Principles of Child Health Care Financing

Advances in the health care system have made great strides to improve the health of children and the availability of health care. The systems to finance children’s health care have also evolved. Children in the United States are currently served by a complex system consisting of employer-sponsored coverage through parents, federal and state Medicaid and the Children’s Health Insurance Program (CHIP), Affordable Care Act (ACA) Marketplace plans, and other nongroup plans.¹  Coverage rates for children have varied over time,^* with a historic low of 4.3% uninsured in 2016,²  to 5.6% in 2020.³  A significant number of children still face barriers to accessing and affording necessary health care, whether they are insured or not.^4–8 

The continued evolution of models of coverage and payment⁹  amid political, economic, and public health changes presents opportunities and challenges to financing coverage and access for children. Longstanding health care disparities require payment policies that consider social drivers of health (SDOHs). Accordingly, this policy statement updates the 2017 American Academy of Pediatrics (AAP) “Principles of Child Health Care Financing” statement¹⁰  to provide foundational standards for the design, financing, and payment policies of a comprehensive system of health care for children, guided by 6 fundamental principles as discussed below.

All children, adolescents, and young adults from birth to age 26 who reside within our borders, regardless of income, family composition, or immigration status, should be covered by an affordable, quality health insurance plan that allows access to comprehensive, necessary care. Providing health insurance for children is currently a shared responsibility of parents and/or families, employers, and state and federal government agencies. The coronavirus disease 2019 (COVID-19) pandemic exposed weaknesses inherent in our current patchwork coverage system that rely heavily on employer-based coverage and reinforced the importance of continuous, affordable coverage for children and families.

1. Children, adolescents, and young adults, irrespective of preexisting conditions, should be ensured access to affordable, quality, and comprehensive health insurance that meets their needs.

2. To ensure continuity, health insurance coverage should pose minimal enrollment and renewal burdens with the minimum necessary waiting period needed to verify eligibility; allow for auto-enrollment of special populations such as newborn infants and youth exiting incarceration, detention, or foster care; offer continuous eligibility for a minimum of 12 months with the option for longer periods with sufficient federal funding; and be portable across states.⁴  Efforts should be made to reduce the need for coverage changes that can be disruptive to care continuity when carriers, provider networks, benefits, and formularies change.^11–14 

3. Strengthening and providing full federal funding of Medicaid, the single largest payer of health care for children and young adults, should be prioritized. Eligibility for Medicaid and related programs should extend through age 26. The Medicaid program should be maintained as an entitlement, even if this requires increased short-term funding.¹⁵  Reforms should aim to improve the care of children, not just reduce spending through policies like block grants or capped allotments.

4. Efforts should be made to prevent threats to children’s coverage from policies, such as parental work requirements and public charge rules, that inhibit families from enrolling eligible children in Medicaid.¹⁶ 

5. Although CHIP is authorized indefinitely, funding must be reauthorized periodically. Funding for CHIP should be authorized permanently, which would avoid program and coverage disruptions and added costs during reauthorization periods.¹⁷ 

6. Health insurance should be available and affordable for the whole family, as expanding parental coverage can lead to greater take-up of coverage for eligible children and reduce family financial strain.^18,19 

7. Employer-sponsored coverage should be comprehensive, affordable, and aligned with Early and Periodic Screening, Diagnostic and Treatment benefits. Whole family coverage in subsidized ACA Marketplace plans should be affordable.^4,20,21 

8. Adolescents need to maintain continuous coverage as they transition to young adulthood. Employer-sponsored family coverage should include dependent coverage through age 26, with the responsibility for dependent premium contributions shared between employer and employee. Extending the ACA Medicaid expansion to all states would make coverage available to low-income young adults. Extending Medicaid coverage through age 26 benefits adolescents during a period of transition, particularly those in or aging out of out-of-home care (eg, foster care) and justice-involved youth exiting incarceration.²² 

9. For children, adolescents, and young adults who remain uninsured, effective national and state outreach efforts should inform families about how to access public or private health care options, with funding and access to navigators and assistors.²³ 

10. For those who are currently ineligible for or cannot afford public or private insurance, a safety net system of subsidized care should be offered. Safety net providers should have adequate and timely payment and resources to maintain high-quality, equitable care.

11. Coverage options for public and private insurance for children should include plans with pediatric provider networks broad enough to ensure equity in access to primary care pediatricians, pediatric medical subspecialists, and pediatric surgical specialists, especially for children with special health care needs.

