The decision about who will be included in the population that is eligible for the program is usually one of the first to be addressed in designing a children's insurance program. In general, uninsured children are the target group, but each state needs to determine the maximum income limit for eligibility (see Table 6.2).
This decision involves determinations about how far existing resources will stretch, including whether additional resources can be generated if there is a shortfall or whether enrollment will simply be closed or capped when it reaches a certain point. In most cases, states try to work from their Medicaid eligibility criteria and to prevent gaps in coverage, so that children up to a certain income level will be eligible for one of the two programs.
Other questions about eligibility concern the age ranges of eligible children and whether individual children or families will be served. States that have age limits on eligibility because of resource limitations may have difficulty explaining to parents why one child in the family is eligible for a program and another is not. Thus, a state might choose to limit its program to certain cities, counties, or regions to avoid the problem of seemingly arbitrary age limits.
A few states have chosen to target entire families for their programs. For example, Health Access New Jersey is a statewide program for children and adults, and the Massachusetts Medical Security Plan provides subsidized coverage for families whose wage earners are unemployed. However, because of resource constraints, the majority of state-sponsored insurance programs focus on children, and some also extend eligibility through adolescence (see Table 6.2).
Whether or not you limit eligibility based on income, do you cap your program out, for instance, where people over 400 percent of poverty are simply not eligible for your coverage? Or do you design the program such that people over 400 percent of poverty are eligible, but they pay the full premium and you have a sliding scale below it? States have had very different responses to that question.
National Academy for State Health Policy, Portland, ME
Public Workshop, June 2, 1997
The question of eligibility also involves fundamental views about the nature and purpose of insurance. The higher the parents' income, the greater the likelihood that children will be covered by their parents' employer. If a state program offers generous benefits and subsidizes the cost, there is potential that employers will drop existing coverage or that parents will switch to the new state plans. This is described by different terms, including substitution or replacement of coverage, or crowd-out (Chollet et al., 1997; Cutler and Gruber, 1997; Dubay and Kenney, 1997).
There are a variety of opinions on the likelihood, nature, and extent of coverage replacement. Some of the presenters in the committee's public workshop believe that any replacement of private coverage by public funds should be avoided, whereas others believe that a certain amount of substitution of coverage is reasonable if it reduces the burden of out-of-pocket expenses, improves children's access to care, and reduces the overuse of emergency rooms, with their associated higher costs of care.
As part of the SCHIP accountability process, state program plans are required to describe their intended strategies for preventing substitution of coverage (IOM, 1998). Based on evidence that substitution becomes more likely as levels of income increase beyond the poverty level, the SCHIP legislation set the highest eligibility level at 200 percent of the federal poverty level, which is an annual