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Expanding Health Coverage to Working Families:

State Options

by

Dan Steinberg

June 2000

Support for this report provided by a generous grant from

The Henry J. Kaiser Family Foundation.

1. Executive Summary

2. Introduction

3. Adjustments to State Medicaid Plans

• Section 1115 Waivers
• Section 1931 Amendments

4. State Contributions to Employer-Sponsored Coverage Premiums

• Employer-Sponsored Coverage Subsidies under Medicaid
• Employer-Sponsored Coverage Subsidies under SCHIP

5. State-Only Programs

6. Conclusion

7. Notes

8. References

Executive Summary

In recent years, state efforts to offer health coverage to uninsured residents have focused on children. For states that wish to cover new populations, several routes exist to offer coverage to uninsured low-income parents. This paper explores a few of those options, including adjusting state Medicaid plans, contributing to employer-sponsored coverage premiums, and establishing state-funded insurance programs. Table 1 below describes these approaches.

Introduction

Now that all 50 states, five territories, and the District of Columbia have received approval from the Health Care Financing Administration (HCFA) for their State Children's Health Insurance Programs (SCHIP), many states have explored taking a further step toward providing health coverage for their uninsured residents. Policymakers in recent years have approached the growing policy concern of uninsured Americans with incremental changes, rather than through sweeping or universal reform, for political, economic and pragmatic reasons.

Many state legislators and legislative health staff are exploring the feasibility of offering coverage to low-income, working parents who are, in many cases, the parents of children now covered by SCHIP or other government-sponsored programs. According to a recent Urban Institute study, more than 27 million adults under age 65 in America have no health insurance, and more than 10 million of those adults have children. Of that 10 million, 7 million of those earn less than 200 percent of the federal poverty level (FPL). Because many of these 7 million adults have children who are eligible or enrolled in Medicaid or SCHIP (1), legislatures may find it comparatively easy to use existing outreach, enrollment and administrative resources to cover this group.

Federal poverty level (FPL). The federal poverty level is the monthly income amount the U.S. Department of Health and Human Services sets to determine eligibility for certain programs. In administrative and legislative circumstances, the preferred, less ambiguous term is the "federal poverty guidelines."

For the year 2000, the poverty limits are as follows:

Size of family

 48 Contiguous States and D.C.

Alaska

Hawaii

1

$8,350

$10,430

$9,590

2

11,250

14,060

12,930

3

14,150

17,690

16,270

4

17,050

21,320

19,610

5

19,950

24,950

22,950

6

22,850

28,580

26,290

7

25,750

32,210

29,630

8

28,650

35,840

32,970

For each additional person,add:

 2,900

3,630

3,340

Source: Federal Register 65, no. 31, February 15, 2000, 7555-7557.

Lack of insurance has the potential to affect parents' ability to maintain employment. A recent literature review by the American College of Physicians and the American Society of Internal Medicine found that people without health coverage have significantly reduced access to care and significantly poorer health outcomes. The review also found that uninsured people tend to have increased hospital stays and increased risk of death from serious illnesses. For working parents, hospital stays decrease productivity and may jeopardize employment.(2) States may therefore be interested in providing family coverage as a tool to facilitate parents' ability to maintain work and decrease welfare dependence.

This paper briefly reviews three options for expanding coverage to low-income families: adjustments to state Medicaid plans, state contributions to employer-sponsored coverage premiums and state-only programs. It also provides examples of each option presented.