Health insurance for all children, adolescents, and young adults should offer a comprehensive, age-appropriate benefit package spanning the full continuum of pediatric health care.²⁴ 

1. A comprehensive health insurance benefits package should include coverage for the full range of fundamental pediatric services, including prenatal and newborn care; postnatal home visits; preventive and wellness services; urgent and emergency care; acute, inpatient, and chronic care services; medically necessary and developmentally appropriate habilitative and rehabilitative therapies and devices; dental and oral health services; vision services; behavioral and mental health services; transition to adult care services; reproductive health and pregnancy-related services; gender-affirming care; treatment of tobacco use and substance use disorders; home-based care, including private duty nursing and personal care services; palliative and hospice care services; durable medical equipment to include mobility, seating, and positioning equipment such as adaptive car seats; interpreter services; specialty formulas; and recommended medications from the US Pharmacopeia in formulations appropriate for children, consistent with the scope of benefits recommended by the AAP.^24–26 

2. Federal and state payers and regulators should exercise their full authority to ensure that children, adolescents, and young adults have access to a uniform standard of comprehensive pediatric health care benefits across all geographies and insurance products. This is particularly important for children who require care from physicians or other providers in neighboring states. If existing regulatory authority cannot achieve this goal, new legislative solutions should be sought.

3. The model of Early and Periodic Screening, Diagnostic and Treatment, with its coverage mandate for all medically necessary services, should be the standard for coverage for comprehensive pediatric health benefits in public and private insurance programs, enforced as appropriate, and included as part of any proposal for universal coverage.²⁵  Without comprehensive private insurance, some children and youth with special health care needs will require Medicaid wrap-around coverage.²⁶ 

4. Benefits for children, adolescents, and young adults should be consistent with current recommendations in Bright Futures,²⁷  the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention, and the AAP.²⁴ 

5. All health care services should be sufficient in the type, amount, frequency, duration, setting, and scope to enable care that achieves the best clinical outcome and health-related quality of life for the condition(s) under treatment, including amelioration or palliation of chronic conditions.^24,28 

6. Medical necessity determination should be specific to the needs of children with flexibility in consideration of the evolving status of the individual child and follow guidance of the AAP statement on contractual language for medical necessity in children.²⁵ 

7. Mental health parity should be enforced and should include behavioral and developmental health care, embedded mental health services, integrated care models, and services delivered by primary care.^29–31 

8. Insurance should include at least 1 in-network provider of tertiary- and quaternary-level pediatric medical services.

9. The COVID-19 pandemic reinforced the unique and important role for services via telecommunication (ie, telehealth), including audio-only visits, connected to the medical home and the need for payment parity with in-person visits. Remote and home-based telecommunication services should be covered, especially for children and youth with special health care needs and those living in rural areas, and for behavioral health care, in coordination with pediatricians and the family- and patient-centered medical home. Efforts should be made to ensure equitable access and reduce the digital divide with expanded access to adequate and affordable broadband in all communities.³² 

The design of most health insurance plans requires out-of-pocket “cost sharing” payments for health care through copays, deductibles, and coinsurance in addition to premiums. Cost sharing should encourage judicious use of appropriate care but not inhibit access to preventive or necessary care.

1. Public and private payers should establish cost-sharing policies with annual out-of-pocket limits at reasonable levels that account for family income to protect families from significant medical debt, guided by the CHIP limit of no more than 5% of family income.³³  Medicaid and CHIP should continue to have little or no cost sharing for children so as not to deter families from seeking appropriate and necessary care.

2. Access to drugs and dosage forms necessary and appropriate to treat pediatric conditions should not be jeopardized by the levy of higher copays and coinsurance or by shifting formularies.²⁸  Drug prices, although allowing for innovation,³⁴  should not be so excessive that they deter access to high-value treatments.

3. Care should be exercised in developing cost-sharing policies so that these policies primarily focus on discouraging low-value or inappropriate use of medical services while not discouraging or impeding appropriate services in the medical home. Value-based insurance designs that reduce cost sharing for important high-value services should be encouraged.³⁵  Preventive care, including recommended immunizations and services recommended in Bright Futures,²⁷  should be exempt from cost sharing.

4. Potential out-of-pocket costs for out-of-network services should be transparent to reduce surprise billing and presumptive authorization at in-network cost-sharing rates should occur when the need for care is unambiguous or urgent.

5. Cost-sharing policies should not shift costs to physicians and other health care providers in the event of the family not paying their portion of costs or not accurately informing the physician or other provider of the patient’s cost-sharing responsibility.

6. The impact of cost sharing on access to care should be regularly assessed by federal and state agencies to inform policies to ensure access to and affordability of coverage.

