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Children’s Health Coverage: A Quarter-Century Of Change
Data from a series of medical spending surveys over the past twenty-five years show that uninsurance rates for children have fallen to levels not seen since the late 1970s (about 8 percent). Rates of uninsurance have fallen in particular for poor children. Deteriorating family economic circumstances, along with a weakened safety net, contributed to the decrease of private insurance coverage and rising uninsurance rates between 1977 and 1987. Although family circumstances have stabilized since the late 1980s, high annual increases in health insurance costs have continued to erode private coverage. Public coverage expansions have reversed the surge in uninsurance rates during 1977–1987.
Health insurance coverage for children has been an important policy issue for decades. The public and policymakers view children as uniquely vulnerable because of their dependent status, and because children have relatively fewer health needs than adults, coverage expansions can be achieved at a relatively low cost to taxpayers. As a result, there has been strong bipartisan support for expansion of children’s health insurance programs, beginning in the 1980s with the expansion of Medicaid and culminating in the State Children’s Health Insurance Program (SCHIP) of 1997. Public coverage expansions were necessitated by increases in the number and percentage of children without health insurance coverage—especially poor and low-income children during the early 1980s—as well as a long, steady erosion of private insurance coverage over the past twenty-five years. Earlier analyses attributed the decline in private insurance and increase in children’s uninsurance rates between 1977 and 1987 to changing social and economic circumstances of children, specifically stagnating incomes, the increase in child poverty, and the increase in single-parent families.1 Since that time, however, many of these key correlates of children’s health insurance coverage have stabilized and even improved, as exemplified by the sharp drop in poverty among children during the late 1990s.2 Nevertheless, private insurance coverage continues to erode, while public programs have greatly expanded, thereby offsetting the erosion in private insurance coverage and contributing to decreases in children’s uninsurance rates.3 The main objective of this paper is to describe trends in children’s health insurance coverage over the past quarter-century. Such an analysis puts the more recent gains in children’s coverage in a broader historical context and cumulatively shows how changes in key characteristics of children, public policy, and affordability of private insurance have all contributed to changes in coverage.
Data. The data for this study come from three national household surveys sponsored by the Agency for Healthcare Research and Quality (AHRQ): the 1977 National Medical Care Expenditure Survey (NMCES), the 1987 National Medical Expenditure Survey (NMES), and the 1997 and 2001 Medical Expenditure Panel Survey (MEPS). Each of these surveys collects information that provides nationally representative estimates of health care use, insurance coverage, and sociodemographic characteristics for the U.S. civilian, noninstitutionalized population.4 As such, they are the only data sources capable of providing consistent estimates of children’s health insurance coverage over the past quarter-century.5 Our analysis is restricted to children under age eighteen. Analysis. Our main analytic variable is a three-category, hierarchical variable indicating the type of insurance coverage a child had during the reference years. Children were coded as having private insurance if they had coverage from a private source at any time during the year. These children were further classified as having employer-sponsored health insurance if their parents obtained coverage from their jobs. Children who had coverage through a public plan only were coded as having public insurance. Finally, children who had neither private nor public health insurance at any time during the year were coded as being uninsured.6 Our analysis is primarily descriptive, with all estimates weighted to be nationally representative and standard errors adjusted for clustering in the sample. Unless otherwise noted, all differences discussed in the text are significant at the .05 level or better.
Trends in children’s coverage, 1977–2001. Exhibit 1  illustrates the trend in the percentage of children who had no health insurance coverage between 1977 and 2001. Regardless of how they are measured, uninsurance rates increased sharply between 1977 and 1987, before steadily declining back to near their 1977 levels by 2001.
Changes were especially striking for poor children. For children in families with incomes below the poverty level, the percentage with no health insurance the entire year rose sharply from 1977 to 1987 but then dropped even more dramatically by 2001 (Exhibit 2 ). For other low-income children (those in families with incomes between 100 and 200 percent of the federal poverty level), the increase in uninsurance rates continued until 1997 before declining by 2001. Although uninsurance rates were much lower for middle-and upper-income children (family incomes greater than 200 percent of poverty), they, too, increased between 1987 and 1997 before declining back to their 1977 levels by 2001.