Adjustments to State Medicaid Plans

Medicaid is the single largest source of health insurance in America, covering more than 40 million beneficiaries. Although states and territories are not required to participate in the Medicaid program, all of them do. Under federal law, Medicaid plans must cover certain categories of individuals, and may voluntarily cover certain others. Mandatory categories include (but are not limited to) infants and children under age 6 with family incomes below 133 percent of the federal poverty level; children born after September 30, 1983, up to age 18 with family incomes under 100 percent of the federal poverty level; and pregnant women with incomes up to 133 percent of the federal poverty level. Parents of some of these children are eligible for Medicaid as well, provided that they would have been eligible for the Aid to Families with Dependent Children (AFDC) program on July 16, 1996, before the program was supplanted by the Temporary Assistance to Needy Families (TANF) program and the link between eligibility for TANF and Medicaid was severed.(3)

Despite Medicaid and other public programs, more than 43 million Americans remain uninsured, however, and many of these people are not eligible for Medicaid coverage unless the state applies for and receives a waiver from HCFA. Medicaid eligibility rules do not usually, for example, include adults in single-parent families with income above the former AFDC eligibility levels.(4) Some states extend coverage to these families, however, by adjusting the state Medicaid program's eligibility requirements.

Section 1115 Waivers

Under Section 1115 of the Social Security Act, the secretary of health and human services can waive certain requirements of the Medicaid program for "research and demonstration" purposes. Although Congress authorized Section 1115 in 1962, the complex and time-consuming application process discouraged most states from pursuing the option. President Clinton, a former state governor who could appreciate the value of state initiatives, called for a streamlined approval process, and state applications and approvals began increasing after 1993. Today, many state 1115 programs offer coverage to individuals who would not otherwise be eligible for it, including some categories of adults.

Section 1115 waiver programs are impermanent pilot programs that must meet federal requirements that distinguish them as "experimental." States must design them to terminate within five years. After five years, states may apply for extensions, and many have conducted 1115 waiver programs for longer periods. Arizona, for example, has operated an 1115 waiver program since 1982, having applied for and received four extensions (although Arizona's waiver has to do with service delivery rather than eligibility). States must design 1115 programs to be budget-neutral over the life of the program-meaning that the program cannot increase expenses to the federal government-and they must incorporate procedures for evaluating the program's cost-effectiveness. Finally, the program must be a novel experiment that conducts unique activities or has a unique structure.

Currently, nine states-Delaware, Hawaii, Massachusetts, Minnesota, Missouri, Oregon, Tennessee, Vermont, and Wisconsin-operate 1115 waiver programs that offer coverage to new groups of adults. Four of these waivers-those in Delaware, Hawaii, Minnesota, and Missouri-provide coverage to parents who are receiving cash assistance through Temporary Assistance to Needy Families. Hawaii's program also extends benefits to residents who are eligible for the state's general assistance program, most of whom are single adults, childless couples and parents in two-parent families. A few programs are even broader. Missouri extends coverage to uninsured non-custodial parents under 125 percent of the federal poverty level who are current in their child support payments, and Vermont covers all uninsured residents whose incomes are up to 150 percent of the federal poverty level. The Health Care Financing Administration, which has statutory authority to grant states 1115 waivers for the SCHIP program, is currently reviewing 1115 waiver concept papers from several states. In previous years, HCFA was not willing to consider waiver applications because neither HCFA nor the states had enough experience with the program to demonstrate new approaches. Like Medicaid 1115 waivers, SCHIP 1115 waivers will allow states to cover people who are normally not eligible for coverage. According to Cindy Mann, the director of HCFA's Family and Children's Health Programs Group, HCFA will issue guidelines to the states shortly, but notes that the SCHIP statute places some explicit limitations on what groups may and may not be covered, even under a waiver program.

Two states that currently operate Medicaid 1115 waiver programs are profiled below. Although both states have succeeded in covering additional uninsured state residents, both also have recently experienced financial challenges.

TennCare is a statewide program to provide health care benefits to three groups: people of all ages who would have been eligible for Medicaid by the standards the state used in 1993; people of all ages with health conditions that cause them to be uninsurable; and those who are not eligible, either directly or as a dependent, for an employer-sponsored or government-sponsored health plan. Current enrollment is 1.4 million. All services are delivered through health maintenance organizations (HMOs).

TennCare charges premiums, deductibles, and co-payments for enrollees whose family incomes are above 100 percent of the federal poverty level. All cost sharing follows a graduated scale, and out-of-pocket payments aside from premiums may not exceed $1,250 per year per family. No deductible or co-payment is required for preventive services. People who are eligible for TennCare based on their eligibility for Medicaid are exempt from cost-sharing requirements.