Reform of payment policies should enable achievement of the medical home principles to realize the objectives of the quadruple aim: to provide better care at a lower cost with a better experience of providing and receiving care.^36,37  The COVID-19 pandemic revealed the limitations of fee-for-service payment models during public health and economic crises and the need for safeguards for physicians and other providers responsible for the health of children, even when they cannot visit the clinic. It also demonstrated the need to adopt emergency preparedness policies that allow for flexibility and reduced barriers to payment during emergencies.

1. Payments for pediatric health care services should be structured to achieve parity with payments for similar services for adults, with sufficient margins to sustain adequate numbers of high-quality primary care pediatricians, pediatric medical subspecialists, and pediatric surgical specialists within and outside Medicaid, with enforcement of the Equal Access provision by the Centers for Medicare and Medicaid Services.^38–42  Payment should at least equal Medicare rates for comparable procedure codes.²⁸ 

2. Alternate payment methodologies should provide sufficient payments reflecting the complexity of services and fund 3 types of medical home services: (a) traditional episodic care encounters and associated basic clinical and administrative costs; (b) provision of specific medical home functions, such as case management, care coordination, team-based care, mental and behavioral health services, patient and family education, counseling, and social work or related coordination services in the community or education system, including those to address social drivers of health in the medical home and community; and (c) investment in, and maintenance of, health information technology.²⁸ 

3. To address the challenges of care delivery to remote locations and marginalized populations and shortages of pediatric specialists and subspecialists, payments should include alternative sites of care, such as school-based health centers, and recognize that the full range of telehealth encounters include non–in-person encounters with patients, remote technologies for patient monitoring with established physicians and other providers, and communication between primary care and pediatric specialist physicians, all connecting back to the medical home.³² 

4. Capitated payments for pediatric medical homes and specialists should be risk adjusted based on the medical and social complexity of patient panels, using methods specific to pediatric populations.²⁸ 

5. “Shared savings” payment models should exclude preventive services and transparently indicate which services are included in the shared savings calculation as well as cost benchmarks and their origins and include upstream measures that impact the life course of children.^43,44 

6. “Withhold” penalties should be avoided, especially for practices that have not yet built capacity to achieve a particular standard or for safety-net providers that are less well-resourced and at risk to be penalized by such policies.

7. Bundled or episode payments should cover reasonable and expected average costs within a health care referral area for evidence-informed cognitive and procedural aspects of care and care coordination as well as for supplies, medicines, and other patient care costs. Payers should not hold primary care physicians or other providers fiscally responsible for patient use of services over which they have no control, especially when the plan allows a patient to access care venues outside the medical home. Investment is needed in better attribution systems for patients to primary care physicians and other providers, practices, and specialists.

8. Payments for medications, vaccines, and other medical products administered in medical home settings should exceed the acquisition cost of the products and the substantial associated overhead expenses enumerated elsewhere.²⁸ 

9. Payers should adequately pay for pediatric-to-adult health care transition services, recognizing the added time of transition assessment, anticipatory guidance, care planning, and communication with adult providers.

10. Payer accountability to public entities or employers should include metrics regarding relationships with physicians and other providers regarding payment, coverage, and dispute resolution so administrative barriers do not reduce participation.⁴⁵ 

Policies regarding the issues discussed above can directly and indirectly create or exacerbate societal inequities based on race and ethnicity and structural racism, disability, geography, income, immigration status, and sexual orientation and gender identity but also offer an opportunity to address these inequities.⁴⁶ 

1. Structural racism and wide variation between states in setting, enforcing, and funding Medicaid policy has led to striking geographic, racial, and ethnic inequities in children’s coverage, access, and quality.^47,48  Uniform national standards for eligibility, benefits, access to health care, payment, provider networks accepting new patients, and reporting requirements should be established so that children will not lack access to or coverage for health benefits or pediatricians based on their residence within a given state, possession, or territory.⁴  Federal involvement in the creation, implementation, and enforcement of these standards is necessary to mitigate disparities and reduce access barriers that stem from lack of consistency across state borders in eligibility, covered benefits, formularies, and provider networks.

2. Children enrolled in publicly funded insurance should have similar access to primary and subspecialty care as their privately insured counterparts. Given that Medicaid and CHIP disproportionately serve children of color, shortages of Medicaid-accepting physicians and other providers contribute to structural racism and health care inequities.⁴⁸  To encourage participation, Medicaid payment rates should be at least as high as Medicare.^38,49–51 

3. All immigrant children, regardless of documentation status, should be eligible for enrollment in noninferior public insurance programs to ensure that their health care needs are met.^4,52–54 

4. Qualified medical interpretation and translation services should be paid adequately by private and public insurance. Physicians and other providers should be reimbursed for the additional time required in a visit using an interpreter.⁵² 

5. The process to enroll in public and private health care should be simplified and include forms available in languages other than English to increase accessibility to families with limited literacy or emerging English proficiency.

