sector is going to be pushed away from trying to 
meet that need itself as well, which means ultimately we are 
going to have to go toward a public sector solution to try to 
get some form of universal coverage for all these folks out 
there, whether poor, modestly poor, middle income, or 
otherwise. Ultimately, doesn't it just boil down to the whole 
issue of how do we get to universal health care?
    Mr. Gruber. I think ultimately it comes down to whether 
health care costs can just continue to rise at the rate they 
are. Many, in some instances, for some reason, will stop, 
because we cannot imagine spending one-third of our economy on 
health care. But ultimately it depends on what happens there.
    I think that, incrementally, the first step is to try to 
fix the inefficiencies that we know are wrong with the private 
market, like the employer tax subsidy, which leads to 
inefficiently high, generous health insurance coverage and 
potentially contributes to rising health care costs. I think 
that is the first step you would want to think about taking.
    Mr. Becerra. But everything we have been saying--crowdout, 
cost for employers to provide coverage to competition, where 
some employers are financing their costs and others are not and 
they have that competitive advantage, those that do not provide 
it--in essence, what we are talking about is the fact that some 
people have coverage, whether it is employer financed or public 
sector financed or private pocket financed, ultimately, that 
means employers providing enough for them to privately pay for 
it, or it is publicly financed totally by government.
    But we have a gap, and the reason we have a problem is 
because there is this disparity, someone is paying for someone 
else. And whether it is crowdout or other issues, you are not 
going to resolve crowdout or anything else until you get to the 
point where someone wouldn't be put at an imbalance compared to 
someone else, whether it is the employer or employee. Which 
means until you provide everyone with access to the coverage, 
you are always going to have that competition.
    Should an employer provide health care coverage, which 
means more cost to the employer when another employer is not 
doing it? Ultimately, it seems to me you get to that point 
where you have to resolve that issue. We have got a middle 
population that does not have coverage because it can't afford 
it, but we are not willing to provide it.
    Ms. Dubay. In a lot of ways I think you do make a really 
good point. And in terms of thinking about this problem, I 
really have struggled with this. Because if you really want to 
get these children covered, to get them insurance coverage, you 
are ultimately going to commit more public dollars to do it. 
And if your goal is to get these children covered, that is 
probably what you are going to end up having to do.
    Mr. Becerra. At someone's expense though.
    Ms. Dubay. At someone's expense.
    Mr. Becerra. If you continue to have the population that 
won't get the coverage.
    Ms. Dubay. There are people that will drop their private 
coverage. However, they may drop for good reasons. The dropping 
may not be just the substitution of coverage. It may be 
obtaining coverage that they do not have access to now--for 
instance, if they have plans that are catastrophic or that 
don't offer preventive coverage. So that shifting from private 
to public coverage may not be a bad thing, and it may get 
children the kind of coverage that we really care about them 
having. But it will cost us money.
    Mr. Becerra. Mr. Chairman, you have been gracious with the 
time. I appreciate it.
    Chairman Thomas. The gentleman's point is precisely the one 
that we have to grapple with. Because if we do not have an 
appropriate phaseout, you will be chasing the public subsidy 
right up to the top of those people who don't take insurance 
because they are, in essence, self-insured by the basis of 
their own wealth.
    That is why we have been trying to put the focus on the 
nexus of how you create a phaseout, an increased contribution, 
a mix of options at that phase point to allow for the private 
sector to continue to pay. Because it is simply an enormous 
amount of money that we are talking about. We already are 
putting in enormous amounts of money. I think people who pay 
are willing to put in a bit more to get those below the poverty 
level covered. But as we move toward managing better health 
care plans in the public sector than those who can pay for it 
themselves who are also paying for the public sector, you have 
got a very, very serious problem.
    Mr. Becerra. If I could almost ask the Chairman a question 
to pose to the panel as well. Won't there still--even in that 
scenario, if we are able to find some fantastic way to provide 
a phaseout scheme, won't we still have the same thing in play, 
people balancing the interest?
    Chairman Thomas. Of course, but our concern now is at the 
margin rather than at the bulk, as the gentleman from Georgia 
has indicated the concern. That is why I think our first 
priority here is to get the three million children who are 
supposed to be covered covered.
    I think we may learn some lessons about how we package a 
product and how we communicate a product which will serve us 
well as we move forward. Because it is just hard for some of 
us, as the gentleman from Nevada indicated, to understand why, 
when this is available, people don't utilize it. It is 
obviously a question about education, the way in which it is 
packaged, where and how it is packaged. And those lessons, I 
think, will serve us well at minimum dollars, or most bang for 
the buck, as Mr. Gruber says, those lessons, and then those 
lessons we can apply.
    That is why I am concerned about these all-in-one solutions 
before we have really looked at and fully understand who the 
folk are, where they are, and how we might best serve their 
needs. So, in this sense, I do believe in the long run we will 
be serving everyone's interest if we move incrementally. It 
doesn't mean we can't make some real big jumps fairly quickly 
at the low end of the scale and then be a bit more precise as 
we move forward.
    So I guess I would ask just a final question. In terms of 
the President's plan, where he is willing to spend $20 billion, 
more than half of it is in this short-term coverage of 
temporarily unemployed. I guess I will start with Dr. Gruber, 
who is most concerned about bang for the buck. Is this where 
you would spend 50 percent of your available dollars to meet 
the children's insurance needs?
    Mr. Gruber. I am not particularly familiar with the details 
of the plan. I think clearly the unemployed, some of them had 
access to health insurance through COBRA, so those people do 
have access to purchasing health insurance. I think there is a 
need among those people to maintain their children's coverage.
    But I think for most of what we are worried about with kids 
is preventive care. If you go a month or two without preventive 
care, it is not the end of the world. What we are really 
worried about is these kids who go a year or two without 
preventive care. So I guess I share your concern. The real 
problem with kids especially is going long stretches of time 
where they are not getting the preventive care that they need.
    I do not know whether one-half or less than one-half is the 
right amount to spend in the short-term groups, but clearly you 
want to worry about--with kids especially where it is less 
acute and more preventive, we want to focus our energies, I 
agree, on the longer term population.
    Chairman Thomas. Any other reactions?
    Mr. Curtis. Well, if the question is, Is that the lowest 
cost way to cover uninsured kids, I think the clear answer is, 
no, if the focus is solely kids.
    One advantage of the approach is it does keep families 
together in terms of coverage. But $20 billion a year would be 
at least double or maybe triple what you need to finance 
coverage for all 10 million uninsured kids.
    Chairman Thomas. And that probably brings to a conclusion 
this Subcommittee, because it is a dilemma. We do want to 
provide coverage. How you cover it, I believe, is the current 
debate, not whether or not, especially those below the poverty 
level or somewhere between 100 and 200 percent of poverty 
should be covered.
    I want to thank the panel for its testimony. I am sure we 
will get back to you as we move forward on this issue.
    I want to thank the Members.
    The Subcommittee is adjourned.
    [Whereupon, at 1:10 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of American Academy of Child and Adolescent Psychiatry, 
Lawrence A. Stone, M.D., President

    The American Academy of Child and Adolescent Psychiatry 
(AACAP) thanks you for holding hearings on access to health 
care for children. Many of the 10 million American children 
currently without health insurance are children with mental 
illnesses. These are children who suffer from childhood 
schizophrenia, depression, attention-deficit/hyperactivity 
disorder, obsessive compulsive disorder and conduct disorder.
    The Academy, representing over 6,000 child and adolescent 
psychiatrist, urges you to support non-discriminatory coverage 
for mental illness treatment in any related legislation. The 
treatment of childhood disorders represents a major public 
health concern. Chronic mental illnesses respond well to 
treatment but lifelong access to the health care system is 
necessary. Successful diagnosis and treatment is a wise 
investment, given the pain, long-term disadvantages, and 
financial costs associated with untreated childhood behavioral 
and emotional disorders.
    Health care reform proposals directed toward universal 
access for children and adolescents can result in a 
comprehensive change to a new benefit and payment system, or it 
can reform the existing system of public and private insurers. 
Whether there is a move to an expanded Medicaid program, a tax-
based incentive program for employers or a subsidy program for 
parents and guardians, we ask that children and adolescents 
with mental illnesses be assured nondiscriminatory coverage.