From its inception, TennCare has been beset with difficulties, and these have intensified in the last year. In March 1999, Price Waterhouse Coopers issued an actuarial study showing that the state was underfunding TennCare by approximately $200 million annually (about 10 percent of total program costs). Subsequently, TennCare was confronted with the near-failure of one of its managed care plans; the loss of its sixth director in five years; a reform program that capped enrollment for recipients, limited benefits and increased premiums; and the withdrawal of Blue Cross/Blue Shield, which covered about 50 percent of TennCare's enrollees. A recent report by the Urban Institute opined that " ... [t]here are many directions in which the state might head, but it seems clear that no approach can avoid the need to increase the funding of the program. Further, if the state is to continue with managed care, it must adopt better arrangements for compensating plans for differentials in risk."(5)

Hawaii QUEST (Quality care, ensuring Universal access, encouraging Efficient utilization, Stabilizing costs, and Transforming the way health care is provided to public clients) is a statewide program that creates a public purchasing pool that arranges for health care through capitated managed care plans. The QUEST program originally expanded Medicaid income eligibility limits to 300 percent of the federal poverty level, but the state was forced to reduce eligibility to 100 percent for financial reasons. Eligibility for pregnant women and infants remained at 185 percent of the FPL and children under 6 remained at 133 percent of the FPL. People with incomes between 100 percent and 300 percent of the FPL still may participate, although they must pay the full premium amount. Pregnant women and infants up to 185 percent of the FPL and children under age 6 up to 133 percent of the FPL are exempt from premiums. Individuals enrolled or eligible for enrollment in an employer-sponsored health plan, as required under Hawaii's Prepaid Health Care Act, are ineligible for Hawaii QUEST. However, dependents of these individuals, who are not covered under this act, may be eligible.

In February 1996, the state's economic recession and government cutbacks lead to an enrollment cap on the program (for applicants who would not have been eligible for Medicaid) of 125,000 enrollees. New applications are accepted when enrollment drops below 120,000. This cap does not apply to those who would have qualified for Medicaid before the institution of the 1115 waiver.

In April 1996, the state implemented an amendment to the demonstration program to 1) reinstate an asset test (that originally was eliminated for QUEST beneficiaries); 2) establish a "QUEST-Net" program to act as a safety net for individuals who become ineligible for QUEST as a result of the reinstated assets test; and 3) require that participants with incomes above 100 percent of the federal poverty level pay the full QUEST- or QUEST-Net-premium.

Section 1931 Amendments

Another pathway to family coverage under Medicaid is contained in Section 1931 of the Social Security Act. This section, created by the 1996 welfare reform legislation, allows states to cover many family members who previously were not eligible for Medicaid. Unlike 1115 waivers, 1931 eligibility adjustments are merely amendments to the state plan, and do not require a lengthy application process. To effect an amendment, state agencies need only inform HCFA of their intentions to adjust the state plan. States or jurisdictions that are using Section 1931 to expand Medicaid coverage to more two-parent families than were previously eligible include California, Missouri, Ohio, Rhode Island, Wisconsin, and the District of Columbia.(6) States can use Section 1931 to provide family coverage in four ways.

