Personally I think it's a rare occurrence for "average" age kids in the big age groups to be good enough to win their level but truly unable to get the skills for the next level. You have to do a lot more than just have the skills down pretty well to win, at most state meets even in L3 and 4 you're going to see straight casts well above horizontal, etc. Here are some example of the level of competition "pre-kip" which is inching up all over the US. There's something wrong if a kid can do all this and can't get a kip in 6 months.
And none of them are even from Texas or California
Now there might be some age groups where there's only a few kids and you could win by being the one who doesn't fall...but not much anymore in a lot of states. I can definitely believe there are kids who can do well, like getting a 36, and not be ready to move up, but being state champion nowadays in a lot of places is like 37-39 range. You have to be pretty good, and fairly mature about all the details and focus, etc to achieve that level at such a young age. I would automatically find it questionable that they could do that well but not physically get a kip or whatever.
Of course, I will gladly grant exceptions for fear issues or maturity (i.e. a 6 year old who won't turn 7 until beginning of season, might be physically capable of all the new Level 4 skills but maturity wise coaches would rather not have her jump to the high bar, go over the vault table...same for the 7 year old who might be able to do back tucks and flyaways but coaches feel she is not ready mentally to focus 100% of the time and compete it). BUT with the maturity thing, I find as compulsories have grown increasingly complex and more competitive, that's just not as common anymore for the kids at the top. It used to be a kid could win with a lot of amplitude/raw talent/simply being able to perform the whole routine together because it was common for kids to compete missing skills and/or connections. Nowadays it takes a lot of polish and your top compulsory athletes are generally pretty focused, even the 6 year olds.
There are the kids who really "turns it on" when competing and are much more focused than in practice...but again with the routines being more complex the last two cycles, even this often isn't enough to win everything if they're all over the place in practice.
Fear issues, however, can be a problem regardless of raw physical ability so that's a separate story.