Executive Summary: SCHIP: How Congress Can Avoid Repeating LastYear's Mistakes

Report Health Care Reform

Executive Summary: SCHIP: How Congress Can Avoid Repeating LastYear's Mistakes

September 9, 2008 4 min read Download Report
Dennis Smith
Visiting Fellow

Congress may soon debate-again-the reau­thorization of the State Children's Health Insur­ance Program (SCHIP). Congressional leaders have an opportunity to take a fresh approach to the issue, learn from past mistakes, and avoid the seri­ous flaws that emerged in the crafting of last year's legislation.

Extension of the popular program last year should have been simple and quick, but policy took a back seat to politics. Because they left little room or time for serious deliberation about the impact or broader significance of proposed policies, congres­sional leaders were unable to quell anxieties about controversial elements of the proposed legislation, such as provisions to include higher-income chil­dren, coverage of adults, the "crowd out" of private insurance, loopholes that would have allowed non-citizens to become eligible, and the imposition of tax increases. Worse, they resorted to various bud­get gimmicks that marred their efforts to achieve full reauthorization.

Moreover, the dispute was never about poor children. There is already a $1 trillion commitment to children on Medicaid and SCHIP over the next 10 years.

Preparing for Next Time. Congress should hold balanced hearings-with outside policy experts thoroughly examining the policy alternatives-and then begin to mark up legislation through regular order. Last year, legislation went through dramatic changes without the opportunity for Members to digest differing explanations about policy or what was really being accomplished. Leaders seemed determined to spend a pre-set level of money to the extent of rewarding unsound state policies. For the next debate, Congress needs to:

  1. Set clear policy first. During the last SCHIP debate, Congress seemed to pick budget num­bers first and then back into certain policies. Congress could not spend its target budget increase of $35 billion without expanding eligi­bility to the middle class or federalizing a greater share of the cost of Medicaid, the huge govern­ment health program for the poor and the indi­gent jointly financed by the federal and state governments. Only 14 percent of enrollment gains (800,000 newly enrolled but previously uninsured out of 5.8 million enrollees) was attributable to the uninsured, low-income chil­dren who were eligible for SCHIP.

  2. Be clear on eligibility. Contrary to what some Members said or believed, the legislation did not cap eligibility at 300 percent of the federal poverty level (FPL); it would have substituted the lower Medicaid match rate (average of 57 percent) for eligibility above 300 percent. Even worse for taxpayers, the legislation did not apply the lower match rate if an expansion, to any income level, was made through Medicaid. Allowing states to circumvent eligibility caps by expanding Medicaid renders the policy meaningless.

    Clarity in determining who should be eligible for SCHIP is also critical in maintaining public sup­port. According to an October 2007 National Public Radio/Kaiser Family Foundation/Harvard School of Public Health survey, only 32 percent of Americans support SCHIP eligibility at $60,000 per year. Greater transparency in policies, not obscured interpretations, is needed.

  3. Don't favor wealthier states at the expense of taxpayers in poorer states. Expanding eligibil­ity to 300 percent of FPL and beyond is likely to be attractive only to a minority of wealthier states. Of the 10 "richest" states, seven (Califor­nia, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, and New York) have already expanded or are seeking to expand SCHIP eligibility to 300 percent of FPL. Of the 10 poorest states, none has expanded above 250 percent of FPL. Of the 13 states that have expanded to 300 percent of FPL or are seeking to do so, only Missouri and Oklahoma are from the South or Plains states. Congress sacrificed the interests of those lower-income families in favor of wealthier states that want to provide coverage to higher income levels.

    Last year's SCHIP debate appeared to be less about providing affordable health care to low-income children than about bailing out states that had overextended their budgets. Among the states that received nearly $1.3 billion in addi­tional federal funds in 2006 and 2007 because of budget shortfalls, seven (Illinois, Maryland, Massachusetts, Minnesota, Missouri, New Jer­sey, and Rhode Island) received 79 percent of the funds and covered children at higher income levels, adults, or, in some cases, both.

  4. Play It Straight with Funding. Funding should be straightforward, maintain the capped allotments that reflect reasonable growth rates, and have an updated allotment formula. Congress should jetti­son gimmicks like Express Lane eligibility, which would have allowed non-citizens to slip through, and the Contingency Fund and Performance Bonus, essentially slush funds that would have rewarded states for letting non-citizens join the programs. Under the final version of the Performance Bonus, the federal government would have paid at least an 81 percent match rate for certain additional Medic­aid enrollees: The national average is 57 percent. A wealthier state would receive $906.25 per addi­tional enrollee, compared to $725 for a poorer state. The Performance Bonus formula thus provided a disproportionate benefit to wealthier states.

Conclusion. Congress can return SCHIP to its original focus on uninsured low-income children by setting a firm cap on eligibility that applies to both SCHIP and Medicaid and by restoring fiscal disci­pline. Blindly expanding SCHIP up the income scale would eclipse the potential of other more desirable alternatives to expanding health coverage for children in lower- and lower-middle-income families-especially refundable health care tax credits, an option that has already attracted a broad bipartisan and philosophical consensus.

Congress must recognize that expanding public programs into the middle class drives up the cost of private coverage. No longer should Congress ignore the detrimental effects that "crowd out" has on the millions of privately insured families. An expansion of private coverage, including employer-based cov­erage, through tax credits would revive the states' ailing private health insurance markets by adding young and healthy lives and the resources that would enable them to thrive, thus contributing to a reduction in average health insurance claims costs. This alone would be a tremendous step toward addressing the larger problem of the uninsured in America.

Dennis G. Smith is Senior Fellow in the Center for Health Policy Studies at The Heritage Foundation.


Dennis Smith

Visiting Fellow