Why More Working Families Are Turning to Public Health Insurance

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Doug Strane of the Children's Hospital of Philadelphia discusses his recent study on the growth of middle-income families using public insurance programs to cover their children.

The spiraling cost of health care is pushing more working families to Medicaid or the Children’s Health Insurance Program (CHIP) for coverage for their kids. New research by Children’s Hospital of Philadelphia shows that even when parents get insurance coverage through their employers, they are still priced out of adequate coverage. The study spanned 2008 to 2016 and found that insurance rates increased by double digits at many private- and public-sector businesses. Even middle-income families making almost $73,000 annually had to rely on public insurance to make ends meet. Doug Strane, a research project manager at PolicyLab at the Children’s Hospital of Philadelphia, is co-author of “Growth of Public Coverage Among Working Families in the Private Sector,” which appeared in the July edition of Health Affairs. He joined the Knowledge@Wharton radio show on SiriusXM to talk about the study and how it can inform public policy.

An edited transcript of the conversation follows.

Knowledge@Wharton: Can you give us some background on this research and why it’s so important?

Doug Strane: We like to think of this as a kitchen table issue. When you’re talking about programs like Medicaid and CHIP, you’re thinking at the federal level — millions of children. But we approach this from a kitchen table, where we’re thinking about low- to middle-income families making up to $50,000 or $60,000 a year for a family of four.

Over the last decade or so, we’ve seen pretty steady increases in both the cost of health insurance premiums as well as how common deductibles are. It adds up to quite a bit of money that’s coming directly out of people’s pockets to pay for health insurance. What has really changed about this in the last decade is how we think of employer-sponsored insurance. If you’re a working family, you get coverage through your employer. We think of that as being high-quality coverage that’s also affordable. But with these big changes, we’re starting to see that families are being priced out of that coverage. What we wanted to ask was, with these increasing prices, are families seeking health insurance for their children elsewhere?

Knowledge@Wharton: How many people are relying on these public programs right now?

Strane: We looked at a dataset that allows us to capture everyone in the United States, so it’s nationally representative. What we found is that about 20% of kids in working families were covered with Medicaid or the Children’s Health Insurance Program, so it worked out to about 8.6 million kids in working families. Obviously, when you look at families that are unemployed or below the federal poverty level, it’s quite a few more that are using Medicaid and CHIP. But our study focused on those working families that are using Medicaid and CHIP.

Knowledge@Wharton: Are those numbers on the rise?

Strane: Yes, and part of that is a trend over the last two decades where we’ve seen continually decreasing uninsured children, which is great. That’s a big win. We are at historically low un-insurance rates in the U.S., and Medicaid and the Children’s Health Insurance Program, which was started here in Pennsylvania, are a big reason for that.

Knowledge@Wharton: Where are we on the policy side with these programs? I assume the costs are expected to increase.

Strane: Yes, and I think the numbers that we found in our paper really serve to drive home that the role of Medicaid and CHIP is changing, and it’s changing really quickly for working families. I think that’s something that we need to be much more intentional about incorporating into policy discussions about the future of children’s health insurance.

“We weren’t very surprised when we found that the children most likely to be covered by public insurance were those who had a mom or dad working for a small business.”

First, I should explain that we looked at where parents worked. Did they work at a small business? Did they work at a large corporation? Or did they work in the public sector? We weren’t very surprised when we found that the children most likely to be covered by public insurance were those who had a mom or dad working for a small business. Small businesses tend to have more expensive health benefits, if they offer them at all. Smaller businesses are not required to offer benefits under the Affordable Care Act. That’s kind of what the CHIP program was designed for, to fill that gap. We found that those kids whose mom or dad worked for a small business had the highest odds of having public insurance. And it increased over time quite a bit so that in the lower income bracket, we found that in 2016, four out of five kids whose mom or dad was working for a small business were covered by either Medicaid or CHIP. Like I said, it was not the most surprising finding, but it’s always good to have your suspicions confirmed by data.

Knowledge@Wharton: Yes, but when you’re talking about moving up a level to middle-income families who also have to rely on these programs, that gives you an eye-opening look at where health costs have really gone in the last decade or two and the impact that is having in the U.S., where we’ve had somewhat stagnant wage growth.

Strane: You’re exactly right about that. We’ll call them moderate-income families — a family of four earning anywhere from $40,000 to $60,000 a year. We found that when mom or dad worked at a small business, there was a 43 percentage point increase in the proportion of kids in those families that were covered with public insurance. So, 40% more kids in those families were covered by public insurance. But we also found that in that middle-income bracket. It was even among kids where mom or dad worked for a large company or corporation that we saw a big growth in the proportion that were covered with public insurance. It was lower than the families where mom or dad worked for a small business, but it was definitely growing, too.

