Authorization of the State Children's Health Insurance Program (SCHIP) runs out at the end of September. This gave the Democrats and some Republicans in Congress an opportunity to vote in July to expand this government health insurance program. SCHIP is supposed to provide health insurance for children whose families make too much money to qualify for medical welfare, i.e., Medicaid, but who can't afford to pay for private health insurance. Initially, this meant families whose annual incomes were twice the poverty level. This amounts to a $40,000 income for a family of four in 2007.
Since SCHIP began operating in 1997, the percentage of uninsured children belonging to families with incomes between 100 and 200 percent of the federal poverty level fell from 22.5 percent in 1996 to 16.9 percent in 2005, a reduction of 5.6 percentage points. SCHIP now covers about 6 million children. By comparison, about 10 percent of children living in families with incomes between 200 and 300 percent of the poverty level are uninsured, and less than 5 percent of those whose families make more than 300 percent of the poverty level are uninsured.
Just before its August recess both the House of Representatives and the Senate passed legislation that would substantially expand SCHIP. The Senate bill would allow states to broaden SCHIP coverage to families making up to 300 percent of the federal poverty level and the House bill sets no income eligibility limits on the program. And some states are eager to use SCHIP to subsidize middle class health insurance for kids. For example, New Jersey wants to expand SCHIP coverage to 350 percent of the poverty level and New York wants to go up to 400 percent. So in the Garden State a family of four earning over $70,000 would be eligible for government health insurance for their kids and a family earning over $80,000 per year would qualify in the Empire State. Considering that the U.S. Census Bureau estimates that the median income for a four-person family is below $80,000 in all but five states. This implies that at 400 percent of the poverty level, more than half of all American families could qualify for expanded SCHIP.
If President George W. Bush fails to keep his promise to veto this legislation, SCHIP would be well on the way to becoming another middle class entitlement. That is just what advocates of government-funded health care want. Rep. Steven Rothman (D-NJ) made this goal explicit when he called the House SCHIP bill "the next step toward universal health care for all Americans." Expanding SCHIP is what Kathleen Stoll, director of health care policy at the left-leaning lobby group, Families USA, happily identified as sneaky sequentialism. The ambit of private health insurance and health care will shrink as government funding expands.
In fact, this kind of crowding out is already taking place. The Congressional Budget Office (CBO) issued a report in May that found, "For every 100 children who gain coverage as a result of SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children." In January, MIT economist Jonathan Gruber and Cornell University economist Kosali Simon published a study that estimated "for every 100 children who are enrolled in public insurance, 60 children lose private insurance." And why not? From the point of view of parents, the government is giving their kids free health insurance, so they can pocket the money they were otherwise spending on private insurance.
The CBO also noted that a broadening of SCHIP to higher income levels "would probably involve greater crowd-out of private coverage than has occurred to date because such children have greater access to private insurance." Recall that 90 percent of kids living in families with incomes between 200 and 300 percent of the poverty level are insured and 95 percent of those in families with incomes over 400 percent are. Crowding out of private insurance helps force the country to take "next step" toward universal government-controlled health care. After all, almost 50 percent of medical expenditures are already paid for by government programs. Advocates of universal health insurance hope that as fewer and fewer Americans rely on private health insurance, government-funded health insurance will grow in political acceptance.
How to stop the slide to government-funded insurance? Grace-Marie Turner, director of the free market health care think tank the Galen Institute notes that two-thirds of all uninsured kids already qualify for SCHIP under current rules. So if the real goal is to make sure that poor kids are insured, states should enroll the ones who qualify now for the program, instead of expanding it to middle class families.
Turner also argues that programs in states that now allow higher income families to qualify for SCHIP must be rolled back. Last week, the Department of Health and Human Services (HHS) took a step in the right direction. HHS issued new SCHIP regulations that require states to enroll 95 percent of children whose families' incomes are below 250 percent of the poverty level before expanding the program to higher income groups.
Finally, SCHIP subsidies should be transformed into vouchers that low income parents can use to purchase private insurance for their kids. That way SCHIP becomes a bridge to a growing market for competitive private health insurance, instead of another dismal step toward universal government health insurance and all that implies about restricted choice, stifled innovation, and poor quality.
Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.