   Recommendations for Health Care Reform 1997: Child and Adolescent 
                          Psychiatric Services

    The following three recommendations will support 
appropriate, quality care under any health care reform system:

Access and Nondiscrimination

    1) Children and adolescents have no access to insurance on 
their own. Provision should be made to include access for all 
children and adolescents, regardless of their family's status 
or income level. Access to psychiatric services should be 
provided on a nondiscriminatory basis integrated with other 
necessary medical services.
     Child and adolescent psychiatrists are the most 
highly trained professionals in the service-delivery team.
    Trained to assess the biopsychosocial dimensions of most 
childhood disorders, they should not be excluded because of 
their unique training nor should it be assumed that other, 
lesser-trained physicians or health care providers, can treat 
serious psychiatric illnesses and have the same outcomes at a 
lower cost.
     Services provided by child and adolescent 
psychiatrists should not be discriminated against because of 
misperceptions regarding cost or length of treatment. Excluding 
physicians who have acquired special training in order to treat 
children and adolescents is counter productive and not cost 
effective. Managed care contracts for medical services should 
not discriminate against physicians or hospitals by forcing 
unrealistic limits on reimbursement and skewing patients to 
less skilled persons. Errors in diagnosis and treatment are 
costly. For children this can mean developmental delays. 
Appropriate, quality care will be cost effective; artificial 
limits on who can treat or where and for how long treatment can 
take place raise questions of liability and quality of care.
     Diagnoses included in the DSM-IV should be 
reimbursable. Discrimination by insurers against select 
diagnoses is unacceptable, especially when illnesses are
    excluded for cost-containment reasons. Numerous insurers 
across the country have decided that conduct disorders, 
Tourette's disorder, or attention-deficit/hyperactivity 
disorder are not reimbursable. There is no reason for denying 
treatment for these serious illnesses except to control costs 
or because of a lack of understanding about the seriousness of 
these illnesses.

Range of Services

    2) Services provided should include a wide range of 
treatment options--including but not limited to preventive 
interventions, early identification, assessment and diagnosis, 
case management, outpatient treatment, partial hospitalization, 
home-based services, detoxification and inpatient treatment. 
Treatment for children requires that services involve both the 
child or adolescent and family as well as appropriate 
collaboration with other significant care givers, teachers, 
physicians or providers of other needed services.
     Reimbursement for a range of services to treat 
psychiatric illnesses has increased slowly. Innovations in 
treatment are inhibited by some reimbursement limitations. The 
system has tended to favor the most expensive treatment, such 
as hospitalization and not to include partial hospitalization, 
or, in the case of residential treatment, shift from including 
to excluding it with no explanation and no addition of other 
services.
     The use of inpatient services, like 
hospitalization and residential care, should not be 
discriminated against or unfairly capped because of 
misperceptions about cost or effectiveness. These are necessary 
treatments for children and adolescents with severe disorders. 
Community resources are often limited to inpatient services, 
which has contributed to inappropriate care. A reform proposal 
must support expansion of community services and adequate 
reimbursement for providing those services.
     Medicaid is designed to provide mental health 
services (to eligible children and adolescents). Medicaid's 
mandatory services for children and adolescents with 
psychiatric illnesses cover outpatient hospital services, 
including partial hospitalization, inpatient hospital and 
physician services, and services under the Early Periodic 
Screening, Diagnosis and Treatment (EPSDT) program. In 1989, 
Medicaid was amended to require the provision of treatment and 
follow-up services for problems identified through EPSDT 
screening even if the state does not normally cover such 
services through Medicaid.
    Most states have not been able to comply with the expanded 
Medicaid requirements, primarily for economic reasons that 
impede the training of screening personnel, the establishment 
of referral protocols, and the inability to reimburse for 
professional services at any more than a minimal level; 
however, the language of the law reflects a reliable model for 
both prevention and treatment of serious emotional disorders.

Cost containment

    3) Incentives should encourage the use of the earliest of 
interventions, the level of treatment necessary, treatment and 
management by an appropriately trained physician, and the most 
appropriate treatment setting possible, all of which would best 
serve the child's clinical goals in an economically prudent 
manner.
     Managed care, when used for cost containment, 
should not be equated with minimum care. Competition for 
contracts can lead to mental health benefit packages that 
discriminate solely because of the stigma of the illnesses 
involved. Children and adolescents with psychiatric illnesses 
often require complex diagnostic processes. Comorbidity is high 
in diagnoses such as conduct disorder or attention-deficit/
hyperactivity disorder, and adjustments in the treatment plan 
may be necessary. Inflexible packages obstruct even standard 
treatment plans for children and adolescents. Diagnoses of 
comorbidity require trained child and adolescent psychiatrists. 
To miss a diagnosis and leave it untreated, lengthens the 
treatment and adds to the cost of the illness.
     The use of managed care to control medical 
services must be regulated. The managed care industry's 
practices vary widely in organizational structure and quality. 
Reform measures will be compromised if regulation and oversight 
are not included. Improper utilization review can grossly 
compromise the treatment and significant psychiatric or 
physical harm may result. Too often, child and adolescent 
psychiatrists find that reviewers do not have enough knowledge 
about treating young patients. Even medical directors, unless 
trained in child and adolescent psychiatry, make treatment plan 
review recommendations based on adult practice guidelines.
     Case management is essential to mental health care 
reform. Negotiating with agencies, resources, providers, and 
specialists is difficult and frustrating, and delays in 
treatment can result. Case managers must be trained to access a 
wide range of services and be appropriate in referring to those 
services.
    Child and adolescent psychiatrists are physicians who are 
trained to treat the psychiatric illnesses of children, 
adolescents and adults. Their skills incorporate the broadest 
range of treatment skills available for treating the 
biopsychosocial facets of mental illnesses. Access to care by a 
child and adolescent psychiatrist should not be excluded or 
limited because of discrimination, stigma or misperceptions 
about cost and effectiveness.

Conclusion

    The American Academy of Child and Adolescent Psychiatry 
thanks you for your consideration of children and adolescents 
with mental illnesses. Child and adolescent psychiatrists treat 
youngsters with serious mental illnesses and understand the 
problems of inadequate health insurance. When treatment is 
delayed, families suffer, financial burdens expand, and social 
services are overwhelmed. AACAP urges you to support health 
insurance coverage for all children and adolescents with mental 
and physical illnesses. Children must have access to the 
appropriate treatment and services needed to develop into 
productive and independent adults.
      

