Senate Bill 539 established new premiums for families in the Missouri state children’s health insurance (SCHIP) program.1 While premiums previously were applied only to families in the highest SCHIP income tier (226% to 300% of the federal poverty level), they now are applied to lower tiers, beginning at 151% of the federal poverty level or just over $24,144 per year for a family of three.

A significant amount of attention has been focused on the new premium policies and their impact on families with children who are required to pay these premiums. Far less attention has been focused on another important policy: the “affordability” test, even though the application of this test can have an even more dramatic impact on children’s access to health insurance. Families who fail to meet the “affordability” test are denied SCHIP coverage for their children with no exceptions; they are denied the option to make premium payments to keep their children’s coverage.

Along with applying premium payments to lower income households, Senate Bill 539 expanded the “affordability” test to families with incomes between 151% and 225% of the federal poverty level. This provision denies health coverage to children in families in this income range who are deemed to have access to “affordable” health insurance – now defined as coverage that costs $342 per month for a family or $4104 per year.2 This amount is equal to 133% of the average monthly premium for children in the Missouri Consolidated Health Plan (the health insurance plan for state employees). As premiums for the Consolidated Health Plan increase every year, the “affordability” threshold in the Missouri SCHIP program will also increase every year, thereby causing more families to be denied SCHIP coverage each year.

M edicaid coverage is denied whether or not these families are actually able to obtain private health insurance for their children. The “affordability” provision denies coverage even if a family’s financial circumstances preclude them from purchasing insurance at this cost or if open enrollment for the private insurance is closed. It denies coverage even if the private insurance fails to cover medically needed care or if the co-pays and/or deductibles of the private insurance make it unaffordable for the family.

Under the “affordability” test, a three-person family earning just over $2012 per month is ineligible for SCHIP if they have access to private health insurance for $342 per month –16.9% of the family’s income. A two-person family earning just over $1600 per month is ineligible for Medicaid if they have access to private insurance for $342 per month — 21.4% of the family’s income. However, policy experts and federal SCHIP law recognize that poor families cannot afford to pay more than 5% of family income for health insurance and still have money available to cover food, rent, and other necessities. See 42 C.F.R. § 447.560. Similarly, the premium amounts for the Missouri SCHIP programs are set at 1%, 3% and 5% of family income to reflect this fact.3

Under the current Missouri policy, a family that is eligible for the SCHIP premium category cannot be charged cost-sharing in excess of 5% of family income but a family can be denied coverage altogether if it has access to private health care coverage equal to 21% of the family’s income. Put another way, under the State’s policy, a family with income at 151% of the federal poverty level is charged premiums equivalent to no more than 1% of the family’s income to participate in the SCHIP program, but would be denied access to the program altogether if the family has access to private insurance with monthly premiums that cost as much as 21% of the family’s income. And, the percentage of income taken up by these premiums does not include the additional costs of deductibles and co-pays that would make the costs of health careevengreater than 21% of a family’s income.

The “affordability” test causes low-income children to lose SCHIP coverage and become uninsured when their families are unable to afford private insurance. This provision denies families access to SCHIP coverage even where the only available employer-sponsored coverage offers a far more limited benefit package (e.g., it does not include well-child visits or mental health care) or denies coverage for a pre-existing condition.4 Employer-sponsored health insurance is defined as “insurance that minimally provides coverage for physician's services and hospitalization.” It is quite common nowadays for employers to offer such minimal “insurance” to their low-wage workers and their families, but such insurance hardly meets children’s need for the preventive care, specialty care, and prescription drugs that the SCHIP program would provide. It is also common for employer-sponsored coverage to have very high deductibles and co-pays for services that would make access to them unaffordable. Thus, the “affordability” requirement indirectly rewards employers who do not provide any health insurance for their employees without penalizing those who provide profoundly inferior coverage.

Employer-sponsored coverage does not have to cover pre-existing illnesses to be considered “affordable” under this requirement. If a family has a child with special health care needs, that child still would not be eligible for SCHIP coverage if the family fails the “affordability” test, even though the major health care expenses for the family are not covered by the employer’s insurance. The same is true if the child has exceeded an annual maximum or the maximum for one particular service. The child would be eligible for SCHIP only if he reached the lifetime maximum for all benefits under the employer’s insurance.5

In adopting SB 539, the State did not determine the number of children who would lose health care coverage due to the application of the “affordability” test to families at these income levels. However, since its adoption, many families who formerly received premium-free SCHIP health insurance have lost coverage due to the application of the “affordability” test. Consider the following real-life example:

“Jane,” a single mother earning $10 an hour as an administrative assistant, with a young son, received premium-free MC+ coverage for her son until September 1, 2005. She was never given the option of paying a premium; her son was removed from Medicaid for the following reasons, as stated in the notice she received from the State:

your family’s income exceeds the eligibility standard for receiving MC+ without paying a premium, and you have access to affordable health insurance ($299.70 per month through your employer). RSMo 208.185, Family Healthcare Manual 0920.020.10.05.