• Raise the maximum income a family may earn and still be eligible for Medicaid to adjust for inflation. Under Section 1931, unless a state amends its Medicaid plan, individuals who would have been eligible for the now-defunct AFDC program under income, asset and family structure tests states used on July 16, 1996 are eligible for Medicaid. On that date, these income thresholds were all below the federal poverty level, and the average level was 40.6 percent of the FPL. States may raise income and resource standards by as much as the rise in the Consumer Price Index since the critical date of July 16, 1996. In other words, they may adjust income requirements for inflation since the date of welfare reform implementation. Several states, including California, Connecticut, New York, Rhode Island, Wisconsin and Washington D.C. have raised these limits. States may also reduce the income eligibility level, but it can be no lower than that states used on May 1, 1988.
• Disregard income. States can choose to ignore part of applicants' earned income. Section 1931 provides states with a tremendous amount of flexibility in how they calculate disregarded income: they can ignore a percentage of income, a type or source of income (such as tips or interest income), or an amount expressed in dollars or percentage of the federal poverty level. Pennsylvania, for example, now disregards 50 percent of a Medicaid applicant's family income under Section 1931. For families under 100 percent of the FPL, New York disregards as much of a family's income as necessary to allow them to continue to be eligible for Medicaid.
• Disregard assets in evaluating eligibility. States that inquire about the value of property or savings when evaluating whether families are eligible for Medicaid can choose to ignore certain assets, such as the value of a car or other property. As of April 2000, 9 states-Connecticut, Illinois, Massachusetts, Mississippi, Missouri, Ohio, Oklahoma, Pennsylvania, and Rhode Island-and the District of Columbia had dropped assets tests for Medicaid.
• Redefine "unemployment" to cover more two-parent working families. Before welfare reform, AFDC was available only to one-parent families, two-parent families where one parent was incapacitated, and two-parent families where the principal wage earner is unemployed. Under AFDC, "unemployed" parents included those who worked fewer than 100 hours per month. Under Section 1931, states can amend that definition for the purpose of determining Medicaid eligibility. The District of Columbia, for example, used its 1931 amendment to extend benefits to families in which the principal wage earner earned less than 200 percent of the federal poverty level after deducting dependent care expenses. Similarly, Missouri's 1931 amendment states that " ... [a]ny parent whose family meets the income standards for eligibility is considered to meet the definition of unemployed."

Table 2 provides examples of how some states have integrated 1931 amendments into their strategies for covering the uninsured.

Note: * Families already enrolled may stay enrolled until income exceeds 200 percent of the FPL.

Source: Melora Krebs-Carter and John Holahan, State Strategies for Covering Uninsured Adults (Washington, D.C.: Urban Institute, February 2000).

State Contributions to Employer-Sponsored Coverage Premiums

Several states now use SCHIP and Medicaid to pay premiums for health coverage offered by employers. Depending on the program and circumstances of the applicant, these programs can pay premiums for the wage earners, their dependents, or both. In many cases, these programs can cover parents that otherwise would be ineligible for Medicaid. This approach may be practical for several reasons. In 1996, employer-based insurance was available to 43 percent of workers who earned less than $7 per hour. Also, more than 3 million uninsured children under age 19-about 22 percent-had at least one parent who was employed and who had employment-based insurance available to him or her. However, the employee contribution for these programs often represented 10 percent to 15 percent of the family's income, an amount that many families could not afford.(7)

One advantage of using this option is that states have access to both federal funds and contributions from employers. States therefore can leverage federal and private sector employer funds, and (as described below) may be able to extend coverage to other family members who would not otherwise be eligible for SCHIP or Medicaid. Helping families receive employer-sponsored coverage can also improve job retention for the working poor, and can improve access to care by keeping families together in a single insurance plan.

Federal rules for states that wish to sponsor participation in private coverage are slightly different, depending on whether the state wishes to use Medicaid or SCHIP funds. For guidance on Medicaid, states must look to Section 1906 of Title XIX of the Social Security Act; and for SCHIP, they must look to a letter HCFA issued to state Medicaid directors on February 14, 1998.

Employer-Sponsored Coverage Subsidies under Medicaid

Section 1906 of the Social Security Act authorizes states to spend Medicaid funds on premiums, deductibles and coinsurance for private, employer-sponsored coverage when the purchase is cost effective. Under the Omnibus Reconciliation Act of 1990, states were required to incorporate these Health Insurance Premium Payment (HIPP) programs into their state plans. Many states, however, found the additional administrative burden cumbersome, and 1996 legislation restored the language to Section 1906 that made optional the inclusion of HIPP programs in state Medicaid plans. Employers also found the administrative requirements burdensome and intrusive. In addition, people who applied for Medicaid often were reluctant to disclose that employer-sponsored coverage was available to them and few states had access to databases that allowed them to confirm coverage independent of applicants' self-declaration. Federal requirements for HIPP programs include the following.