                                


Statement of American Academy of Pediatric Dentistry, Chicago, Illinois

    To the surprise of many policy maker's, America's low-
income children continue to experience high levels of dental 
disease and disability, and restricted access to dental 
services while their counterparts in middle-and upper-income 
households enjoy unparalleled dental health.
     Afflicted children experience pain, infection, 
distraction from learning, and over 1.1 million days sick-in-
bed and nearly 500,000 missed school days from acute dental 
conditions each year.
     In spite of repeated evidence from national 
surveys demonstrating that low-income children continue to 
experience significant levels of dental caries (tooth decay), a 
recent report from the DHHS Office of the Inspector General 
(OIG) indicates that only 1 in 5 Medicaid-eligible children 
receive required dental services annually.
     HCFA data demonstrate a wide disparity between 
utilization of EPSDT services provided by dentists (18%) for 
Medicaid-eligible children and those provided by physicians 
(67%).
    Medicaid has mandated pediatric dental coverage for nearly 
30 years but has universally failed to make good on legislated 
assurances that children can access care.
     Currently HCFA expends only about 1/2 of 1 percent 
of Medicaid dollars on children's dental care.
     42USC 1396r-7 enacted in 1989 assured access to 
care for children and specifically directed HCFA to assure 
access for medical but not dental services. As a result nearly 
4 in 5 children obtain medical care while only 1 in 5 obtains 
any dental care.
    Existing federal programs designed to meet the dental care 
needs of low-income children fail to do so because of 
inadequate Congressional oversight. Newly proposed federal 
programs to extend health coverage to additional low-income 
children must incorporate provisions that will ensure essential 
basic and preventive dental services to address this highly 
prevalent and most common of childhood diseases.
     Provisions that were enacted as part of P.L. 101-
239 (42USC, Chapter 7, Subchapter XIX, 1396r-7) to promote 
access to pediatric services must be extended to include 
providers of EPSDT dental services.
     Adequately funded and properly structured 
commercial health care coverage, in conjunction with adequate 
consumer protection measures, can be an effective mechanism for 
expanding access to pediatric dental services, and should be 
considered as an adjunct or alternative to traditional Medicaid 
programs.

    Access and Utilization of Dental Services by Low-Income Children

    Access to dental services remains a common and serious 
problem for millions of low-income American children. In spite 
of repeated evidence from national surveys \1\ \2\ 
demonstrating that low-income children continue to experience 
significant levels of dental caries (tooth decay), several 
sources including a recent report from the DHHS Office of the 
Inspector General \3\ (OIG) and data from the Health Care 
Financing Administration \4\ (HCFA) indicate that only 1 in 5 
Medicaid-eligible children receive required dental services 
annually (Appendix I). HCFA data demonstrate a wide disparity 
between utilization of EPSDT services provided by dentists 
(18%) for Medicaid-eligible children and those provided by 
physicians (66-71%) (Appendix II).

             Extent of Dental Caries in Low-Income Children

    Dental caries remains a common, significant childhood problem in 
the United States, especially for low-income infants, children and 
adolescents. Recent national survey findings \1\ demonstrate that 
approximately 13-32% of 2-to 4-year-old children, depending on race and 
ethnicity, experience caries. Prevalence rates increase with age such 
that nearly 50% of non-Hispanic White and Black children between the 
ages of 5 and 9 years, and 65% of Mexican-American 5-9 year olds 
experience caries in their primary dentition. Overall, rates of 
untreated decay in 2-9 year olds range from slightly over 40% for non-
Hispanic Whites to roughly 60% for non-Hispanic Blacks and Mexican 
Americans.
    Caries affecting permanent teeth also is a common problem for 
school-age children. Nearly 70% of 12-17 year olds examined in the 
Third National Health and Nutrition Examination Survey \1\ (NHANES III) 
had active caries or dental restorations (fillings), with non-Hispanic 
Blacks and Mexican-Americans having higher rates of unfilled decayed 
teeth. A quarter of the children and adolescents aged 5-17 with at 
least one permanent tooth accounted for approximately 80% of the caries 
found in permanent teeth. Previous national surveys have demonstrated 
similar disproportionate levels of disease burden in low-income 
children and adolescents.\2\ Afflicted children experience pain, 
infection, distraction from learning, and over 1.1 million days sick-
in-bed and nearly 500,000 missed school days from acute dental 
conditions each year.\5\

  OIG Findings Concerning Children's Access to Dental Services under 
                                Medicaid

    A recent inspection conducted by the DHHS Office of the 
Inspector General \3\ confirmed HCFA data \4\ demonstrating 
that only 1 in 5 (4.2 million out of 21.2 million) eligible 
Medicaid children received preventive dental services in 1993. 
This was a slight decrease from the 1992 data as shown in the 
following table:

Percent of EPSDT Children Who Received Preventive Dental Services by Age
                          Group, 1992 and 1993
------------------------------------------------------------------------
                                                                 15-20
    Year       All Ages     <1 Year    1-5 Years  6-14 Years     Years
------------------------------------------------------------------------
      1992         22.0          0.3        18.1        33.7        22.2
      1993         19.7          0.4        16.0        30.0        19.5
------------------------------------------------------------------------


    The extent of the problem varies significantly from State 
to State. (See Appendix I for a State-by-State breakdown of 
1993 data). The OIG report noted that in 1993, three-fourths of 
the States provided preventive services to fewer than 30 
percent, and none of the States provided them to more than 50 
percent of all eligible children.
    The OIG report found that 80% of the States attribute the 
low utilization rates to a shortage of dentists who are willing 
to accept Medicaid patients. In many communities, families and 
EPSDT staff have difficulty getting timely dental appointments 
for Medicaid children. They often have to wait 6 to 8 weeks or 
travel long distances. Even among the 9 States reporting an 
adequate supply of dentists, 5 provided preventive services for 
fewer than 20% of eligible children. Although shortages are 
usually more severe in rural areas or isolated locations, 13 
States report statewide shortages.

  Dental Services Omitted from OBRA '89 Changes to Improve Children's 
                      Access to Medicaid Services

    Section 1905(r) of the Social Security Act, created by the 
Omnibus Budget Reconciliation Act of 1989 (OBRA '89), details 
the basic requirements for the Early and Periodic Screening, 
Diagnosis and Treatment (EPSDT) program. It specifies that, in 
addition to mandated screening by a dental professional 
according to professionally developed periodicity schedules and 
as medically necessary, dental services must include those for 
``the relief of pain, infections, restoration of teeth, and 
maintenance of dental health.'' These services include 
diagnostic, preventive, therapeutic and emergency services for 
dental disease.\6\
    OBRA '89 (P.L. 101-239; 42USC 1396r-7 \7\) also mandated 
several changes aimed at improving problems concerning access 
to pediatric services under Medicaid. Included in the general 
provisions concerning Medicaid were requirements for States to 
submit annually proposed Medicaid payment rates for pediatric 
services and other such data that would assist the Secretary of 
DHHS in determining whether such rates are sufficient to ensure 
that pediatric services are at least as available to Medicaid 
beneficiaries as they are to the general population. The 
legislation also required States to immediately revise rates 
determined to be insufficient. However, instead of specifying 
the scope of services to be covered by this legislation 
according to Early and Periodic Screening, Diagnosis and 
Treatment guidelines for mandated services, the legislative 
language defined ``pediatric services'' by categories of 
providers. Dentists were not included, thereby effectively 
eliminating the requirement that States reimburse dentists for 
mandated services at rates comparable to those found in local 
markets. The impact of that omission undoubtedly is reflected 
in the fact that nearly 4 out of 5 Medicaid-eligible children 
now obtain medical care while only 1 in 5 obtains any dental 
care.

