Trends in children's health insurance

by Tony Novak, CPA, MBA, MT, revised 8/28/2013

• History
• Trends
• Legal Issues
• Health Insurance Choices
• Limitations
• Summary

History

Until fairly recently, most children were covered under their parents' health insurance. When the parents had no health insurance, then the children had no health insurance. Since 1997, federally backed programs expanded Medicaid welfare programs to target the uninsured children of modest income families through the State Children' s Health Insurance Program¹. Over the next few years, all 50 states and the District of Columbia began offering free or affordable child-only health insurance policies. A nationwide enrollment campaign titled "Insure Kids Now" was effective in getting the word out about this program. The U.S. has made significant progress in reducing the number of uninsured children for working class families. Even the children of illegal immigrants are covered under these programs. The program has been so successful, if fact that a 2005 article in the University of California Berkley News sited a study that suggested the benefits expanding this coverage to parents of these children. The underlying study found that the medical care of the children would be improved if their parents had access to health care for themselves. The results are not surprising, but the study does not begin to address the costs associated with such a proposal for adult coverage.

Health insurance for children is relatively inexpensive because average medical expenses for children are significantly less than the cost for treating adults. Commercial health insurance for children is sometimes priced at 1/10 or less of the price of similar adult coverage. At a result, providing health insurance to uninsured children is an easy task compared to reducing the number of uninsured adults. Adverse trends in health insurance underlying the uninsured problem remain unchecked. The cost of medical care continues to grow at greater than the rate of overall inflation. State insurance departments continue to limit the availability of affordable health insurance. The number of legislative mandates that contribute to the rising the price of health insurance coverage grows large each year

The demand for child only commercial health insurance increased steadily at enrollment firms like Freedom Benefits over the past decade. The enactment of the Affordable Care Act triggered all U.S. major medical insurance companies to withdraw from this this market. In 2013 child only health insurance was re-introduced as short term major medical insurance. This article discusses the trend and identifies several possible causes of this trend, insurance companies who are most involved in child-only health insurance trend and other resources.

Trends

At least five forces are contributing to the increasing rate of health insurance coverage for children. Following are a few complied based on inquiries to OnlineAdviser service that supports enrollment in a large number of health plans.

1. Consumer-driven health plans

Today' s health plans encourage employees to be more selective when choosing health insurance. In the past many people did not even know that it was possible to put children on a different health insurance plan than their parents. In many cases, the best combination of value and price is obtained when the children are enrolled in a different health plan than one or both of the parents. Child-only health insurance policies are compatible with health savings accounts and the number of health savings accounts covering children is growing.

Required Contributions to employer-sponsored health plans

Most employer-sponsored health plans require some contribution from the employee for dependent coverage. Group health insurance for children is more expensive than individual health insurance due to required coverage in group health plans that do not apply to individual insurance. For example, a significant portion of the cost of a group health insurance policy is allocated to maternity care. An individual health insurance policy for a child excludes normal maternity care and so the cost is avoided. The size of the required employee contributions has increased in recent years to the point where t exceeds the cost of purchasing child-only health insurance. Increasingly, parents are aware that they can opt out of dependent coverage on their group health insurance and purchase more favorable coverage on their own at a lower price.

Court-ordered coverage

Family courts frequently require one of the parents to provide health insurance in a divorce settlement or child support order. The providing parent may be able to extend coverage from an employer-provided health plan but most employers require that the employee contribute to the cost of this coverage. Commercial health insurance that is available at less than the cost of group insurance increases the possibility that the responsible parent will seek coverage outside the employer-provided group insurance.

Relocation of Students

When children attend a school in a different geographical than the family home, coverage under a parent' s health plan is often limited. This is especially true for HMOs and managed care health plans that contract with medical providers in advance to provide care for members. College students frequently enroll in their own health insurance plan after encountering some difficulty obtaining payment for treatment under a parents' health plan at medical facilities near their school.

Spill-over psychological effects of governmental publicity programs

It is possible that parents of children who are not insured but do not meet the requirements of their state' s insurance program (income or residency) for children may be convinced of the importance of health insurance as a result of the massive publicity campaign. If we accept the belief that there are a significant number of families that make too much money to qualify for the children' s health insurance program but do not make enough to provide this same coverage for themselves. While this was not the intent of the program, there may be some "spill-over" effect with middle income families.

Legal Issues

State Mandates

Health insurance is controlled primarily by state law and those laws apply to the policies issued to residents of that state are not affected by the choice of insurance company. Many coverage details vary from state to state, are modified from time to time, and may not be included in the basic written policy form but rather as amendments or references to state law. Some health insurance companies simply make a statement that the policy adheres to the minimum requirements of all state-mandated coverage even if the policy does detail the specific provisions. Recent mandates in many states include coverage for diabetic supplies, mental health parity and substance abuse treatment.

Well-child care

The coverage provision in children' s insurance coverage that is most likely to be affected by state mandates that address well-child care. These state mandates typically cover immunizations, tests and related examinations. The following states have laws that require all health insurance to provide specific well-child care benefits for children in addition to the usual treatment of accidents and illnesses: California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, Texas, Utah, Virginia, West Virginia, and Wisconsin.

Insurance Department Web sites

State mandates are listed for each state separately on the state' s insurance department Web site. Links to the state insurance department Web sites are included at http://www.freedombenefits.net.