• Comprehensiveness. Employers' insurance programs must include benefits at least as generous as those of the state's Medicaid program. If the employer's benefit package is more limited, the state must supplement coverage with "wrap-around" services. Some states satisfy the comprehensiveness requirement by giving HIPP enrollees Medicaid cards and access to Medicaid networks for supplemental benefits.
• Cost effectiveness. HIPP programs may pay premiums only when the cost of doing so is less than the cost of enrolling the eligible family members in Medicaid. If, for example, a working parent's children would be eligible for Medicaid, but the state can subsidize family coverage for an equal or lesser cost than the state would incur by covering the children alone under Medicaid, the state may pay for the employee's entire contribution. Cost effectiveness is determined on a case-by-case basis.

A few states have HIPP programs that screen only for chronically ill applicants who would present a great expense to state Medicaid programs. Other states, however, screen all Medicaid applicants to determine if they are eligible for employer-sponsored insurance and if HIPP enrollment would be cost effective. Iowa, Massachusetts, Mississippi, Texas and Wisconsin operate or are planning to institute HIPP programs.

Iowa's HIPP program, begun in 1991, is one of the nation's oldest that is still in operation. The Iowa Department of Social Services screens all income-eligible Medicaid applicants to see if they have access to employer-sponsored coverage. Subsidies are considered cost effective if enrolling a family in the HIPP program would save the state at least $5 per month. If not, the state then asks the applicant if any person who would be covered by the subsidy has any special medical condition that may increase the cost of coverage to the state's Medicaid program, and cost effectiveness then is re-evaluated. If the program is not cost effective, the applicant is enrolled in Medicaid. Unlike other states, Iowa's Department of Social Services reimburses premiums, deductibles and coinsurance directly to the enrollee. If an employer's coverage does not include all the benefits of the Medicaid plan, Iowa's "wrap around" program allows enrollees to consult Medicaid providers for those services, and the state reimburses these care providers directly.

As of April 2000, approximately 8,500 people were enrolled in Iowa's HIPP, almost 3,000 of which are family members who would not otherwise have been eligible for Medicaid. This represents an expansion of less than 3 percent of the Medicaid population. As a result of the program, the state saves approximately $3 million annually in Medicaid costs.

Employer-Sponsored Coverage Subsidies under SCHIP

In a letter dated February 13, 1998, the Health Care Financing Administration informed state Medicaid directors that states may apply for a variance to use SCHIP funds to pay for family coverage when it would be cost effective and when coverage will not substitute for privately obtained coverage. States have pursued family coverage through employer-sponsored insurance because employer subsidies lower state costs and increase participation in employer-offered plans. Like HIPP programs, SCHIP funded employer-sponsored programs must be cost-effective and supply comprehensive benefits, but also must satisfy other requirements. Thus far, only three states-Massachusetts, Mississippi, and Wisconsin-have instituted SCHIP-linked employer-sponsored coverage subsidies.

Although all SCHIP programs must demonstrate that states will prevent the substitution of SCHIP for private coverage, states that use SCHIP funds for employer-sponsored dependent coverage must take specific steps to prevent the problem. Some regular SCHIP programs seek to prevent families from dropping private coverage to take advantage of a government-sponsored program-often called "crowd out"-by refusing to cover any child who has received insurance within a given amount of time, usually a matter of a few months. Although states are not required to institute these "freeze-out" periods for regularly enrolled SCHIP recipients, many do. The theory is that parents will maintain coverage rather than drop it and let the child remain uninsured during the freeze-out period. HCFA does, however, require states to use freeze-out periods if they use SCHIP funds to subsidize private coverage. Furthermore, the freeze out period must be at least six months, a comparatively long lapse of coverage. In 1999, of the 29 states with private or combination SCHIP plans, only 12 used freeze-out periods of six months; the other 17 used intervals of two months, one month, or had no freeze-out period.