 Effect of Payment Rates on Access to Services for Low-Income Children

    Numerous examples of the effect of reimbursement rates on 
access to health care services exist. A recent study published 
by the Agency for Health Care Policy and Research \8\ examined 
the effects of physician fees on children's use of preventive 
and illness-related ambulatory physician services under the 
Medicaid program. Using data from the 1987 National Medical 
Expenditure Survey, the authors examined the effects of 
Medicaid fee generosity on physician service use and overall 
ambulatory physician spending. The results indicated that more 
generous fees are associated with a greater likelihood of 
having a doctor's office as a usual source of care and a higher 
number of preventive visits at office-based sites of care. 
Interestingly, having a doctor's office as a usual source of 
care was associated with lower overall ambulatory physician 
expenditures.
    Relative fees also have been shown to be a major 
determinant of overall Medicaid provider supply and of 
dentists' participation in Medicaid.\9\ \10\ \11\ A recent 
evaluation of a public-private partnership program which 
provided commercially available health care coverage (including 
dental benefits) to low-income children in Western Pennsylvania 
found that within 12 months of enrollment, the percentage of 
children with unmet dental needs was reduced from 43% to 10%.12 
The same study demonstrated a 25% increase in the number of 
children with a regular source of dental care 12 months after 
enrollment in the program.\12\

                      Summary and Recommendations

    Children covered by the Medicaid program continue to 
experience high levels of dental disease and restricted access 
to dental services compared to their counterparts in the 
general population. Failure to enact policies that ensure 
reimbursement for dental services based on prevailing market 
rates undoubtedly contributes to the gap between coverage and 
access to much-needed dental services under Medicaid.
     Provisions that were enacted as part of P.L. 101-
239 (42USC, Chapter 7, Subchapter XIX, 1396r) to promote access 
to pediatric services need to be extended to include providers 
of EPSDT dental services.
     Adequately funded and properly structured 
commercial health care coverage, in conjunction with adequate 
consumer protection measures, can be an effective mechanism for 
expanding access to pediatric dental services, and should be 
considered as an alternative to traditional Medicaid programs.

                               References

    1 Kaste LM, Selwitz RH, Oldakowski RJ, et al. Coronal caries in the 
primary and permanent dentition of children and adolescents 1-17 years 
of age: United States, 1988-1991. J Dent Res 1996;75(Spec Iss):631-641.
    2 Brunell JA. National Institute of Dental Research, Epidemiology 
and Oral Disease Prevention Program. Oral health of United States 
children: The National Survey of Dental Caries in US School Children: 
1986-1987. NIH Pub. No. 89-2247, 1989.
    3 Department of Health and Human Services, Office of the Inspector 
General. Children's dental services under Medicaid: access and 
utilization. OEI-09-93-00240, April, 1996.
    4 Department of Health and Human Services, Health Care Financing 
Administration. Table 4: Medicaid recipients by type of service. 
Available from: URL: http//www.hcfa.gov/medicaid/495.htm. April 7, 
1997.
    5 National Center for Health Statistics. Current estimates from the 
National Health Interview Survey United States 1986. Hyattsville, MD: 
Department of Health and Human Services, DHHS Pub. No. (PHS) 87-1592. 
Vital and Health Statistics, Series 10, No. 164, 1987.
    6 U.S. Department of Health, Education and Welfare, Health Care 
Financing Administration in cooperation with the American Society of 
Dentistry for Children and the American Academy of Pedodontics. A Guide 
to Dental Care for the Early and Periodic Screening, Diagnosis, and 
Treatment Program (EPSDT) Under Medicaid, February 1980.
    7 United States Code. Title 42--The Public Health and Welfare. 
Chapter 7--Social Security, Subchapter XIX--Grants to States for 
Medical Assistance Programs, Section 1396r-7, 1994.
    8 Agency for Health Care Policy and Research. Medicaid Physician 
Fee Levels and Children's Access to Care. AHCPR Publication Number 95-
R003, 1995.
    9 Damiano PC, Brown ER, Johnson JD, et al. Factors affecting 
dentist participation in a state Medicaid program. J Dent Educ 
1990;54:11.
    10 U.S. Congress, Office of Technology Assessment. Children's 
Dental Services under the Medicaid Program. Washington, DC: U.S. 
Government Printing Office, October 1990.
    11 Venezie RD, Vann WF. Pediatric dentists' participation in the 
North Carolina Medicaid program. Ped Dent 1993;15:3.
    12 Caring Foundation for Children, Inc. An impact study of the 
Caring Program for Children and BlueCHIP of Pennsylvania: preliminary 
results, selected findings: characteristics and impact before and after 
enrollment in programs providing free and low-cost health care coverage 
to children. Pittsburgh, PA: 1997.
      

                                



  Appendix I--Number and Percent of Children Who Received EPSDT Preventive Dental Services in 1993, by State *
----------------------------------------------------------------------------------------------------------------
                                                                             No. Who Received
                         State                              No. of EPSDT        Preventive         Percent of
                                                         Eligible Children       Services          Eligibles
----------------------------------------------------------------------------------------------------------------
Connecticut............................................             193094              52543               27.2
Maine..................................................             106828              36819               34.5
Massachusetts..........................................             404857             139414               34.4
Rhode Island...........................................              66136              21003               31.8
New Hampshire..........................................              40011              17905               44.8
Vermont................................................              52251              17636               33.8
Region I Total.........................................
                                                                    863177              28532               33.1

New Jersey.............................................             447272             101410               22.7
New York...............................................            1585786             283453               17.9
Region II Total........................................
                                                                   2033058             384863               18.9

Delaware...............................................              50585               6283               12.4
Maryland...............................................             229146              33129               14.5
Pennsylvania...........................................             880017             185289               21.1
Virginia...............................................             328090              64718               19.7
District of Columbia...................................              73837              11800               16.0
West Virginia..........................................             135594              41452               30.6
Region III Total.......................................            1697269             342671               20.2

Alabama................................................             279138              31369               11.2
Florida................................................            1355013             222493               16.4
Georgia................................................             643424             161496               25.1
Mississippi............................................             470032              56843               12.1
Kentucky...............................................             293083              27604                9.4
North Carolina.........................................             550567              75794               13.8
South Carolina.........................................             302471              37876               12.5
Tennessee..............................................             534231             129886               24.3
Region IV Total........................................            4427959             743361               16.8

Illinois...............................................            1027303             214810               20.9
Indiana................................................             345751             144005               41.6
Michigan...............................................             823052             215885               26.2
Minnesota..............................................             291466              73539               25.2
Ohio...................................................             948612             216584               22.8
Wisconsin..............................................             342664              77103               22.5
Region V Total.........................................            3778848             941926               24.9