Erosion of private coverage. Almost 80 percent of children were covered by private health insurance in 1977, a time of relatively modest health care costs (at least by current standards) and low child poverty (13.7 percent in 1977, the lowest level during the study period; data not shown). After 1977, however, private insurance coverage began a long, steady decline. The decline was especially dramatic for low-income children (family incomes below 200 percent of poverty), for whom private coverage rates declined from 55.4 percent in 1977 to 38.2 percent in 2001. Initially, much of the decrease in private insurance coverage was attributable to increased poverty among children. Between 1977 and 1987 the percentage of children in families with incomes below poverty increased from 13.7 percent in 1977 to 20.4 percent in 1987, because of a severe economic recession during the late 1970s and early 1980s, high unemployment, stagnating incomes, and a rise in single-parent families. Since 1987, however, changes in family income or childhood poverty were probably less of a factor in the decline of private insurance. Between 1987 and 1997 private coverage rates continued to fall, despite little change in child poverty rates. And while child poverty rates fell to 16.3 percent by 2001—because of strong economic growth and low unemployment during this period—rates of private insurance coverage did not change significantly. Decreases in private insurance coverage since 1987 were likely related to the high annual increases in private health insurance premiums from the 1980s through the mid-1990s.7 In addition, employees assumed a much higher share of the premium for family coverage during the 1980s and 1990s, which likely contributed to a decrease in take-up rates among people who were offered coverage at work.8 While structural economic changes, such as the shift from manufacturing to service-sector jobs, have played some role in private coverage erosion, research has shown that increasing health care costs were the dominant factor.9
Public coverage expansions.
Despite the large increase in child poverty rates between 1977 and 1987, public coverage did not immediately offset the decline in private insurance coverage. In fact, the 1981 Omnibus Budget Reconciliation Act (OBRA 1981) reduced Medicaid coverage for many poor children by limiting the allowable earned income for determining eligibility for Aid to Families with Dependent Children (AFDC). This led to a large decline in the percentage of poor children with public coverage—from 52 percent in 1977 to 39 percent in 1987—while uninsurance rates for poor children rose from 16 percent to 24 percent (Exhibit 2 Since 1987, increases in public coverage have more than offset private coverage declines and have also contributed to declining uninsurance rates for low-income children. A series of Medicaid expansions between 1984 and 1990 extended eligibility to many poor and near-poor children and began to sever the previously strong link between AFDC and Medicaid eligibility (which restricted eligibility mostly to children in single-parent, nonworking families with incomes well below poverty).11 As a result, the percentage of poor children with public coverage rose dramatically, while uninsurance rates among poor children declined. In the meantime, uninsurance rates continued to rise for other low-income children (those with family incomes between 100 and 200 percent of poverty), primarily because of decreases in private insurance coverage. But unlike poor children, many low-income children above the poverty level were not eligible for the Medicaid expansions of the 1980s and 1990s. As a result, uninsurance rates for this income group rose to 19.5 percent by 1997 (from 13 percent in 1977) and had become considerably higher than for poor children (11 percent), many of whom had already benefited from the earlier Medicaid expansions. SCHIP was enacted in 1997 to address the coverage gap for low-income children who were not poor enough to qualify for Medicaid. As a result, the percentage of publicly insured children in the 100–200 percent of poverty group increased from 1997 to 2001, while uninsurance rates declined.12 Public coverage expansions have also resulted in some substitution of public for private insurance coverage, whereby some children with private insurance or access to private insurance enrolled in free or lower-cost public coverage. Thus, not all of the large increases in public coverage for poor and low-income children came from the ranks of the uninsured. Other research confirms that both Medicaid and SCHIP expansions led to some substitution of public for private insurance, although estimates of the extent of this substitution vary greatly.13
Changes in the characteristics of children and families.
