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Concerns About Parents Dropping Employer Coverage to Enroll in SCHIP Overlook Issues of Affordability

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Abstract:

As discussion over reauthorization of the State Children's Health Insurance Program (SCHIP) continues, one concern is that many parents will enroll their kids in SCHIP rather than accept coverage offered through an employer—thereby undercutting or "crowding out" employer-sponsored insurance. This analysis from the Urban Institute shows that this concern ignores questions about the ability of parents—especially low-income parents—to afford employer-sponsored coverage.



An August directive from the Centers for Medicare & Medicaid Services (CMS) suggests that the "affordability cap" for out-of-pocket health care expenses should be 5 percent of family income. The Urban Institute analysis shows that families in which children are covered by SCHIP or Medicaid have out-of-pocket spending averaging 4 to 5 percent of their income, thus falling under the affordability cap. However, for families with kids covered through employer-sponsored insurance, the out-of-pocket spending burden is higher—ranging from 12.9 percent of income for families between 0-149 percent of the federal poverty level (FPL) to 6.1 percent for families between 250-399 percent of FPL.



The analysis documents that low-income families have difficulty affording employer-sponsored insurance when measured on CMS' affordability scale and that by limiting premiums and other out-of-pocket spending, Medicaid and SCHIP make health care affordable for low-income families.