The cost-effectiveness requirement also can make state contributions for employer-sponsored coverage more complex under SCHIP than under Medicaid. Under Medicaid, the cost of sponsoring coverage must be equal to or less than the cost of enrolling all program eligibles in regular Medicaid, including eligible parents. Under SCHIP, the cost of coverage for the entire family must be equal to or less than the cost of enrolling only eligible children in SCHIP. This standard requires states to cover more people for approximately the same cost and is more difficult for the state to satisfy.

In addition, employers must contribute at least 60 percent of the cost of coverage for the family to receive a subsidy. HCFA may make exceptions to this requirement if, for example, the average employer contribution in the state is less than 60 percent. States also may express the minimum contribution in terms of dollar amounts if doing so would increase the efficiency of program evaluation and screening. States also must require families to receive the full premium available from the employer.

Finally, HCFA requires states to collect information periodically and conduct an evaluation that examines the extent of crowd out. Specifically, states must assess the prior insurance coverage of enrolled children during the enrollment process or through independent studies and then analyze the number of families that choose to enroll in SCHIP that might have retained or bought private insurance had they not received SCHIP funding for employer-sponsored insurance. States must affirm their compliance with all these requirements in the SCHIP plans they submitted to HCFA. A few state programs that use this kind of scheme under SCHIP are described below.

Massachusetts' MassHealth Family Assistance Program uses funds from Medicaid, SCHIP and a Medicaid 1115 waiver program to provide coverage to families with incomes between 150 percent and 200 percent of the federal poverty level. Families that have employer-sponsored coverage available to them are first screened for SCHIP family coverage eligibility. Subsidizing the family's private coverage through SCHIP is deemed cost effective if the entire family could receive coverage through a parent's employer at a lower cost to the state than the cost of enrolling the children alone in SCHIP. The employer's benefit package must be at least as generous as Massachusetts' SCHIP package and employers must contribute at least half of the premium (note that this is less than the 60 percent contribution HCFA normally requires from employers). If the subsidy is cost effective, the family enrolls in coverage, and the state receives SCHIP's enhanced federal match rate for its contribution to the premium payment.

If coverage through SCHIP would not be cost effective, availability of state support depends upon whether the family was insured at the time of application. If the family was not otherwise insured at the time of application, the children are enrolled in SCHIP, but the parents are not eligible for any form of state-subsidized coverage. If the family was insured at the time of application, the state will, under its 1115 waiver, begin to contribute toward employer-sponsored coverage for the entire family up to the amount it would have paid to enroll children directly in the public program. In this case, the state receives only the regular federal matching rate, and the benefits package needs to meet only a basic benefit level as set out in the state's 1115 waiver.

Massachusetts' 1999 annual CHIP report states that only 619 children have been enrolled in family coverage as a result of state screening for available employer-sponsored coverage, but eligibility workers are currently screening applications for more than 5,000 additional children to determine if employer-sponsored coverage is available to them.

Wisconsin's SCHIP employer-sponsored coverage program was added in 1999 through an amendment to its SCHIP program, BadgerCare. Like Massachusetts, Wisconsin uses a two-tiered approach to employer-sponsored coverage subsidies. First, the state determines if enrollment in its SCHIP employer-sponsored subsidy program would be cost effective, then repeats the analysis for Medicaid enrollment. Families that earn between 100 percent and 185 percent of the federal poverty level that apply to BadgerCare are screened to determine if employer-sponsored coverage is available. Families are enrolled in employer-sponsored coverage if the cost to the state of enrolling the entire family is less than the cost of enrolling the children alone in BadgerCare.

If enrollment under SCHIP is not cost effective, Wisconsin then determines if it can sponsor family coverage for less than it would cost the state to enroll the entire family in Medicaid (including the parents, under its Section 1931 amendment). In this case, the state will receive the regular Medicaid match rate. If neither of these scenarios would be cost effective, the parents will be enrolled in Medicaid and the children in SCHIP, and the state will receive the Medicaid match rate for the parents and the enhanced rate for the children.

