Inflation and record gas prices continue to consume family budgets, but gas and food aren’t the only essentials that families are spending more on than they used to. The price of family health insurance and out-of-pocket costs for health care have been steadily increasing for years, especially for families with lower and middle incomes who get their health insurance through their employer. Even if price pressures lessen in the coming months, the cost of health coverage will continue to sting, and sometimes for plans that fail to meet a family’s needs or protect them from financial shocks.
In the face of these rising costs, PolicyLab research has shown, a growing number of working families are finding more affordable and comprehensive health insurance for their children by enrolling them in Medicaid or the Children’s Health Insurance Program (CHIP), if eligible. Despite this, Congress recently missed an important opportunity to ensure that CHIP continues to be available to the nearly 10 million children that it serves. Historically garnering bipartisan support, CHIP is a state-federal program that offers affordable, comprehensive coverage for children across the country. Although other parts of the currently stalled Build Back Better Act got more attention, the landmark legislative package would have permanently funded CHIP. As the component parts of Build Back Better are reconsidered and reprioritized, permanently funding CHIP should remain at the forefront of the federal legislative agenda.
Benefits Of Permanent Funding
CHIP is currently the only public insurance program that does not have permanent funding. The program is funded through block grants to states that have clearly defined timelines and funding limits, and it is also subject to regular reauthorization by Congress. If CHIP were permanently funded, states and families would no longer face the rollercoaster of uncertainty that has plagued the most recent CHIP reauthorizations, in which we’ve seen the health of children used as a political bargaining tool. We had also hoped that if CHIP were permanently funded, there would be an opportunity for state innovation in the program. This innovation could build on CHIP’s success as an important source of coverage for working families, particularly those who are not well served by private coverage through employers.
Health insurance increases access to care that helps children become healthy and productive as they grow, while also providing important financial protection for families. CHIP’s great strength is that it is rooted in a fundamental understanding that children have unique health and developmental needs that differ from those of adults; therefore, children require access to specific, comprehensive benefits, including behavioral health, developmental, vision, and dental services. CHIP’s eligibility picks up where Medicaid’s leaves off, and while Medicaid is far larger, together the two programs insured nearly 40 percent of all children before the COVID-19 pandemic (a number that only increased over the past two years).
A Brief History Of CHIP
When CHIP was created in the late 1990s, the national uninsurance rate for children was 15 percent. By 2016, the country was on the brink of achieving universal health coverage for children, with a historic low of less than 5 percent of uninsured children. This decades-long downward trend in children’s uninsurance reversed in recent years for several reasons, but the rising cost of commercial insurance for families with low and middle incomes is one of the most salient.
Beyond uninsurance, the crisis of underinsurance affects a far greater number of families and has profound effects. Underinsurance means that families or individuals have a health insurance plan that is not designed to protect them from significant financial hardship or ensure that they have access to needed care — including a comprehensive set of pediatric-specific benefits. CHIP plays an essential role in the pediatric health insurance landscape, offering an inclusive pediatric benefits package with limited out-of-pocket costs. This is especially important for children in families whose income is too high to qualify for Medicaid but for whom commercial insurance is either not available or too expensive.
Issues With The Current System
Historically, the health insurance exchanges created by the Affordable Care Act (ACA) have not been a great alternative for families, due to limited pediatric benefits packages, limited provider networks, and high out-of-pocket costs. This is especially true for the millions of people and their families who fall into the ACA’s “Family glitch.” Family members of these individuals are not eligible for the generous premium subsidies available on the exchanges if the individuals have been offered individual (not family) employer-based coverage that is considered affordable. The Biden administration is set to address the glitch through regulatory actiona welcome change that will likely have the greatest positive impact for children in states with low CHIP income eligibility thresholds.
The enhanced tax credits from the American Rescue Plan Act of 2021 have had a big impact on access to affordable health insurance coverage through the exchanges and should be extended. Furthermore, should the “family glitch” be resolved, the exchanges could provide a route to addressing more affordable dependent coverage, although additional reforms and oversight of plans offered on the exchanges would be necessary to improve both access to appropriate care networks and reducing out- of-pocket expenses. In the absence of improved oversight of pediatric essential health benefits on the exchanges, even if parents obtain insurance through the exchanges, CHIP may offer a more attractive alternative for their children. This is due to the broader benefits that most CHIP plans provide and the lower deductibles and copayments compared to current exchange plans.
We tend to think of employer-sponsored health insurance as the “gold standard,” but in reality, many families either cannot afford it or choose the comprehensive benefits offered by public programs, if eligible. PolicyLab research published in Health Affairs shows that nationally, even when parents were offered employer-based coverage, one-third of low-income households opted instead to enroll their children in Medicaid or CHIP. Other work has highlighted that a growing number of families employed in the private sector use Medicaid or CHIP for their child health insurance.
There are few federal or state mandates on what pediatric benefits must be covered in private coverage, leaving coverage details up to employers. Most families covered through work can expect their plan to pay for about 81 percent of their child’s medical expenses. This is much lower than public insurance, such as CHIP, which pays for an estimated 98 percent of children’s cost of care. Families have undoubtedly felt this change: Between 2010 and 2020, the average deductible for employer coverage more than doubled.
While CHIP offers an important alternative for families, eligibility levels vary substantially from state to state, thus limiting access to CHIP in some parts of the country where eligibility levels are restrictive. Pennsylvania, where we’re based, also has a CHIP “buy-in” program, that opens up the program to many more families who would not otherwise qualify for CHIP. The buy-in program allows any family to purchase CHIP coverage for their children even if they are above the income threshold for free or discounted coverage. Yet, participation in this and the handful of other CHIP “buy-in” programs across the country has been relatively low, likely due to limited knowledge of the program, administrative barriers to enrollment, and additive premiums for each child enrolled.
Change That Could Come From Permanent Funding
Should Congress commit to permanently funding CHIP, it would create a renewed opportunity to examine how a broader set of families may be able to access the program for their children. This could be through increasing income eligibility thresholds or extending buy-in programs to employers who might then consider offering CHIP insurance coverage as a standard option for employees’ dependents. Innovations such as this would, by necessity, likely require the permanent funding of CHIP and addressing its block-grant funding structure. Other financing mechanisms, whether from individuals or employers, could provide additional resources to increase access to this popular health insurance program, improve the comprehensiveness of benefits, or reduce cost sharing.
Current funding for CHIP expires at the end of fiscal year 2027, and we’re likely to be talking again at that juncture about the essential nature of the program. Before then, we’d urge Congress to consider how permanently funding CHIP and providing flexibility for states to continue innovating their programs could improve access to affordable, comprehensive children’s health insurance coverage, particularly for working families who are most in need of these reforms. Ensuring the stability and continued viability of CHIP would bolster an essential tool for meeting the needs of US families.