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Weekly UpdatesThe State Children's Health Insurance Program (SCHIP) was created in 1997 to expand health insurance to uninsured low income children. Almost four million children were covered through this program during the last month of 2003, and almost six million were at some point during the 2003 fiscal year. Most of those children lived in low to moderate income families, although income eligibility limits vary from state to state.
In SCHIP's enabling legislation, Section 2210 of Subtitle J of the Balanced Budget Act of 1997 contains a provision that specifically excludes children whose families are eligible for participation in a state employee benefits plan from SCHIP eligibility. This exclusion applies regardless of whether a child's parent or guardian actually participates in the state employee health benefits program for which that adult is eligible, and even if a child would otherwise be eligible for SCHIP based on his or her family's income and the relevant look-back period for health insurance coverage. Thus, children of state employees are singled out as being ineligible for publicly supported health coverage that children of other types of public and private employees can receive, despite the fact that at least some state workers have incomes that would make their children eligible for SCHIP.
This article presents an analysis the status of health insurance coverage among children of state employees, the implication of the SCHIP exclusionary rule for these children from 2002 to 2004, and the potential for the exclusion to have an increasing effect on these children. We begin by analyzing the legislative history of the exclusionary rule in order to determine if there was a legal issue that would create coverage for the affected children. A summary of the existing literature surrounding public employee compensation and benefits is followed by descriptive statistics of coverage among dependents of state workers to assess the extent to which the exclusionary rule limited coverage among these children and a multivariate analysis of the determinants of coverage for these children. Finally, we discuss the trends in state health benefit plans that could contribute to a change in coverage among dependents of state employees in the future.
Legal Analysis
The Balanced Budget Act of 1997 created Title XXI of the Social Security Act, which is now known as SCHIP (42 U.S.C. [section][section] 1397aa-1397jj). The program is designed to provide "child health assistance to uninsured children in low income families in an effective and efficient manner" (42 U.S.C. 1397 aa(a). (1) Based on this description, it seems problematic for children of state-benefit-eligible employees to have been excluded from SCHIP. However, from a legal perspective, there are several reasons why such children do not receive legislative protection.
First, the legislation provides that the child health assistance should coordinate "with other sources of health benefit coverage for children" (42 U.S.C. 1397 aa(a)). (2) No state has opted to make SCHIP coverage an entitlement, despite having the ability to do so. In fact, most state SCHIP programs do not even mandate maximum coverage. (3) By giving the power to create safeguards to the states, the federal government revealed the lack of control it wished to have over the program. Notions of federalism that would normally dictate federal preemption do not apply to SCHIP because the program expressly divides power between the federal and state governments, with state governments retaining administrative control.
Second, notions of equal protection or other constitutional protections are equally inapplicable. Low income is not a protected class, so when the government creates programs that take wealth into account when granting benefits, it need only show that a rational relationship exists between income-related eligibility rules and desired outcomes in order to defend program rules (29 U.S.C. 1144). This is a low burden, and one that is unlikely to be raised by arguing that it is irrational to exclude children with access to alternative health coverage from a federally funded health program, particularly since the legislation that created SCHIP contains the express intent for it to be coordinated with other sources of coverage.
Last, related legislation, specifically, the Employee Retirement Income Security Act (ERISA) creates no further rights. On the contrary, section 2109 of SCHIP details Congress' intent not to affect or modify the impact of section 514 of ERISA, which states that ERISA preempts any and all state claims related to an employee benefit plan except state laws that regulate insurance. (4) As a result, despite the clear intent of SCHIP to provide health coverage, a legal analysis reveals no extra protection specifically for the children of state-benefit-eligible employees.
Background on Public Sector Workers and Employee Benefits
Public sector employers, particularly states, have traditionally designed benefit packages to attract a stable workforce. In a study of wages for public sector workers, Borjas evaluated relative wages in the public sector and private sector both before and after controlling for age, education, race, and state of residence between 1960 and 2000. (5) The author found that throughout the time period studied, unadjusted male wages were slightly higher in the public sector than in the private sector, but adjusted wages for men in the public sector were between five and 10 percent lower than in the private sector. Although publicly employed women historically enjoyed higher unadjusted wages and adjusted wages than their private sector counterparts, the public sector wage advantage had all but disappeared by the year 2000. Furthermore, Borjas pointed out, wage trends showed that relative to the private sector, wages within the public sector were increasingly more compressed. These results suggest that if the trends continue, it may become increasingly difficult for public sector employers to attract workers, particularly the most highly skilled workers.
While Borjas evaluated wages, the researcher did not consider the monetary value of employee benefits that make up a significant portion of the total compensation package. In a study of the relative value placed on employee benefits by public sector employees, Bergmann, Bergmann, and Grahn found that public sector employees perceived their benefits as more important than did private sector employees who were polled as control groups. The employee benefit about which public sector employees were most knowledgeable was the health insurance benefit. (6)
The same cost pressures that led to the wage compression for public sector employees identified by Borjas will have an effect on the generosity of benefits for public sector employees. The important role employee benefits, particularly health insurance benefits, have played in attracting and retaining an adequate workforce for states stands in contrast to the increasing budgetary pressures facing state governments. Data compiled by the National Conference of State Legislatures indicate that the average total premiums for family coverage increased by 97 percent across all states between 1999 and 2005. During this same period, the employee contribution to the premium for family coverage increased by an average of 66 percent across all states. There were 17 states in which contributions for family coverage increased by more than 100 percent between 1999 and 2005. Furthermore, if the seven states that continue to offer family coverage to workers while requiring no employee contribution are excluded from the sample, the average worker contribution for family coverage increased by more than 93 percent during the six-year period. (7)
The rapid growth in contributions required for state workers to insure their dependents will likely increase the effect of the SCHIP provision that excludes state workers' dependents from eligibility in future years. Furthermore, the wide range in required contributions for family coverage, which in 2005 ranged from nothing to more than $400 per month, points to a likely disparate impact of the SCHIP exclusionary rule. Therefore, this article presents a descriptive analysis of the implication of the policy for dependents of state workers from 2002 to 2004 and provides a baseline for continuing to monitor coverage of those children in the future.
Coverage Status of State Workers' Dependent Children
We used data from the Current Population Survey's (CPS) Annual Social and Economic Supplement to evaluate the extent to which public sector employees, both federal and state, have children who are enrolled in publicly funded health benefit programs. The Census data was also used to determine whether the SCHIP provision that excludes dependents of state workers from eligibility for that program contributed to lack of coverage for those children.
We use combined data from the March 2003, 2004 and 2005 surveys for the CPS supplement. Pooled data were needed in order to have a sufficient survey sample size for children of state employees in the relevant income range that might be affected by the SCHIP exclusionary rule. This method of pooling CPS files from multiple years is routinely used by the Census Bureau to make state level coverage estimates and is used by the Center for Medicaid & Medicare Services (CMS) for state level analyses of children's coverage. In the combined file we used, there are 9,946 observations for children with one or more parent in full-time state employment. This method yields estimates that represent the average for calendar years 2002-2004.
Ideally, we would have used administrative data to assess the impact of the SCHIP rule. However, to the extent that ineligible children are actually enrolling in the SCHIP program, it is unlikely that their parents or guardians are reporting information that would highlight the children's ineligibility. Therefore, we resorted to the use of CPS for this analysis.
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