Under this program, the state hopes to enroll 23,000 previously uninsured children and 27,000 adults by 2002.

Mississippi's SCHIP employer-sponsored coverage program is slated to begin in January 2001. HCFA has authorized Mississippi to require only a 50 percent contribution from the employer. The benchmark program in Mississippi is the state employees' benefit program. Although the Medicaid Division is not yet certain how many additional people the new program will cover, it has commissioned an actuarial study to determine that figure.

State-Only Programs

A few states have elected to cover children and families who are ineligible for Medicaid under programs designed, operated and funded entirely by the state with no assistance from federal sources. Funding for these programs may come from general revenue, taxes on alcohol or tobacco, or other special-purpose taxes. Although legislatures that authorize these programs forego the benefits of federal funding, the resulting programs are not constrained by federally imposed design or reporting requirements.

Among other effects, the absence of federal involvement allows legislatures to offer coverage and services to people who would not otherwise be eligible for any type of government-sponsored insurance. States can establish eligibility levels for state-only programs based on age and income, and can limit eligibility to those who would not be eligible for SCHIP or Medicaid. Alternatively, they can design programs that have limited benefits or that serve targeted populations. Unlike Medicaid programs, eligibility can be capped at a maximum capacity, giving states greater ability to manage the cost and resources of the system. Some also use freeze-out periods to deter applicants who might have available other forms of private coverage. Many guarantee one full year of eligibility before re-determination, a less frequent interval than most Medicaid programs, and only require the recipients to notify the program of any significant changes in income. States also are free to design benefit packages and service delivery systems that may be less prescriptive than those of Medicaid.

Washington's Basic Health Plan provides coverage through managed care organizations for uninsured adults and children who are not eligible for other government health insurance programs. Coverage is free for enrollees below the poverty level, but those above 100 percent of the federal poverty level must pay premiums. In addition to individual coverage, group coverage is available for employers and other sponsors. Funding for the program comes from taxes on alcohol, tobacco and hospitals. About 15 percent of the program's operating budget comes from premium payments.

The program is operated by a state agency, the Washington State Health Care Authority, which contracts with 10 managed care plans and administers the plan. An outside vendor handles group accounts. Total enrollment in the state-only portion of Basic Health is about 128,000. Until recently, Basic Health allowed people of any income to buy into the plan for the full premium. In 1999, however, several health plans declined to renew their contracts with the state, citing losses due to certain state health insurance laws, and currently only residents below a certain maximum income may participate. The Washington Legislature modified several state insurance laws in its last session, however, and the state hopes to be able to re-expand the program in the future.

Some states also provide general assistance (GA) for very poor state residents who are not otherwise eligible for other kinds of relief. Eligibility usually is restricted to state residents who earn considerably less than 100 percent of the federal poverty level and who are not eligible for TANF, Social Security, or other kinds of general relief. General assistance can take many forms, including direct cash payments, vouchers for utilities or transportation, or medical coverage or services.

As of summer 1998, 35 states offered some form of general assistance medical assistance, although some of these programs are sponsored at the county or local level and benefits are available only to residents of the sponsoring municipality. Because these are state-only programs, specific benefits and services vary widely. Some GA programs, for example, provide medical insurance coverage, while others provide direct services. Some cover all hospital services and prescriptions, but others cover only emergency services. Many benefit packages are less comprehensive than Medicaid. Some provide medical assistance only to certain GA recipients and, in some states, medical assistance requirements are less stringent than are those for financial assistance. Duration of GA eligibility also varies widely. Some states set a lifetime limit, whereas others require only annual re-determinations of eligibility. According to a recent Urban Institute survey:

Conclusion

Many state legislatures have experimented with extending health coverage to more of their uninsured residents. States that wish to cover families have several options, and have access to federal funds through both Medicaid and SCHIP. States may be able to improve access for children who already are covered through SCHIP or Medicaid by keeping families together in a single insurance plan. That stability may make it easier for families to schedule appointments and to seek preventive and primary care.

