States’ choices in structuring their SCHIP programs have important  programmatic and financial implications. Assessments of the potential for crowd-out must take into account an  understanding of the extent to which private health insurance is available  and affordable to low-income families that qualify for SCHIP. 1.) 2). CMS Provided Guidance to States on Crowd-Out; Information It Collected Was of Limited Use in Assessing the Extent to Which Crowd-Out Should Be a Concern

CMS provided guidance to states regarding activities to minimize crowd- out in SCHIP, and the information it collected was of limited use in  assessing the extent to which crowd-out should be a concern. In issuing  guidance to states, CMS instituted specific requirements for program  designs the agency identified as being at greater risk of crowd-out,  including programs with higher income eligibility thresholds. However,  each of the approaches CMS used was limited in providing information on  the occurrence of crowd-out and the extent to which it should be a  concern. Approaches CMS Used Did Not Address All Information Important to Assessing the Extent to Which Crowd-Out Should Be a Concern

CMS reported using a variety of approaches to assess the occurrence of  crowd-out in SCHIP, including reviewing states’ SCHIP annual reports,  national estimates, and CMS-commissioned studies. From this  information, CMS officials said they believed that crowd-out was  occurring and that the potential for crowd-out was greater at higher  income levels. The questions on crowd-out that CMS asked states to answer for their  annual reports did not collect certain indicators of the potential for crowd- out, such as the extent to which SCHIP applicants were offered private  health insurance for their families through their employers. We reviewed SCHIP annual reports from  2007 for state responses on the percentage of applicants who dropped  private health insurance to enroll in SCHIP and found that less than half of  the 51 states provided a percentage in response to CMS’s question. States Used Similar Types of Policies to Minimize Crowd-Out, but Not All Collected Adequate Information to Assess whether Crowd-Out Should Be a Concern

In general, states implemented similar types of policies in their activities to  minimize crowd-out, but not all states collected information adequate to  assess whether crowd-out should be a concern. Our analysis found that waiting periods—required  periods of uninsurance before applicants can enroll in SCHIP—were the  most common policy states had in place to minimize crowd-out; premiums  and other types of cost sharing were also frequently used (see fig. 5). These exemptions were mostly related to the availability rather  than the affordability of insurance (see table 4). Officials from one of the two states said that they are considering  reducing the state’s waiting period. Not All States Collected Information Adequate to Assess Whether Crowd- Out Should Be a Concern

All 51 states monitored crowd-out by asking applicants questions about  whether they had private health insurance, but fewer states asked whether  applicants were offered health insurance through their employers—a key  piece of information in understanding whether crowd-out should be a  concern. The majority of states made efforts to verify applicants’ responses to their  questions about insurance. None of the officials in our sample of nine states viewed crowd-out as a  concern, with most basing this assessment on a variety of indicators,  including the availability and affordability of private health insurance for  the SCHIP population in their state. In particular, asking SCHIP applicants who  work whether they are offered private health insurance for their families  through their employers could provide an initial assessment of the extent  to which private health insurance is available to these individuals and thus  better assess whether concerns about crowd-out are warranted. Overall, CMS concurred with the report’s findings, conclusions, and  recommendation.
Why GAO Did This Study

Congress created the State Children's Health Insurance Program (SCHIP) to reduce the number of uninsured children in low-income families that do not qualify for Medicaid. States have flexibility in structuring their SCHIP programs, and their income eligibility limits vary. Concerns have been raised that individuals might substitute SCHIP for private health insurance--known as crowd-out. GAO was asked to examine the Centers for Medicare & Medicaid Services' (CMS) and states' efforts to minimize crowd-out and determine whether it should be a concern. GAO examined (1) CMS's guidance to states for minimizing crowd-out and assessment of whether it should be a concern and (2) states' policies to minimize crowd-out and how they assess whether it should be a concern. To do the work, GAO reviewed federal laws and guidance, examined state annual reports, and interviewed CMS officials. GAO also interviewed SCHIP officials from nine states.

What GAO Found

CMS provided guidance to states about activities to minimize crowd-out in SCHIP, and the information it collected was of limited use in assessing the extent to which crowd-out should be a concern. Along with this guidance, CMS instituted specific requirements for certain program designs it identified as being at greater risk of crowd-out, including programs with higher income eligibility thresholds. CMS said that among other sources, it used states' SCHIP annual reports to assess the occurrence of crowd-out, and on this basis it believed that crowd-out was occurring. Yet each of the approaches CMS used was limited in providing information about the occurrence of crowd-out and thus the extent to which it should be a concern. CMS did not collect certain indicators of the potential for crowd-out in SCHIP annual reports, such as the extent to which private health insurance was available and affordable to families. States' responses to CMS were inconsistent: GAO's review of annual reports for 2007 found that less than half of the 50 states and the District of Columbia provided a percentage in response to CMS's question on the percentage of applicants who dropped private health insurance to enroll in SCHIP. In general, states implemented similar types of policies in their activities to minimize crowd-out, but not all states collected information adequate to assess whether crowd-out should be a concern. The majority of states used policies such as waiting periods--a required period of uninsurance before an applicant can enroll in SCHIP--to try to reduce incentives for dropping private health insurance. All 39 states with waiting periods offered exemptions for involuntary loss of private health insurance. These exemptions were mostly related to whether insurance was available rather than affordable. Not all states collected information that was adequate to assess whether crowd-out should be a concern. For example, while all 50 states and the District of Columbia asked SCHIP applicants if they were currently insured, 24 states asked applicants if they had access to private health insurance, which is important to understanding the potential for crowd-out. Ofthe 9 states we interviewed, 5 states measured the occurrence of crowd-out, but they all used different methodologies to develop their estimates; the remaining 4 states did not measure crowd-out. None of the officials in the 9 states viewed crowd-out as a concern, with most basing this assessment on a variety of factors, including the lack of available and affordable private health insurance for the SCHIP population in their state. Overall, CMS concurred with the report's findings and recommendation, but raised concerns regarding the difficulty of measuring crowd-out, particularly assessing the affordability of private coverage. While GAO agrees that measuring crowd-out is complicated, the actions GAO recommends are an essential first step to better assessing whether concerns about crowd-out are warranted.