Arkansas...............................................             207085              35062                6.9
Louisiana..............................................             498389             128199               25.7
New Mexico.............................................             133524               8290                6.2
Oklahoma...............................................             162598              30949               19.0
Texas..................................................            1330465             160284               12.0
Region VI Total........................................            2332061             362784               15.6

Iowa...................................................             169516              56210               33.2
Kansas.................................................             113286              40106               35.4
Missouri...............................................             403702              86619               21.5
Nebraska...............................................             102285              34267               33.5
Region VII Total.......................................             788789             217202               27.5

Colorado...............................................             210749              44305               21.0
Montana................................................              57019               5119                9.0
North Dakota...........................................              32799               2625                8.0
South Dakota...........................................              47702               8543               17.9
Utah...................................................             123966              19186               15.5
Wyoming................................................              34976              15157               43.3
Region VIII Total                                                   507211              94935               18.7

Arizona................................................             413100               1153                0.3
California.............................................            3583936             601451               16.8
Hawaii.................................................              68008                503                0.7
Nevada.................................................              34845               5010               14.4
Region IX Total........................................            4099889             608117               14.8

Alaska.................................................              51691              14468               28.0
Idaho..................................................              71269              14967               21.0
Oregon.................................................             206524              71661               34.7
Washington.............................................             304257              89128               29.3
Region X Total.........................................             633741             190224               30.0

  TOTAL................................................           21162002            4171403               19.7
----------------------------------------------------------------------------------------------------------------
* This table is based on data from the HCFA-416 performance report on EPSDT program indicators for fiscal year
  1993.
Source: Department of Health and Human Services, Office of the Inspector General. Children's dental services
  under Medicaid: access and utilization. OEI-09-93-00240, April, 1996.

      

                                



                        Appendix II--Table 4.--Medicaid Recipients by Type of Service \3\
----------------------------------------------------------------------------------------------------------------
                                                                   Recipients (Millions)      % of Recipients
                                                                 ------------------------        Receiving
                         Type of Service                                                 -----------------------
                                                                   1993    1994    1995    1993    1994    1995
----------------------------------------------------------------------------------------------------------------
TOTAL...........................................................    33.4    35.1    36.3  ......  ......  ......
GENERAL HOSPITAL................................................     5.9     5.9     5.6     18%     17%     15%
MENTAL HOSPITAL.................................................     0.1     0.1     0.1      0%      0%      0%
NURSING FACILITIES..............................................     1.6     1.6     1.7      5%      5%      5%
ICF MENTALLY RETARDED...........................................     0.1     0.2     0.2      0%      0%      0%
PHYSICIAN SERVICES..............................................    23.7    24.3    23.8     71%     69%     66%
DENTAL SERVICES.................................................     6.2     6.4     6.4     18%     18%     18%
OTHER PRACTITIONER..............................................     5.2     5.4     5.5     16%     15%     15%
OUTPATIENT HOSPITAL.............................................    16.4    16.6    16.7     49%     47%     46%
CLINIC SERVICES.................................................     4.8     5.3     5.3     14%     15%     15%
LAB & X-RAY.....................................................    13.0    13.4    13.1     39%     38%     36%
HOME HEALTH                                                          1.1     1.3     1.6      3%      4%      5%
PRESCRIBED DRUGS................................................    23.9    24.5    23.7     71%     70%     65%
FAMILY PLANNING.................................................     2.5     2.6     2.5      8%      7%      7%
EPSDT                                                                5.9     6.5     6.6     18%     18%     18%
RURAL CLINIC HEALTH.............................................     1.0     0.9     1.2      3%      3%      3%
OTHER CARE......................................................     8.1     9.9    11.4     24%     28%     31%
UNKNOWN.........................................................     0.0     0.0     0.0      0%      0%      0%
----------------------------------------------------------------------------------------------------------------
SOURCE: HCFA, BDMS, OSM, DIVISION OF PROGRAM SYSTEMS

      

                                


                 Statement on Children's Dental Health

    The American Academy of Pediatric Dentistry believes that 
all children have a right to quality health care and that oral 
health is an integral part of total health. The majority of 
U.S. children have access to highly effective services for the 
prevention, early diagnosis and treatment of major dental 
diseases. Tragically, however, we and others continue to 
observe a sizable and growing disparity between the oral health 
of children who have access to quality dental care and the 
millions of American children who do not. The failure to 
provide adequate access to dental services through federal and 
state programs is viewed as a major contributor to the high 
levels of dental disease, pain and dysfunction that persist in 
low-income children and children with special health care 
needs.
    We endorse the following principles:
    1. Assuring access to quality basic health care, including 
dental care, for all U.S. children.
     We support retaining EPSDT oral health care 
standards for all Medicaid-eligible children and children with 
special health care needs.
    2. Including oral health as a component in all programs 
that seek to improve general health.
    3. Maintaining access to quality dental care for children 
who now have it.
     Deductibility of dental benefits by employers is a 
key to maintaining access for middle class children.
     Coverage for medically necessary adjunctive 
services, including anesthesia and hospital charges, that 
enable the timely delivery of appropriate dental care must be 
assured.
    4. Including provisions for children with special health 
care needs in all program planning.
    5. Assuring an adequate supply of pediatric dentists by 
providing educational support through primary care training 
programs.
    We invite comment as we work to fulfill this agenda.
    The vision of the AAPD is optimal oral health for all 
children!
      

                                


Statement of Stanley B. Peck, Executive Director, on Behalf of American 
Dental Hygienists' Association

    The American Dental Hygienists' Association (ADHA) is the 
largest national organization representing the professional 
interests of the approximately 100,000 dental hygienists across 
the country. Dental hygienists are preventive oral health 
professionals, licensed in dental hygiene, who provide 
educational, clinical and therapeutic services that support 
total health through the promotion of optimal oral health.
    ADHA is pleased to share its views with regard to 
children's access to health coverage. In particular, we urge 
that any children's health legislation include measures to 
improve access to oral health care services. This is important 
because the Institute of Medicine estimates that fifty percent 
of Americans do not receive regular dental care. This figure is 
likely far higher for the population that children's health 
initiatives seek to cover.

  Any Children's Health Initiative Should Include Measures To Prevent 
                              Oral Disease

    Because ADHA feels strongly that all Americans should have 
access to affordable quality health care services, including 
oral health care services, ADHA is pleased with the significant 
level of interest and commitment in the 105th Congress to 
increase health insurance coverage among our nation's 10 
million uninsured children. We are committed to participating 
in this process to ensure improved access to cost-effective 
quality health care coverage, including, at a minimum, 
preventive oral health services. Oral health is a part of total 
health; therefore oral health must be included in any 
children's health care initiative.

                        The Nation's Oral Health

    Oral health is fundamental to total health. As former 
Surgeon General C. Everett Koop noted, ``if you don't have oral 
health, you're not healthy.'' Despite recent advances in 
preventing oral disease and maintaining oral health, oral 
diseases still afflict 95% of all Americans. Oral Health 
America/America's Fund for Dental Health reports that 9 million 
school days are lost annually because of oral health problems.