Dramatic changes in family composition and the workforce participation of women also contributed to changes in children’s health insurance coverage during the past quarter-century.14 As a result of rising divorce rates and out-of-wedlock births, the percentage of children living in single-parent families increased from about 14 percent in 1977 to 27 percent in 1987 (Exhibit 3
The increase in children in single-parent families is closely correlated with the increase in child poverty between 1977 and 1987 and with the decrease in private insurance coverage and increasing uninsurance rates. Not only did the number of children in single-parent families rise, but the uninsurance rate among such children nearly doubled from 1977 to 1987 (Exhibit 3  ). This higher rate reflects the 1981 cuts in Medicaid eligibility, which hit children in single-parent families the hardest and dramatically decreased their rates of public coverage. But while the change in family composition was an important factor in the initial surge in uninsurance rates, it has likely been a much less prominent factor in coverage changes since 1987. After 1987, the percentage of children in single-parent families actually decreased slightly, and the Medicaid and SCHIP expansions of the late 1980s and 1990s reversed the earlier decreases in public coverage. The increased workforce participation of women has also helped to offset some of the decreases in private coverage and the increase in uninsurance rates and is also probably related to the decrease in child poverty since 1987. Among children in single-parent families (the vast majority of which are mother-only), the percentage with an employed parent rose from 65.1 percent in 1977 to 85.2 percent in 2001, with most of the increase coming after 1987. Although rates of private coverage among children in single-parent families (including those where the parent is employed) have been falling since 1987, the decline would have been much greater if not for the rise in employment among single parents.16 Mothers’ increased labor-force participation raised the percentage of children in two-parent families with both parents working between 1977 and 2001. Having two workers in the family increases the chances that at least one parent will be offered employer coverage, and the generally higher incomes of two-worker families enable them to afford the rising out-of-pocket premiums for family coverage. Private coverage has declined much more rapidly for children in two-parent families with a single worker than for children in two-worker families, although public coverage expansions have minimized the impact on uninsurance rates for both groups of children. But the growing divergence between two-worker and single-worker families regarding coverage type indicates that the number of workers in the family—rather than the number of parents per se—is becoming more important in determining the type of coverage children have.
New concerns: uninsurance rates among Hispanic children.
Other demographic changes have also affected the prevalence of insurance coverage among children during the study period. In particular, the increase in immigration from Latin America combined with a higher birth rate among Hispanics has altered the ethnic composition of children in the United States.17 Consequently, the percentage of children who are Hispanic has more than doubled during the past quarter-century, making Hispanics the largest U.S. minority group (Exhibit 4
More younger children. A baby "boomlet" during the 1980s has raised the number of children over the past quarter-century, resulting in a higher percentage of younger children in 2001 than in 1977. Younger children have higher coverage rates than older children, because of traditionally more generous eligibility levels for Medicaid and possibly greater perceived importance among parents to cover younger children. Without this shift in the age distribution, uninsurance rates would probably have been higher in 2001 than they actually were.
To estimate the contribution of changes in children’s characteristics to overall changes in health insurance coverage between 1977 and 2001, we simulated coverage levels for 1987, 1997, and 2001, assuming no changes in children’s characteristics since 1977 (Exhibit 5 ).20 If the simulated and actual coverage changes are similar in magnitude, then one can conclude that changes in children’s characteristics have minimal effects on coverage trends. The larger the divergence between the actual and simulated coverage changes, then the larger the effect of changes in children’s characteristics on coverage trends.