Jane’s son was denied MC+ because Jane had access to “affordable” insurance at $300 a month. However, Jane’s MC+ premium, determined by income and family size, would have been only $16.6 Thus, the State has two very different definitions of what is “affordable.”

The Department of Social Services has determined the number of children who have been denied Medicaid coverage based on the “affordability” test.7 Data from the Department of Social Services indicate the following:

• 3133 children in 1839 families lost Medicaid coverage based on the “affordability” test from September to December 2005, ascompared with 782 children in 472 families in the previous four-month period before the affordability test was extended to the new group. On average, 783 children in 459 families lost coverage each month based on the “affordability” test.

• Approximately 1312 children in 729 families applying for Medicaid were denied Medicaid coverage based on the “affordability” test from September to December 2005, as compared with 318 children in 177 families in the previous four-month period, before the “affordability” test was extended to the new group.8

Putting these figures together, 4445 children in 2568 families were denied SCHIP coverage based on the “affordability” test in the first four months after the test became effective. Therefore, the “affordability” test is already having a substantial negative impact on SCHIP coverage for Missouri children who are otherwise eligible for the program. And as indicated above, “affordable” private insurance is simply beyond the reach of many of the families who are being denied access to SCHIP under this criterion.

Conclusion

As indicated by the foregoing discussion, the “affordability” test is not a sensible health care policy for Missouri and should be reconsidered, especially for the lower-income tiers of the SCHIP program. Moreover, should the State wish to retain an “affordability” test for the SCHIP program, it would make more sense to refine the test and use the affordability guidelines that the State already uses for payment of SCHIP premiums.

APPENDIX

CHILDREN AND FAMILIES AFFECTED BY THE “AFFORDABILITY” TEST

September – December 2005:

May – August 2005:

“Cases rejected” are applications from families not already receiving Medicaid that were ineligible because of “access to affordable insurance,” and thus the application was rejected.  For rejections, the Department tracks the number of families (cases) that applied, but not the number of individual children in each family that is denied coverage.

“Cases closed” and “children closed” represent children in households with income above 150% of the FPL that were no longer eligible due to “access to affordable insurance.”

Missouri Department of Social Services data, January 18, 2006

Endnotes

1 In Missouri, SCHIP is a component of the State’s Medicaid program rather than an independent children’s health insurance program as it is in some other states.

2 See Missouri Family Health Care Programs Manual, Section 0920.020.10.05 (Affordable Insurance Definition). Affordable insurance is health insurance requiring a monthly premium of $342 or less per month per family. “Affordable” is defined as 133% of the current average monthly premium for children ($257) in the Missouri Consolidated Health Plan. Adjustments will be made to the premium amount each July 1st to reflect changes in the Missouri Consolidated Health Plan premiums.

3 Missouri Family Health Care Programs Manual, Section 0920.020.15.

4 Employer-sponsored health insurance causes ineligibility for SCHIP if the premium meets the affordable definition in Section 0920.020.10.05; and the coverage meets the definition of health insurance in Section 0920.020.05.10. As indicated above, health insurance is defined as insurance that minimally provides coverage for physician's services and hospitalization. Id.

5 These requirements are discussed in the definition of health insurance. Section 0920.020.05.10 of the Missouri Income Maintenance Manual.

6 $16 per month is the premium for the lower-tiered premium amount under Missouri’s new SCHIP premium policy. Section 0900.000.00 Appendix E.

7 P revious estimates of similar proposals to implement such a test indicated that 3000 children would lose coverage annually as a result of an affordability requirement. See Joel Ferber, The 2004 Legislative Session: What Happened to Medicaid, Revised August 16, 2004, at 6, citing Committee on Legislative Research, Oversight Division, Fiscal Note to HB 1566, March 17, 2004. Budget legislation that same year assumed that 20,000 children would lose coverage if new premiums were implemented. HB 1566 would have eliminated 23,000 children from coverage based on both the new premiums and the affordability test.

8 The Department does not track the number of children in the families that were rejected based on “affordability.” However, assuming an average of 1.8 children per SCHIP household (and rounding downward), based on Department of Social Services data, there would be 1312 children in the 729 families denied coverage from September to December 2005 and 318 children in the 177 families denied coverage during the previous period.