        Cost-Savings Associated With Preventive Oral Health Care

    In contrast to most medical conditions, the three most 
common oral diseases--dental caries (tooth decay), gingivitis 
and periodontitis (gum and bone disease)--are proven to be 
preventable with the provision of regular oral health care. 
This proven ability translates into huge cost savings. Each $1 
spent on preventive oral health care yields $8-$50 in savings. 
Because of this, increased access to preventive oral health 
services will likely result in decreased oral health care costs 
per capita and, more importantly, improvements in children's 
oral and total health.
    Preventable oral diseases currently afflict the majority of 
our nation's children. Dental caries (tooth decay), gingivitis 
and periodontitis (gum and bone disorders) are the most common 
oral diseases. In fact, the Public Health Service reports that 
fifty percent of all children in the United States experience 
dental caries in their permanent teeth and two-thirds 
experience gingivitis. If untreated, gum disease causes bone 
deterioration and eventual loss of teeth, pain, bleeding, loss 
of function, diminished appearance, and possible systemic 
infections. Each of these oral health disorders--dental caries, 
gingivitis and periodontitis--can be prevented through regular 
preventive care.
    All American children should have access to oral health 
coverage as one way to support total health. Ideally, every 
child should have access to diagnostic, preventive, restorative 
and periodontal care, as well as emergency care to treat pain. 
At a minimum, however, preventive services should be available 
as an investment for long-term savings.
    Additionally, any effort to revamp the present Medicaid and 
Medicare health care delivery systems or to advance incremental 
health care reform legislation should embody as one of its 
goals increased access to preventive oral health care services.
    A 1996 U.S. Department of Health and Human Services (HHS) 
report on Children's Dental Services Under Medicaid indicated 
that, despite the provision for oral health benefits under 
Medicaid's Early and Periodic Screening, Diagnosis and 
Treatment (EPSDT) program, only 1 in 5 (4.2 million out of 21.2 
million) eligible Medicaid children actually received 
preventive oral health services in 1993.\1\ This represents a 
slight decrease from 1992 data. The 1996 HHS report attributes 
the low utilization rate for preventive oral health services to 
``the shortage of dentists who are willing to accept Medicaid 
patients.'' \2\ Clearly, this trendline must be reversed. 
Dental hygienists can, and should, play a larger role in the 
delivery of oral health services to underserved populations, 
including Medicaid-eligible children. The nation's health care 
system must be reoriented to focus on preventive and primary 
care services including those provided by dental hygienists.
---------------------------------------------------------------------------
    \1\ Children's Dental Services Under Medicaid: Access and 
Utilization, U.S. Department of Health and Human Services, Office of 
the inspector General, April 1996, (OEI-09-93-00240) at page 6.
    \2\ Id. at page 7.
---------------------------------------------------------------------------

   Childhood Immunizations Should Include Measures To Prevent Dental 
                                Disease

    ADHA urges that any children's health initiative improve 
access to the known benefits of preventive oral health care 
services. The increased access to oral health care for children 
that ADHA advocates can be achieved through the inclusion of 
dental sealants and fluoride in any definition of childhood 
immunizations. While research to develop a vaccine against 
dental caries (tooth decay) continues, we can today effectively 
guard against tooth decay--which is an infectious, 
transmissible disease--with the combined use of dental sealants 
and fluoride.\3\ These services protect children against tooth 
decay just as vaccines immunize against certain medical 
diseases.
---------------------------------------------------------------------------
    \3\ Research shows that the presence of bacteria known as mutans 
streptococci leads to dental caries in children. This decay causing 
bacteria is typically transferred from primary caregivers to young 
children between 22-26 months of age.
---------------------------------------------------------------------------

                            Dental Sealants

    Pit and fissure adhesive sealant protection for the eight 
permanent molars (6-year and 12-year molars) is needed when the 
crevices in these teeth are deep. Sealants are thin plastic 
coatings that seal crevices in the teeth and act as a physical 
barrier to prevent oral bacteria from collecting and creating 
the acid environment essential to the initiation of oral 
disease. No discomfort is involved in sealant applications, 
which cost approximately $20-35 in private settings, and even 
less in public health settings. When properly applied, sealants 
are virtually 100 percent effective in preventing tooth decay 
in the pits and fissures of molars.
    The National Institutes of Health (NIH) and former Surgeon 
General C. Everett Koop endorse the use of sealants. One of the 
objectives in Health People 2000, the national health promotion 
and prevention agenda, is to increase to at least 50 percent 
the proportion of children who have received protective 
sealants.

                                Fluoride

    Appropriate use of fluoride can reduce smooth surface tooth 
decay in children. Optimal availability of fluoride from 
multiple sources, such as community water fluoridation, self-
applied fluorides, and professionally applied fluorides, are 
effective in preventing dental decay.

                             Effectiveness

    Together, dental sealants and fluoride are virtually 100 
percent effective in protecting children against tooth decay 
and its physical, financial, academic, emotional, and social 
consequences. Accordingly, ADHA urges that any definition of 
immunization include dental sealants and fluoride.

                               Conclusion

    Preventable oral diseases still afflict most of our 
nation's children, compromising their health and unnecessarily 
adding to health care costs. ADHA urges this Subcommittee--and 
all Members of Congress--to ensure that any children's health 
initiative promote access to quality, cost-effective preventive 
oral health care services. Ideally, all American children 
should have access to diagnostic, preventive, restorative and 
periodontal care, as well as emergency care to treat pain. But, 
at a very minimum, children need access to basic preventive 
oral health care, including education in self care, routine 
teeth cleaning, provision of fluorides and sealants, 
periodontal maintenance and routine x-rays.
    ADHA stands ready to work with the nation's policymakers to 
improve children's access to preventive oral health services, 
which will achieve savings of billions of health care dollars 
and improve children's oral health, a fundamental part of total 
health.
    ADHA appreciates this opportunity to submit its views. For 
further information, please contact our Washington Counsel 
Karen S. Sealander of McDermott, Will & Emery (202-778-8024).
      

                                


Statement of Donald G. Dressler, CAE, on Behalf of Association 
Healthcare Coalition

    My name is Don Dressler, and I am President of Insurance 
Services for Western Growers Association, headquartered in 
Newport Beach, California. I am submitting this statement for 
the record on behalf of The Association Healthcare Coalition 
(TAHC), of which I am immediate past president and current 
chairman of the legislative committee. TAHC is a nationwide 
coalition of over 75 trade and professional associations formed 
for the purpose of maintaining and improving the ability of 
associations to provide health care benefits to their members.
    TAHC greatly appreciates the opportunity to submit a 
written statement with regard to the problem of children in the 
United States who do not have health insurance, and possible 
federal policy responses to this issue. I propose that the most 
effective method of expanding health insurance to children who 
are currently uninsured is to strengthen existing Association 
Health Plans (``AHPs''), operated by bona fide trade and 
professional associations. Moreover, I believe that 
strengthening associations, which have been providing 
affordable health insurance for over 50 years, will prove to be 
far more effective in reducing the problem of uninsured 
children than by creating new government programs or spending 
initiatives at either the federal or state level.