Overall, the simulations show that changes in family circumstances (combining family income, family type, and parental employment) initially had a large effect on changes in private and public coverage but that these effects have diminished over time. Instead of a 4.3-percentage-point decrease in private coverage rates between 1977 and 1987, private coverage would have essentially remained unchanged if not for the drop in family income and rise in single-parent families. Conversely, public coverage would have decreased between 1977 and 1987 by more than three percentage points (instead of increasing slightly) if there had been no change in children’s characteristics. That is, the 1981 Medicaid cuts likely would have reduced public coverage overall (as it did for poor children) if not for the increase in the number of children who became eligible because of higher poverty, more single-parent families, and higher parental unemployment. Nevertheless, the effect of changes in children’s characteristics on uninsurance rates between 1977 and 1987 was fairly minimal—uninsurance would have risen by between two and three percentage points, regardless. Thus, the surge in children’s uninsurance between 1977 and 1987 was likely attributable to a sharp increase in child poverty (with the increase in single-parent families as a contributor), along with a weakened safety net that failed to offset declining private coverage. Over time, the influence of changes in children’s family circumstances since 1977 on private and public coverage trends has diminished, as indicated by the growing convergence between the actual and simulated changes for the periods 1977–1997 and 1977–2001. Had family characteristics not changed since 1977, private coverage would still have decreased by about six percentage points between 1977 and 1997 (compared to the actual decrease of 9.4 percentage points). By 2001 the decrease in private coverage would have been virtually the same regardless of the changes in family circumstances since 1977 (ten to eleven percentage points). Similarly, the effects of changes in family characteristics on public coverage trends have also greatly diminished over time. The decreasing influence of family characteristics on private and public coverage trends reflects several factors. First, the decline in family income and two-parent families was halted and even reversed after 1987.21 Second, the escalating costs of private health insurance likely became the most important factor responsible for the continued erosion in private coverage. Finally, public coverage expansions extended public coverage eligibility to increasingly large numbers of children who did not meet the traditional welfare standards of eligibility based on extreme poverty, family composition, and parental employment. As the influence of family characteristics on coverage trends has diminished over time, the influence of the increase in the Hispanic population has grown, although the effects on coverage trends are still small. By 2001 the increase in the Hispanic population since 1977 accounted for about two points of the 10.8-percentage-point decrease in private coverage. The impact on public coverage trends was even smaller, with the result that uninsurance rates were higher in 2001 by about one percentage point than they would have been if the proportion of Hispanics was the same as in 1977.
Since 2001 the outlook for children’s health insurance coverage has changed markedly and has some similarities with the early 1980s. The return of high annual increases in health insurance costs, rising unemployment, and increased child poverty contributed to decreases in private insurance coverage between 2000 and 2002, reversing a brief period of modest private coverage increases during the late 1990s.22 Of perhaps even greater concern is that state budget pressures have led virtually all states to make cuts in Medicaid or SCHIP or both, which raises the prospect that, as in the early 1980s, the safety net is weakening at a time when it is needed the most. So far there is little indication that coverage rates for children have declined since 2001. Despite the recent cuts, eligibility levels are vastly higher than they were twenty years ago and now include almost all children with family incomes below 200 percent of poverty. Most states have avoided making deep, permanent cuts in eligibility levels, in part because these programs receive strong support from the general public, policymakers, and health care providers.23 But while the safety net may remain largely intact for lower-income children, there is growing concern about coverage for many moderate- and middle-income children (most of whom fall outside the eligibility levels of Medicaid and SCHIP). Despite high rates of private insurance coverage, the return of annual double-digit increases in private health insurance premiums starting in 2000 will make coverage more difficult for many employers, workers, and families to afford.24 As labor markets become less tight than they were in the late 1990s, employers may pass on much of these higher costs to their workers in the form of either higher premiums (especially for family coverage) or less generous coverage (higher copayments and deductibles). If so, it is likely that fewer families (especially low-income families) will elect to enroll in family coverage. With no safety net to fall back on, many moderate-and middle-income children may lose coverage entirely. Given federal and state budget realities, expanding fully subsidized public coverage to middle-income children may be difficult. Some of these families may be able to take advantage of the proposed tax credits and deductions for the purchase of nongroup coverage or catastrophic plans (along with the recently passed health savings accounts), although it is unclear whether the net out-of-pocket payment for these new types of coverage will be lower than those of the employer coverage they turn down. Since a high proportion of middle-income children have access to employer coverage, increasing the public subsidy for such coverage may help to avoid any erosion in private insurance by offsetting higher premium costs, although such an approach could still require sizable new public expenditures. The unclear direction of policy, the ongoing escalation of health insurance costs, and federal and state budget pressures will continue to make children’s health insurance coverage an important issue that requires regular monitoring.
Peter Cunningham (pcunningham{at}hschange.org) is a senior health researcher at the Center for Studying Health System Change in Washington, D.C. Jim Kirby is a service fellow at the Agency for Healthcare Research and Quality in Rockville, Maryland. The views in this paper are those of the authors, and no official endorsement by the Agency for Healthcare Research and Quality or the Department of Health and Human Services is intended or should be inferred. The Center for Studying Health System Change is supported in full by the Robert Wood Johnson Foundation.
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