6. Public benefit enrollment should be streamlined as eligibility requirements are often similar between programs.⁵⁵  A cross enrollment application for Medicaid, Supplemental Nutrition Assistance Program, and other public programs can ensure that families who qualify for one benefit are aware that they may qualify for others, increasing enrollment among eligible families.⁴ 

7. Outcome- and value-based purchasing and pay-for-performance arrangements must strengthen and not penalize under-resourced safety net delivery systems that care for disproportionately more children from marginalized populations.^56,57  Measuring and addressing health care disparities should be components of value-based payment and performance assessment.⁵⁸ 

8. Children in economically disadvantaged families should be able to secure health insurance from publicly funded programs or receive public subsidies to aid in purchasing private insurance.

9. To address structural ableism, payments should not incentivize physicians or other providers to care for children with fewer needs.

The health-related needs of children and young adults are substantially different than those of older age groups owing to their developmental status, their dependence on the well-being of the caregivers, their higher prevalence of poverty, and the impact of other adverse experiences.^59,60 

The health-related impact of prevention and early intervention is likewise substantially different than that of older age groups. Expertise in these issues must inform financing and payment models to deliver effective care.

1. Administrators of private insurance plans are naturally focused on achieving short-term returns on investment; therefore, appropriate regulation is necessary to achieve the unique long-term benefits of pediatric health care.^59–61 

2. Payment models should be designed with the input of pediatricians and pediatric specialists and subspecialists with relevant expertise in practice and financing.^28,62,63 

3. Pediatric-specific evidence-based metrics should inform quality- or value-based payments.⁶⁴  This will require an investment in pediatric-focused aggregated health care data sources and research to appropriately inform national measures and benchmarking.

4. Delivery models, such as integrated delivery systems and accountable care organizations, should include a sufficient number of primary care pediatricians, pediatric medical subspecialists, and pediatric surgical specialists on their governing structures to knowledgably address pediatric issues.

5. Payment models should allow physicians and other providers to screen and address SDOHs for the child and family, and SDOHs should be factored into risk adjustment in these models.⁶⁵ 

6. Payers should create or strengthen accountable community resources that alleviate the impact of social drivers and adverse childhood experiences and which coordinate with the medical home.

7. There should be a federally funded, pediatric-specific entity to support innovations in payment and care delivery models that address medical home implementation; transition from pediatric to adult health care; integration of mental and behavioral health and primary care; shared management between pediatric primary, urgent, and specialty and subspecialty care; transition from acute to postacute settings; and population-based prevention.

Child health financing must be grounded on principles that can be applied to a changing landscape of health care services, delivery, and payment and address challenges related to health care inequities and economic and public health crises like the COVID-19 pandemic. As the health care system evolves, the impact of new developments and policies on pediatric populations should be considered in light of the unique needs of children and their families. These foundational principles, in combination with pediatric-focused evidence and experience, should guide policy makers and payers in the face of future fiscal or regulatory reforms to preserve and enhance hard-won coverage and access gains for children and provide accessible, affordable, equitable high-quality health care for all children.

Alison A. Galbraith, MD, MPH, FAAP

Jonathan Price, MD, FAAP

Claire Abraham, MD, FAAP

Angelo P. Giardino, MD, MPH, PhD, FAAP

James M. Perrin, MD, FAAP, Chairperson (2022–2023)

Jonathan Price, MD, FAAP, Chairperson (2021–2022)

Lisa Chamberlain, MD, MPH, FAAP

Mike Chen, MD, FAAP

Sandy L. Chung, MD, FAAP, FACHE

Alison A. Galbraith, MD, MPH, FAAP

Angelo P. Giardino, MD, MPH, PhD, FAAP

Kimberly A. Heggen, MD, FAAP

Jennifer Kusma, MD, FAAP

William Moskowitz, MD, FAAP

Stephen A. Pearlman, MD, MSHQS, FAAP

Jean L. Raphael, MD, FAAP

Renee Turchi, MD, MPH, FAAP

Teresa Salaway, MHA

AAP

American Academy of Pediatrics

ACA

Affordable Care Act

CHIP

Children’s Health Insurance Program

SDOH

social driver of health