I think what’s important to keep in mind is there are many, many more families that work for large corporations. They employ lots more people, by nature. If we’re thinking about the future of where families are getting their health care coverage, in our minds we tend to go to those families where mom or dad works for a small business. But what we found in our data is that many more families that have a kid on public insurance are working for large corporations. I think that’s a real change in how we have to think about the role that public insurance is playing for working families.

Knowledge@Wharton: It’s also a change in how companies are viewing the provision of insurance benefits for their employees, correct?

Strane: Yes, exactly. A big part of the change is the rising cost of health care coverage in the U.S., which is driven by the rising cost of health care. That comes in the form of increasing premiums. Between 2008 and 2016, the cost of premiums for family coverage at the average U.S. company increased by 57%. As of 2016, families were paying on average about $5,200 a year for coverage, and that’s a big increase.

If you’re a family making $40,000 a year, an extra $2,000 or $3,000 going towards your family premium when your wage hasn’t increased — that’s something that families absolutely feel. What we think we’re picking up on in this data is that families are doing the math, and they recognize, “If we can cover our kids with Medicaid or CHIP, we’re going to save money.”

Knowledge@Wharton: The period that you studied includes the economic downturn, when it became harder and harder for families to keep up with necessities.

Strane: Yes, you’re 100% right about that. We intentionally chose this period of 2008 to 2016 because we’re starting right at the very worst of the Great Recession and then up through the recovery. What we think we may have picked up on is that there could have been families who lost employment or lost their benefits during the recession and enrolled their kids in Medicaid or CHIP when they didn’t have employer-sponsored insurance to turn to any longer. This is somewhat of a hypothesis, but I think it’s reasonable to think that when they got a job again, they may have kept their kids on public insurance because the kids were already enrolled and they saw how much money they could be saving. I think it’s important to mention that these are really good insurance programs. Medicaid and CHIP provide really high-quality coverage for kids.

Knowledge@Wharton: Was there an assumption that the further you got from the recession, the numbers of people using Medicaid and CHIP would go down?

Strane: I think if everything stayed exactly the same, if all costs of health care coverage stayed the same, you might see that. But what we’ve seen is that wages haven’t kept up with the increases in the costs of health care coverage. We’ve seen dramatic increases in the rise of health care costs, both premiums and deductibles. Like I said, about a 57% increase in the cost of premiums for family coverage. During that same period, wages grew by about 29%. We’re seeing that health care costs are taking up a larger proportion of the family’s bottom line. And what we think is happening is families are kind of doing the math, even if mom or dad has a job after the recession.

Knowledge@Wharton: If the expectation is that health care costs are not going to be going down, are we going to see even more people decide that Medicaid and CHIP are a cheaper option?

“Between 2008 and 2016, the cost of premiums for family coverage at the average U.S. company increased by 57%.”

Strane: I think that’s a pretty reasonable guess. We don’t know the future, but all signs seem to be pointing to increasing enrollment in Medicaid and CHIP among kids in working families. And I think that’s something that we need to take very seriously as we think about the future of children’s health care coverage.

I’m an objective researcher, but I also strongly believe that children should have access to high-quality coverage. And I think that the lowest possible insurance rate among children is to everyone’s benefit. So, I think these data can inform policy discussions as we think about how working families are going to be making financial decisions and how that relates to their children’s health care coverage moving forward. There are many different approaches if you wanted to talk about policy options for how families might cover their kids in the future. I definitely won’t claim to be an expert in that. I think there are many different approaches, and it could even vary by state. We all know that health care policy in Washington has been a gridlock for the last few years, to say the least. I think a lot of the action is probably going to be at the state level.

I think it’s important to note, too, that the qualification levels by income for CHIP and Medicaid vary by state. The amount that you have to earn in Texas in order to qualify for public coverage differs from what it looks like in Pennsylvania. Even though we saw increases in working families that were using public benefits for their kids, in some states families didn’t have the option to switch to public coverage because they just earned too much. I think the demand is probably even greater than what we’re seeing in the actual enrollment numbers for Medicaid and CHIP, it’s just that it varies by state. Those families are still feeling the squeeze, even if they can’t enroll their kids in public coverage.

Knowledge@Wharton: There has been a big drop in Medicaid enrollment nationwide in the last year. Is this because the economy has improved, so many have gone beyond the income threshold? Or is the drop due to the fear among immigrants about receiving a public benefit? I know the data you examined went through 2016, but can you explain this recent drop?

