Academic journal article Inquiry

Adverse Selection in the Children's Health Insurance Program

Academic journal article Inquiry

Adverse Selection in the Children's Health Insurance Program

Article excerpt

Abstract

This study investigates whether new enrollees in the Alabama Children's Health Insurance Program have different claims experience from renewing enrollees who do not have a lapse in coverage and from continuing enrollees. The analysis compared health services utilization in the first month of enrollment for new enrollees (who had not been in the program for at least 12 months) with utilization among continuing enrollees. A second analysis compared first-month utilization of those who renew immediately with those who waited at least 2 months to renew. A 2-part model estimated the probability of usage and then the extent of usage conditional on any utilization. Claims data for 826 866 child-years over the period from 1999 to 2012 were used. New enrollees annually constituted a stable 40% share of participants. Among those enrolled in the program, 13.5% renewed on time and 86.5% of enrollees were late to renew their enrollment. In the multivariate 2-part models, controlling for age, gender, race, income eligibility category, and year, new enrollees had overall first-month claims experience that was nearly $29 less than continuing enrollees. This was driven by lower ambulatory use. Late renewals had overall first-month claims experience that was $10 less than immediate renewals. However, controlling for the presence of chronic health conditions, there was no statistically meaningful difference in the first-month claims experience of late and early renewals. Thus, differences in claims experience between new and continuing enrollees and between early and late renewals are small, with greater spending found among continuing and early renewing participants. Higher claims experience by early renewals is attributable to having chronic health conditions.

Keywords

CHIP, adverse selection, health insurance, children

Adverse selection is a common occurrence in health insurance plans. People know more about their likely use of health services than do insurers and they use this knowledge to their advantage. One reason for the individual mandate in the Affordable Care Act (ACA) is that in its absence, healthier people are disproportionately less likely to enroll, leaving the plans with only the sicker individuals. Children's Health Insurance Program (CHIP) plans also potentially suffer from adverse selection. In CHIP, families pay substantially reduced premiums based on their income and are then enrolled in a stand-alone private health insurance program or in the state's Medicaid program, depending on the state. However, their enrollment and their premiums are not tied to their health status.

In CHIP, one might see adverse selection manifest itself in two ways. First, children with ongoing health problems, knowing their likely greater need of services, quickly enroll when the program becomes available to them, and they renew immediately to maintain coverage and access to their health care providers. Second, the child may experience a serious acute health event that lands them in an emergency department or a hospital bed. In this circumstance, the family may enroll or renew their enrollment as quickly as possible to minimize additional costs, or the health care provider may assist them in doing so.

Alabama, the focus of this study, is 1 of 17 states in which CHIP participants are enrolled in stand-alone coverage. Alabama CHIP enrollees have access to the same Blue Cross Blue Shield (BCBS) of the Alabama network of providers as all other BCBS enrollees in the state. Eligibility is limited to households with income between 100% and 300% of the federal poverty level (FPL). Currently, an eligible family with a single child would pay a premium of $0, $52, or $104 per year, depending on their income level and Native American status. Each premium provides 12 months of coverage. Even at these premiums, a majority of enrollees do not re-enroll within 12 months. However, they face no penalty for not re-enrolling and may newly enroll at anytime. …

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