     Affordability is the Key to The Problem of Uninsured Children

    First, I want to commend Chairman Thomas for calling this 
timely hearing. The problem of the uninsured in America, and 
especially that of our children who do not have health 
coverage, is one of the great social issues facing our nation 
today. Congress and the Clinton Administration took the first 
step towards addressing health insurance concerns by enacting 
the Health Insurance Portability and Accountability Act last 
year. This new law will be beneficial to millions of American 
workers, and Chairman Thomas and the members of the 
Subcommittee are to be commended for their leadership in 
enacting this legislation.
    Unfortunately, the final version of the portability 
legislation did not address the issue of affordability in 
health insurance, despite the passage of provisions by the 
House to accomplish this objective. In order to reduce the 
number of uninsured children in America, the issue of 
affordability must be addressed in a comprehensive manner. TAHC 
urges Congress to pass legislation which addresses the 
affordability issue in 1997.

      The Problem of Uninsured Children is a Small Business Issue

    If one looks closely at the problem of uninsured children, 
it becomes clear that conventional health insurance is just too 
expensive for many working Americans with families. The 
Subcommittee's press release announcing this hearing states 
that ``over 80% of uninsured children have parents who work at 
least part-time, and nearly 60% have parents who work full 
time.'' Moreover, the majority of working families with 
uninsured children are employed by small businesses or are 
self-employed. The percentage of uninsured persons working in 
companies with less than 100 employees increased from 24% in 
1993 to 27% in 1995, a 12.5% increase in just two years. The 
reason for this is the continuing trend of rapidly rising 
health costs for small businesses.
    In contrast, workers employed by large corporations, and 
their families, enjoy nearly universal health coverage today. 
Thus, it is apparent that workers employed in small businesses 
are much more likely to be uninsured themselves, or to be able 
to insure their families, than those who work for large and 
medium-sized organizations. As such, any effort to extend 
health insurance to uninsured children must address the 
underlying cause of why small businesses have greater 
difficulty in providing health insurance than do larger 
companies.
    Why this disparity between workers employed in large and 
small businesses? One reason is that larger employers enjoy 
economies if scale which allow them to reduce administrative 
costs, obtain volume discounts, and take other measures which 
dramatically reduce the cost of health insurance per person. In 
addition, many of the larger organizations operate under ERISA, 
which allows them to self-insure their employees. Under ERISA, 
companies which self-insure avoid the costs imposed by state 
government mandated benefits, insurance premium taxes, and 
vastly different regulatory requirements from state to state. 
Indeed, administrative costs for larger employers operating 
under ERISA can be 30% lower than for small businesses, and 
health insurance premiums for large employers can also be 30% 
lower than those for small businesses.

The Small Business Relationship to Uninsured Families Must Be Addressed

    TAHC believes that any legislation to make health insurance 
more affordable for children must strengthen the role of 
Association Health Plans (``AHPs''). AHPs are the key to 
providing access to affordable health coverage for small 
businesses.
    AHP's already have begun to fill the niche represented by 
small business in the health insurance market. At Western 
Growers Association, we provide coverage to over 90,000 
individuals, including approximately 40,000 children. Thousands 
of these children would not have any health coverage now 
without WGA's health plans. At WGA, we are able to provide 
coverage to families because we offer a wide variety of health 
plan options that are specifically designed to meet the health 
and financial needs of our members, their workers, and their 
worker's families.
    For example, WGA's basic family plan for agricultural 
workers costs about $220 per month. In contrast, the least 
expensive alternative, the California State small-group plan, 
is well over $300 per month. Moreover, there is no traditional 
insurance company in the nation with any interest in serving 
the workers and children covered by WGA. Indeed, WGA and 
similar AHP's across the nation exist because they are meeting 
the needs, at an affordable price, of the small business market 
niche. If it were not for AHP's like WGA and others across the 
nation, the problem of uninsured children would be far worse 
than it is today.
    Unfortunately, AHP's currently face challenges which are 
making it more difficult to provide affordable health coverage 
to working families. As such, Congress should pass legislation 
which would: (a) prevent the erosion of the ability of AHP's to 
continue providing affordable health coverage; and (b) enhance 
and expand the ability of AHP's to offer affordable coverage. 
Such legislation would ultimately enable millions of currently 
uninsured children to obtain the health coverage they so 
desperately need.

    A Legislative Proposal To Expand Affordable Coverage to Working 
                                Families

    TAHC is working with Members of Congress on legislation to 
achieve these objectives. This legislation would establish a 
regulatory framework that further facilitates the ability of 
small businesses to obtain affordable health coverage through 
AHP's. By taking a market-oriented approach, this legislation 
ultimately would reduce the numbers of uninsured children 
without any new federal spending or taxes.
    More specifically, this legislation would ensure that 
current AHP's are not jeopardized by future regulatory actions 
at the state level. For example, the health coverage of 
thousands of families covered by WGA could be threatened by new 
mandates imposed on businesses or AHPs by state governments. 
While WGA currently abides by a California law setting 
requirements for AHP's, this law sunsets in 2001. Depending on 
the political climate of the future, it is difficult to discern 
what type of regulatory structure may take the current law's 
place, or what types of new government mandates may be imposed. 
By providing greater certainty through uniform regulation at 
the federal level, Congress would eliminate the current 
uncertainty, thus protecting and enhancing the ability of AHP's 
to provide affordable coverage to families.
    Providing a more certain, uniform regulatory environment 
would also allow greater numbers of bona fide trade and 
professional associations to offer AHP's. This would expand 
access to affordable coverage for low-and medium-income workers 
employed in small businesses. Ultimately, the resulting 
expansion of AHP's to serve this market niche would result in 
hundreds of thousands of children obtaining health coverage.

             The ERISA Approach Has Proven to be Successful

    How can we be so sure that legislation to strengthen AHPs 
would be successful in expanding health coverage to children? 
Because this approach has already been tested, and it has been 
proven to work. Since its inception in the early 1970s, ERISA 
has become the foundation of employer-sponsored health 
insurance, enabling large corporations to provide working 
families with affordable health coverage. TAHC believes 
strongly that it makes perfect sense to extend the successful 
ERISA framework to that portion of the population which has not 
enjoyed its benefits. Moreover, it is our view that this is 
absolutely necessary if we are to be successful in extending 
affordable coverage to uninsured children over the long run.