Strane: Yes, I’m familiar with those numbers, and last year we did see a decrease in Medicaid enrollment for children nationwide, and I agree. I think part of it is what we refer to as public charge — people perceiving, sometimes correctly, that they may not be able to qualify for residency status or citizenship if they’re using public benefits. That could have caused some people to worry about their family’s broader well-being if they were to enroll their child in Medicaid or the Children’s Health Insurance Program. I think that’s very real. Those concerns are very legitimate.

I think also there’s been a lot of discussion about Medicaid work requirements around the country. We know from previous literature that children’s Medicaid enrollment is closely tied to their parents. If mom or dad is enrolled in Medicaid, then their kids are much more likely to be. If parents no longer qualified for Medicaid due to a work requirement in their state — or I think just these conversations that are out in the air may have given people some of the false perceptions that they no longer qualified for Medicaid, or that they maybe didn’t have the paperwork in place to prove that they were employed and maintain their Medicaid enrollment — their kids’ enrollment could have dropped off as well.

I do think in working families we’re going to continue to see this increase in enrollment in Medicaid and the Children’s Health Insurance Program. But I do think that there are policy concerns that are very legitimate that are going to keep families from enrolling even when they actually need it.

Knowledge@Wharton: We still have this perception that the company is going to take on a fair share of the health coverage costs to be able to make it affordable for their employees, and that’s just not the case anymore.

Strane: In some ways, you can think of the employers as kind of just a middleman. They’re purchasing health insurance, and when the cost of that goes up, they’re trying to look out for their bottom line. They have to make sure that they’re offering something that they can afford. Part of that has caused companies to turn to health insurance offerings like the high-deductible health plan, where families have to pay a lot more out of pocket before the health insurance benefits really start to kick in.

I think that is a pretty legitimate concern, which is why I think we need to be mindful that part of the policy conversation here is going to be about controlling health care costs in the future. We’ve seen a consistent upward tick in health care costs over the last decade. If we want to be serious about making sure that families maintain access to health care and have health care coverage that’s affordable, controlling health care costs is part of it.

Knowledge@Wharton: How important is it for you and your colleagues to continue to look at this data to understand better where we are going in the years to come?

“We don’t know the future, but all signs seem to be pointing to increasing enrollment in Medicaid and CHIP among kids in working families.”

Strane: I should give a little bit of backstory. We put out a paper in 2016 that was using data up to 2013, and we saw similar trends. It was a slightly different question. We used this paper that we just put out to kind of check back in on those trends, and I think absolutely we need to keep an eye on this moving forward and have our ears to the ground of what working families are using to cover their kids for health insurance. I think that’s an important piece.

Honestly, we can slice the data a hundred different ways and show all the different ways that working families are being impacted by these costs, but I really do think this paper gives the important messages about rising costs and how working families are going to be dealing with it in the future. We’re working with the Leonard Davis Institute here at Penn to put together a brief that’s going to be coming out later this fall, laying out some of the policy options that states can consider as they’re trying to figure out how to deal with this. There are all sorts of different approaches. I won’t quite get into the weeds here. It gets very weedy.

Knowledge@Wharton: The average consumer has to be extremely worried that if they can’t afford the private health insurance from their employer, the best option is for them to go with these federal programs.

Strane: This is an issue that can sound abstract or hard to think about when you’re at the national level, but bring it back down to the dollars that a family is thinking about. To give you an idea, in the middle-income bracket of our study, we were looking at families that were earning about 200% of the federal poverty level. Let’s say that’s a single parent with one child. They’d be earning about $32,000 a year. If you’re suddenly looking at an increase from $3,000 to $5,000 to have health insurance through your employer for those two, that’s a tangible amount of money that really impacts the day-to-day choices that those families are making. I don’t think you can blame them for seeking out an affordable option. It’s just a rational kind of economic choice that they’re making, especially when the benefits on public insurance are comparable in many instances.

There’s a current policy piece to this that has come up recently. There’s been a proposal by the Office of Management and Budget to change in the next decade how the federal poverty level is calculated using a different inflation index. What it would mean for a lot of working families is that, even though they wouldn’t be earning any differently, fewer families would be considered below the federal poverty level. That means that fewer families will qualify for these programs like Medicaid or CHIP. Why that worries me is that we’ve demonstrated with our data that there is a need for this. There are no signs that health care costs are going to be trending downward anytime soon, so it concerns me a lot as someone who cares about children having access to high-quality benefits. There could be families who currently have this need, who in the future would no longer qualify, even though nothing has changed in their bank account.

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