Parents signature required

A health insurance policy is a commercial contract. All states require an adult parent or guardian to enter into any commercial contract on behalf of a child. This means that insurance companies may require the manual signature of the parent when an applicant applies for coverage on the Internet, since the online enrollment systems are equipped only to take the electronic signature of the applicant, not the parent. In this case, the application is submitted online and a copy of the application is submitted with the parent' s manual signature at a later date.

Health Insurance Choices

State children' s insurance programs can be found at www.insuredkidsnow.gov. Each state has its own eligibility requirements and benefits vary from state to state. For those who do not qualify due to income or are waiting for other coverage to start, commercial health insurance may be the best option. Insurer' s report that new enrollees are often surprised by the affordability of health insurance for children.

Each health insurance company has its own guidelines for issuing coverage for children separately form their parents. While all health insurance companies offer coverage to children, only a few insurers have targeted child-only policies with favorable features, pricing and benefits. It appears that the health insurance companies that have built special provisions for child-only health insurance tend to dominate this niche market. The companies listed below have been the three most popular choices among the people using OnlineAdviser enrollment assistance at www.Freedombenefits.net, a Web site that focuses on low cost and temporary health insurance.

Smart STM offered through the Freedom Benefits Insurance Exchange is the brand name for the short term major medical insurance that provides almost all of the child only coverage for 2013 in the U.S. for applicants who are at least two years old. This is a month-to-month coverage with a policy length of 6 months, 12 months or three years, depending on the options chosen. The company offers a 2-19 age group premium rate for one child. Other siblings to be insured on the plan can be added at the dependent child rate. When completing an application, enter the youngest child as the applicant, and all other children as the dependents. The parent or legal guardian must manually sign the application and return a copy by mail or fax. Children age 19 and older must apply separately. This coverage is available in most states².

This policy offers the following benefits:

• Hospital Charges: average semi-private room rate, medical care and treatment
• Surgery in a Hospital or Ambulatory Surgical Center
• Physician Services for diagnosis, treatment and surgery
• Intensive Care: up to three times the average semi-private room rate
• Skilled Nursing Facility: up to $30 per day for 30 days
• X-Ray Exams, Laboratory tests and analyses
• X-Ray and Radioactive isotope therapy, anesthesia, oxygen, casts, splints, crutches, braces, surgical dressings, artificial limbs or eyes, rental of medical supplies
• Blood or blood plasma and their administration
• Ambulance Services: $250 per emergency
• Organ Transplants: $50,000 lifetime maximum
• Acquired Immune Deficiency Syndrome (AIDS): $10,000 lifetime maximum
• Home Health Care: up to 40 visits
• Hospice Care: up to $5,000
• Spinal Manipulation/Adjustment: up to $1,000
• Mammography, pap smear and screens
• Gallbladder Surgery: up to a $2,500 lifetime maximum
• Knee injury or disorder: up to a $2,500 lifetime maximum for both left and right knees

ValueMed and ValueHealth - these two limited benefit policies are available in most states and can be used in combination to supplement other coverage or as stand-alone coverage when other options are not available. ValueMed recently became available to children, although some older publications might state otherwise.

Changes for 2014

If the Affordable Care Act is implemented as planned for 3014, additional child health insurance options will be available. The coverage offered under individual health insurance policies will be different than under the policies offered in earlier years. Details about eligibility have not yet been announced in most states.

Limitations

Ceiling in Expanding Free State Coverage - In a society that allows individual freedom of choice, we will never have 100% of the population enrolled in health insurance. No one knows for sure why about 9 million children in the U.S. are not enrolled in free health insurance programs that are actively promoted in the schools, in hospitals, clinics and doctors' offices, on television and targeted multi-lingual publications. Lack of information, language barriers, immigration issues and cultural issues have all been proposed as possible reasons and so programs have been developed to address each of these possibilities. At this point it seems clear that further advertising and promotion will not significantly expand the reach of these programs. We may have to accept the fact that some relatively small percentage of people - adults or children - will not be insured unless we trash the underlying system of voluntary enrollment.

Knowledge of Commercial Insurance - Insurance industry sources estimate that about half of the uninsured people in the U.S. are not aware of the health insurance options that are available to them. A significant number of new enrollees in lower cost commercial health insurance programs report that they only recently became aware of the existence of such programs. Limited benefit or "basic" group health insurance programs have recently been made available to individuals in most states but many people may not be aware of these new options.

Summary

The trend toward covering children under a separate health insurance policy than the parents is likely to continue to expand in response to a combination of market forces, employers' benefits payments and government-sponsored programs. There are no obvious adverse effects of this trend and several advantages are apparent to health care consumers. The majority of children in the United States who do not qualify for free coverage (due to family income) can enroll in either a commercial insurance plan or a state-sponsored health insurance program at less than $40 per month. Cost-subsidized State Children' s Insurance Programs and a few insurance commercial health insurance companies will continue to dominate this market by offering benefits that specifically appeal to buyers of child-only health insurance.

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Footnotes

¹ The Web site www.InsureKidsNow.gov operated by the U.S. Department of Health and Human services states that this children' s health insurance program is not a Welfare program because our nation' s collective best interest is served by insuring children. The Web site does not include any explanation as to why the benefit of such a plan negates the classification of this program as Welfare. Most people associate Medicaid health insurance programs with Welfare, regardless of the social benefits of the program.

² Other similar options are listed on a state-by-state basis at Freedom Benefits.

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