Trends in Children's Health Insurance

TA | May 5, 2008

National Trends: uninsured, federal CHIP initiative, consumer driven health plans, contribution to employer' plans, court-ordered coverage, relocation of children, overall effects of SCHIP programs
Legal Issues: state mandates, well child care, parents' signature
Commercial Heath Insurance for Children: CelticCare, Secure STM Simple STM, and American Health Shield


The federally-backed program known as "Insure Kids Now "has been largely successful in sharp contrast to the growing problems proving coverage for adults in the U.S. This program, combined with other natural market forces, demonstrated the advantages of using separate health insurance policies to cover children. This trend is likely to continue. Most children in the United States can enroll in either commercial or publicly-assisted health insurance at less than $50 per month. A few insurance commercial health insurance companies will likely continue to dominate the market for children's insurance by offering benefits that appeal to buyers of child-only health insurance.

National Trends

Most children in the United States are covered under their parents' health insurance. In recent decades the rising rate of uninsured families caused significant national concern. When the parents had no health insurance, the children had no access to health insurance. Starting in 1997, federally backed programs expanded Medicaid welfare programs to target the uninsured children of lower income families. This program signaled the start of a national trend to insure children separately from their parents. Over the past few years, the number of applications for child-only commercial health insurance increased steadily at enrollment firms like MedSave.com and Freedom Benefits. 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.

All 50 states and the District of Columbia now offer free or affordable child-only health insurance policies to lower income residents. These are collectively known as "State Children's Insurance Programs" or "SCHIP". 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.

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.

Health insurance for adults is an entirely different picture. Adverse long term trends in health insurance underlying the adult uninsured population 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 and the number of legislative mandates that contribute to the rising the price of health insurance coverage grows larger each year. This article examines only the "easier" issue of children's health insurance.

At least five forces are contributing to the increase in child-only health insurance:

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. Since most of these policies have high deductibles and out-of-pocket costs, parents are increasingly likely to add supplemental health insurance to cover the gap in coverage. For 2009 a number of optional coverage riders can reduce the out-of-pocket risks.

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.

Secondary effects of SCHIP expansion - The number of families eligible for SCHIP coverage is increasing in most states and further expansion of these programs is expected under the Obama administration. The parents of children who are not insured but who do not meet the requirements of their state's CHIP insurance program (either because of income or residency) are increasingly convinced of the importance of health insurance as a result of the massive publicity campaign. Low cost commercial health insurance is available to children in most states as a viable option to SCHIP programs. Promotion of commercial insurance was not the original intent of the SCHIP program, there appears to be some "spill-over" effect with middle income families. The rate of uninsured middle income children is stable or declining in all recent reports reviewed. A secondary effect of the expansion of SCHIP plans to middle income families is that more families realize they can improve upon the basic coverage of the primary insurance by adding a low cost supplemental insurance. This approach is especially popular when a child has special medical needs. Supplemental coverage allows the family to budget the expected costs evenly over a longer period of time.

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. All states require insurers to accept newly born or adopted children onto the parent's health insurance. Certain types of insurance - like supplemental health insurance, short term coverage or international travel coverage - may be exempt from that requirement. Finding affordable health insurance coverage available to children is not usually a significant obstacle. However, under some circumstances, insurance policies delay or restrict coverage for pre-existing medical conditions. 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.medsave.com /license.htm .

Parent's 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.

Commercial Health Insurance for Children

Those not eligible for the "Insure Kids Now" program due to income limitations may be eligible for comparable commercial health insurance. Each commercial 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 the OnlineAdviser enrollment assistance.

Celticare II from Celtic Insurance has developed a niche as the most likely choice for long term coverage for dependant children because of the benefits specifically targeted for this purpose. "Child only" policies are available to children aged six months and older.  The company points out that this insurance can be a less expensive option to adding children to the parents' group health insurance plan through an employer.

Secure STM from Standard Security Life offers a strong child only coverage option 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 dependant 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.

Simple STM has been the a popular short term health insurance choice for young people, especially graduating high school and college students, although the reasons for this trend are not obvious. It is possible that brand name recognition of the product is responsible for this market share. This coverage is available in most states and may be the lowest cost option of the plans listed here.

American Health Shieldis the most popular choice for college-age children who are leaving a parent's policy. This is a six month policy that can usually be applied for again for subsequent semesters.

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