States that are designing a maximally cost-effective program must account for a number of factors. States that use 1115 waivers, for example, must negotiate a complex application process including federal restrictions on the design and evaluation of the resulting program. Although the federal government requires that waivers be budget neutral over the life of the program, states may incur greater administrative expenses in the early years of an 1115 program. States wishing to make permanent reforms to their Medicaid programs also may be discouraged by the 1115 waiver's duration limitation, although many states have continued to apply for and receive extensions. Many states also are reluctant to expand Medicaid because it is an entitlement program, and the states may not cap the program if it becomes too costly. However, expansions can use Medicaid's infrastructure and networks, while state-only programs may require start-up costs and new administrative systems.

Section 1931 amendments pose similar challenges for states in that they expand the Medicaid entitlement program and may create new expenses for the state. However, the design and approval phases of a 1931 amendment are much simpler than those of an 1115 waiver. Like states that use the 1115 waiver option, states that use 1931 amendments draw down federal funds, reducing the expense of adding more people to the state program. Section 1931 also allows entire families to enter Medicaid together.

If the successes in states that use HIPP programs to supply employer-sponsored coverage could be duplicated elsewhere, states may find exploring this option attractive. Iowa appears to be covering more people, including entire families, at a lower cost. Because states must make a cost efficiency determination on a case-by-case basis, however, starting a HIPP program may involve expensive administrative start-up costs. Initial investments would include redrafting screening and application forms, retraining eligibility workers, and creating information systems to evaluate the benefit packages of employer-sponsored coverage programs. Some states have found these expenses to be large, and the additional screening too labor-intensive, for HIPP programs to pay off. Employers also may incur new expenses and administrative burdens, providing them with an incentive to stop offering coverage entirely.

States may wish to incorporate both a Medicaid HIPP program and a SCHIP employer-sponsored coverage sponsorship program into their state strategy for insuring families. Because the federal government has more explicit requirements for employer-sponsored insurance plans under SCHIP than under Medicaid, the test for cost efficiency under SCHIP often will be more difficult to meet. In addition, when conducting a cost benefit analysis, the state may consider only the cost of family coverage in comparison to the cost of covering the children alone, rather than the entire family in Medicaid. A benefit of this approach is that states that use a SCHIP program to cover families will have access to the enhanced matching rate.

Finally, states that wish to design a private state program have great flexibility in designing their programs, but must make a larger commitment of state resources. This option would, however, be attractive to those states that seek universal coverage as a long-term goal.

Notes

1. Currently, 31 SCHIP programs cover children up to at least this income level, and others cover children up to at least 185 percent of the FPL.
2. American College of Physicians and the American Society of Internal Medicine, No Health Insurance? It's Enough to Make You Sick (Philadelphia: ACP-ASIM, November 1999).
3. For a complete list of Medicaid eligibility categories, see Martha King, Stephen Christian et al., Medicaid Survival Kit (Denver: National Conference of State Legislatures, 1999), sec. 1, pp. 3-8.
4. Other groups that are ineligible for Medicaid include most unmarried, able-bodied adults without children. Because this paper focuses on family coverage, it does not address this large and challenging population.
5. Christopher J. Conover and Hester H. Davies, The Role of TennCare in health Policy for Low-Income People in Tennessee (Washington, DC: The Urban Institute, February 2000).
6. Leighton Ku and Brian Bruen, The Continuing Decline in Medicaid Coverage (Washington, DC: The Urban Institute, December 1999), 10.
7. Laura A. Tollen, Purchasing Private Health Insurance through Government Health Care Programs: A Guide for States (Washington, DC: Alpha Center, June 1999), 2.
8. L. Jerome Gallagher et al. State General Assistance Programs 1998 (Washington, DC: The Urban Institute, December 1999), 83.