The Effects of SCHIP Expansion on Family Insurance and Out-of-Pocket Medical Costs: New Results from the SIPP

Background:

During the reauthorization debates for the State Children's Health Insurance Program (SCHIP) in 2007, the most prominent concern focused on crowd-out: the possibility that expansions of public health insurance for children have substantially displaced private coverage. Many policymakers believe crowd-out represents a serious policy problem. However, we know almost nothing about the implications of crowd-out for families. This paper hypothesizes that child's health status may play an important predictive role in determining who crowds out, and that crowd-out may reduce a family's out-of-pocket medical expenditures and premium payments.

Method:

We draw data from the 2001 and 2004 panels of the Survey of Income and Program Participation (SIPP), administered by the U.S. Census Bureau. We construct a pooled, nationally representative, longitudinal sample of children 0-18, and their families, for 2001-2005. Special attention is paid to children in poor health status, as reported by parents. We begin by estimating the extent of crowd out. We draw on Gruber and Simon's (2007) method for calculating crowd-out to produce estimates for 2001-2005. Next we consider the effects of crowd-out. We begin by operationalizing a definition of crowd-out that exploits the SIPP's longitudinal design. We present descriptive statistics comparing those who crowded-out to those who did not. Next, using an instrumental variable, two-stage-least-squares approach to address the endogeneity of family coverage decisions, we estimate the effects of crowd-out on out-of-pocket medical expenditures and family premiums. Using the simulated eligibility instrument constructed for the crowd-out estimates, we estimate the probability of crowding-out in the first stage. In the second stage, the predicted crowd-out variable has a significant impact on out-of-pocket medical expenditures and family premiums.

Results

We find considerable crowd-out during the 2001-2005 period, although estimates are highly sensitive to model specification. According to our estimates, children and families who crowd-out are a vulnerable population, and a child's health is highly predictive of crowd-out. As hypothesized, crowd-out appears to provide a large financial benefit to affected families. Our estimates suggest that SCHIP provides a cash-equivalent transfer of $2,500 annually to families who crowd-out.

Conclusions and Implications:

Our findings suggest that for the marginal crowded-out family, substitution of public for private insurance resulted in a substantial cash transfer. Contrary to current public policy debates--which generally presume that crowd-out is a societal cost--our results suggest that reducing the private cost of health coverage may bring important social benefits. Many studies have shown that middle-income families in poor health status--who we find are most likely to crowd-out--are often made poor by medical expenses, whereas healthy low-income families can be defined as “medically middle-income.” For families who crowd out, transitioning from private to public health insurance may mean the difference between financial hardship and financial stability.