                          Unfounded Criticisms

    I would like to address several criticisms which have been 
leveled at our market-oriented approach to the health insurance 
market. First, some critics contend that our approach does not 
respect the role played by state governments in regulating 
health insurance. As such, our legislation will contain a 
number of provisions to ensure that many state regulatory 
functions remain intact. However, we acknowledge that our 
approach protects small businesses from government mandates 
imposed by states, the chief cause of escalating health 
insurance costs. We believe that state government mandates are 
no better than President Clinton's ill-fated employer mandate 
for health insurance proposed at the federal level. The choice 
for Congress in how to expand health coverage to the uninsured 
is clear in this regard; market forces or state government 
mandates.
    With respect to the issue of state mandates, I would note 
the recent comments of Bill Gradison, president of the Health 
Insurance Association of America, an organization which has 
been one of the most strident critics of associations. In a 
recent interview, Gradison indicated that the current trend 
towards federal regulation of health insurance is likely to 
continue, and he also noted that the continued need for 
insurance companies to comply with 50 different sets of 
regulations increases the cost of insurance.
    In this context, it is also interesting to note the 
comments of Kansas Insurance Commissioner Kathleen Sebelius, 
speaking on behalf of the National Association of Insurance 
Commissioners, another vocal critic of Association Health 
Plans. In a recent statement before the Senate Labor Committee 
on March 6th, Ms. Sebelius stated that the NAIC would favor 
``federal standards'' if they were based on the NAIC's five 
model acts and included federal enforcement resources. It 
appears that even the NAIC recognizes the need for effective 
federal standards for AHPs.
    Another criticism that AHP's have endured is that they 
avoid bad risks, thus leaving out less healthy individuals and 
driving up their insurance costs. This criticism also is 
completely without merit, and I urge the Subcommittee members 
to reject it. First, I am not aware of any reputable, empirical 
evidence which supports this claim. Second, a study by the 
respected healthcare consulting firm Lewin-VHI found no 
significant difference between the risk characteristics of 
fully-insured and self-insured populations. Finally, in an 
effort to ``go the extra mile'' to assure critics on this 
issue, our legislation will contain a number of requirements 
that will prevent any so-called ``anti-selection'' among AHP's 
in the healthcare marketplace.
    Finally, it should be pointed out that our proposal would 
implement effective consumer protections against fraud and 
abuse which currently do not exist in many states. By enacting 
a uniform federal system of solvency standards and other 
safeguards, in contrast to dozens of different sets of state 
regulations, Congress would be taking immediate action to 
protect those currently covered by AHPs, and at the same time 
enhance the ability of bona fide associations to continue 
providing affordable health coverage to working families.

                               Conclusion

    TAHC believes that any legislation considered by Congress 
to extend coverage to children must strengthen the role of 
AHP's in providing affordable health coverage to small 
businesses. Associations are already a vital source of health 
care coverage for American workers, and have been serving their 
members in this manner for over 50 years. We look forward to 
working with Chairman Thomas and the Subcommittee Members 
towards this objective.
      

                                


Statement of Susan Erickson, President, Council of Women's and Infants' 
Specialty Hospitals

    The Council of Women's and Infants' Specialty Hospitals 
(CWISH) is a group of eight of the largest freestanding 
subspecialty perinatal hospitals dedicated to the delivery of 
high risk obstetrical and neonatal care to mothers and their 
infants.\1\ CWISH is pleased to present its views with regard 
to children's access to health coverage.
---------------------------------------------------------------------------
    \1\ Perinatal services include material and infant care beginning 
before conception and continuing through the first year of an infant's 
life.
---------------------------------------------------------------------------
    Because access to risk-appropriate prenatal care is known 
to improve the outcome of pregnancy, inclusion of health 
insurance coverage for pregnant women in any children's health 
initiative will contribute to the goal of improved health for 
the nation's children. Accordingly, CWISH urges that health 
insurance coverage for pregnant women be included in any 
children's health initiative.
    Further, children's health legislation must specifically 
assure access to quality, cost-effective high risk obstetrical 
and neonatal care for both pregnant women and infants. Access 
to high risk obstetrical and neonatal services is critical 
because studies show that premature and low-birthweight infants 
born in large Level III subspecialty hospitals--such as CWISH 
hospitals--fare better than high risk deliveries in other 
settings without increased cost.\2\ Moreover, a healthy 
pregnancy and delivery bolsters the chances for a healthy 
childhood and can avert expensive acute and/or long-term care.
---------------------------------------------------------------------------
    \2\ The Effects of Patient Volume and Level of Care at the Hospital 
of Birth on Neonatal Mortality, Journal of the American Medical 
Association, Volume 276, No. 13, october 2, 1996, p. 1054.
---------------------------------------------------------------------------

               CWISH Supports Expanded Medicaid Outreach

    CWISH is pleased with the significant level of interest and 
commitment in this Congress to increase health insurance 
coverage among our nation's ten million uninsured children, 
including the three million children eligible for, but not 
receiving, Medicaid benefits. CWISH is well aware of Medicaid's 
importance to the health of pregnant women and infants. Indeed, 
CWISH is a significant participant in the federal Medicaid 
program, with Medicaid payments constituting up to sixty-five 
percent of the care provided by our hospitals.
    As Congress undertakes to reform the Medicaid program, we 
urge this Subcommittee--and all Members of Congress--to 
facilitate outreach and other programs to ensure health care 
coverage of all Medicaid eligible pregnant women and infants 
and to ensure that CWISH and other subspecialty perinatal 
hospitals will be able to provide quality cost-effective high 
risk obstetrical and neonatal services to pregnant women and 
infants in their communities, regardless of economic need.

  Importance of Risk-Appropriate Care for Pregnant Mothers and Infants

    Lack of health insurance often results in lack of timely 
care, which too often results in costly acute and/or long-term 
care. U.S. Census Bureau data reveals that one of three 
children lacked health insurance for one or more months during 
1995-1996.\3\ Many of these uninsured children are members of 
families where one or both parents are working, but simply 
cannot afford insurance. Clearly, we must do better.
---------------------------------------------------------------------------
    \3\ One Out of Three: Kids Without Health Insurance 1995-1996, 
Families USA Foundation, Washington, D.C. 1997, p. 1.
---------------------------------------------------------------------------
    Appropriate prenatal care for expectant mothers is a major 
determinant of good pregnancy outcome. In fact, prenatal care, 
especially among poor, minority and other high-risk women, 
reduces the risk of low-birthweight threefold and results in 
lower infant mortality rates and healthier infants. Numerous 
studies have also shown that women who receive no prenatal care 
are far more likely to have babies with health problems that 
could have been prevented or reduced had they received the 
appropriate perinatal care.\4\ According to the American 
Hospital Association, leading the list of barriers to this 
important care is inadequate or total lack of health insurance.
---------------------------------------------------------------------------
    \4\ Infants At Risk: Solutions Within Our Reach, Greater new York 
March of Dimes/United Hospital Fund of New York, 1991, p. 28.
---------------------------------------------------------------------------
    Identification of high risk pregnancies and subsequent 
referral and appropriate treatment by specialists is critical. 
As cited earlier, the recent study reported in the Journal of 
the American Medical Association confirms that high risk 
deliveries in large level III neonatal intensive care units 
(NICUs)--such as those in CWISH hospitals--fare better than 
high risk deliveries in other settings without increased cost. 
Because the major decline in infant mortality over the past 25 
years is largely attributable to better access to the 
subspecialty services provided at hospitals such as ours, 
access to these high risk obstetrical and neonatal services 
must be included in any children's health initiative. Indeed, 
the Finance Committee expressly recognized the importance of 
access to specialty perinatal care in its fiscal year 1997 
reconciliation recommendations.
    In conclusion, CWISH strongly advocates access for all 
pregnant women and infants to cost-effective quality risk-
appropriate health care. Such care should specifically include 
high risk obstetrical and neonatal services provided in Level 
III regional specialty hospitals.
    CWISH appreciates this opportunity to submit its views. For 
further information, please contact our Washington Counsel 
Karen S. Sealander of McDermott, Will & Emery (202-778-8024).
      

                                


Statement of Vencor, Inc., Louisville, Kentucky
[GRAPHIC] [TIFF OMITTED] T2730.013

[GRAPHIC] [TIFF OMITTED] T2730.014

[GRAPHIC] [TIFF OMITTED] T2730.015

[GRAPHIC] [TIFF OMITTED] T2730.016

                                  
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