Insurance Coverage and the Healthcare Utilization of Children
Lindsey Jeanne Leininger
Harris School of Public Policy Studies
Support from the AHRQ/NRSA T-32 training grant is gratefully acknowledged.
1. Introduction and background
Insurance coverage of poor and near-poor children has received a great deal of
research and popular attention in the past several decades. Approximately 19.8% of poor
children were uninsured for at least part of 2004. There is widespread concern that these
children are not receiving necessary medical care.1 Both altruistic motivations and a
desire to correct potential negative externalities (such as vaccine-preventable
communicable diseases) have led researchers and policymakers to explore options for
providing appropriate care to uninsured children. Direct provision of health insurance to
these children is the option that has received the greatest amount of discourse and dollars.
Beginning in the late 1980s, Congress drastically increased income eligibility cut-offs for
public insurance to include many children in families with incomes above the federal
poverty level. In 1984 the rate of public coverage of near-poor children was 9% and by
2002 this number had increased to 47%.2 The number of uninsured children has not
decreased in parallel with the increased public coverage rates, as private insurance
coverage has fallen for low-income children during this time period. The uninsurance rate
for near-poor children in 1984 was 27% and the comparable 2002 figure is 33%.
Whether these increases in eligibility have been associated with improvements in
child health is a major concern of both researchers and policymakers. Specifically, it is
important to know whether differences in utilization are attributable causally to
1 Source: Cohen RA, Martinez ME, Hao C. “Health Insurance Coverage: Estimates from the
National Health Interview Survey, January-September 2004.” Available:
http://www.cdc.gov/nchs/nhis.htm. Accessed: 4/04/05.
2 Source: CDC, “Health, United States 2004.” Available:
http://www.cdc.gov/nchs/data/hus/hus04trend.pdf#topic. Accessed: 4/04/05. Note that “near-
poor” is defined in this paragraph as having family income between 100-150% of FPL.
differences in insurance, or merely a reflection of adverse selection or other unobservable
It is also instructive to know the differences in utilization patterns among children
who are privately versus those who are publicly insured. Understanding the utilization
differences between uninsured, privately insured, and publicly insured low-income
children will help inform policymakers regarding the relative benefits of insurance status.
If privately insured children are receiving the most appropriate care, then incentivizing
private insurance coverage should receive more attention as a potentially successful
policy lever than increasing public coverage. If, by contrast, no differences in utilization
are found among children in various insurance categories, then the policy focus should
shift to different mechanisms. The relative benefits of private insurance compared with
public insurance need to be considered with their relative costs. Public insurance is free
or very low-cost for low-income families while private insurance can comprise a sizable
portion of their budget. It is important to acknowledge that the decision regarding optimal
insurance schemes for low-income children is not only about the direct provision of
healthcare but also about family income.
Many studies whose goal is to identify causal effects of health insurance on
various health outcomes have employed instrumental variables techniques (IV). This type
of study has been particularly prevalent in the literature on the health effects of the
Medicaid expansions. If results from IV models are to be given more weight in the search
for causal effects than their ordinary least squares (OLS) counterparts, it is imperative to
scrutinize whether the assumptions underlying their usage are being met and if their
results are robust to various changes in estimation procedure and divisions of the
instruments employed. There is no definitive test for the crucial assumption that the
instrument is uncorrelated with error term; however it is still possible to construct
convincing evidence that the instrument does indeed meet this requirement.3
The major goal of this paper is to provide new evidence on the robustness of
instrumental variables results in the identification of the effect of different types of health
insurance on child healthcare utilization. I use a fuller set of instruments than what
currently exists in the literature as well as examine results from linear and non-linear
estimation techniques to determine the sensitivity of incremental effect estimates from IV
Medicaid, the public health insurance program for low-income individuals, was
created along with Medicare in 1965 in Title XIX of the Social Security Act.4 It is jointly
funded by the state and federal governments, with the federal matching rate determined
by state per capita income. It is an entitlement program, thus all persons deemed eligible
are guaranteed access if sought. Medicaid is the largest funding source for healthcare of
low-income people. In fiscal year 2002, $214.9 billion was spent on Medicaid, with $34.4
billion being spent on children.
Medicaid covers several populations in addition to low-income children and their
parents. In fact, while low-income women and children comprise two-thirds of program
3 See, for example McClellan, Mark, Barbara McNeil, and Joseph Newhouse, “Does More
Intensive Treatment of Acute Myocardial Infarction in the Elderly Reduce Mortality? Analysis
Using Instrumental Variables,” Journal of the American Medical Association, CCLXXII (1994),
859-866. They provide compelling evidence on the validity of their instrument by demonstrating
that it is not correlated with observed variables in the data.
4 Centers for Medicare and Medicaid Services, “Medicaid: A Brief Summary.” Available:
enrollees, they only account for approximately 27% of total expenditures.5 The low-
income disabled, the low-income elderly and the institutionalized elderly, and medically-
needy populations account for three-quarters of Medicaid program dollars.
Each state exercises some discretion over provider payment rates and covered
services, with federal guidelines mandating the coverage of certain services. For children,
all states must provide inpatient and outpatient hospital services, vaccines, pediatric and
family nurse practitioner services, and early and periodic screening, diagnostic, and
treatment services (EPSDT) for children under age 21. Other services such as optometrist
services and eyeglasses and prescription drugs are optional and coverage varies by state.
Pregnant women and children are exempt from any cost-sharing by law. During the
Clinton and Bush II administrations, CMS and its predecessor HCFA have granted
waivers to basic Medicaid requirements for innovative programs.
Medicaid traditionally covered women and children who were receiving AFDC.
During the 1980s, Congress began to expand eligibility to low-income child populations
who met the income requirements for AFDC but were ineligible due to other
characteristics such as family structure. A timeline of the changes in Medicaid is outlined
in Appendix Table A. The Omnibus Reconciliation Act of 1987 ushered in a new era of
far-reaching Medicaid expansions that decoupled Medicaid from welfare receipt.
Legislation in 1987, 1988, 1989, and 1990 first allowed for and then mandated eligibility
for all low-income (up to 100% of the federal poverty level) women, infants, and children
through age 18. States differed in both the timing and extent of their expansions.
5 Gruber, Jonathan, “Medicaid,” NBER working paper #7829, August 2000. Available:
http://www.nber.org/papers/w7829. Accessed: 4/04/05.