WebMemo- The Heritage Foundation's Web Memo is an online exclusive analysis that supplies Heritage.org visitors with the information they need to follow fast-breaking policy developments.
May 22, 2007
By Nina Owcharenko
The State Children's Health Insurance Program (SCHIP), jointly
financed by the federal and state governments but administered by
the states, should focus on transitioning eligible lower-income
children into private, family coverage. Unfortunately, the current
structure of SCHIP displaces private coverage instead of
strengthening it. In the upcoming reauthorization of SCHIP,
Congress should encourage more states to adopt premium assistance
as a way to expand access to private coverage options.
Premium Assistance Now
SCHIP does allow states to pay premiums for enrollees' private
health insurance. According to the Centers for Medicare and
Medicaid Services (CMS), 12 states have premium assistance
programs, either through traditional SCHIP authority
or through waivers, which give states greater latitude in designing
more effective models within the context of the law. Moreover,
while premium assistance is typically applied to employer-based
plans, some states have also qualified plans from the private,
At the time of its enactment, the premium assistance provision
seemed to hold great promise. The details of the measure,
however, have undermined its effectiveness. Coverage provided under
premium assistance must meet "cost effectiveness" tests and the
SCHIP benefit and cost-sharing standards set by law. If a plan does
not meet these standards, a state must provide "wrap-around"
coverage to fill in the gaps. The complexity and costs of
administering a premium assistance option not only deter greater
adoption but also stifle its potential to transform SCHIP into a
program that helps lower-income working families obtain private
coverage, which most insured workers prefer to a government-run
The Benefits of Premium Assistance
Many lower-income families already participate in the private
health insurance market. Half of all children in families with
incomes between 100 percent and 200 percent of the federal poverty
line (FPL) had private coverage in 2005. That figure jumps to 77
percent of children in families with incomes between 200 percent
and 300 percent above the FPL. Since SCHIP is designed to
target children in families that earn too much to qualify for
Medicaid (i.e., working families), a strong case can be made that
these families could afford private coverage with some form of
Thus, one of the biggest policy benefits of premium assistance
is that it can help preserve and expand private coverage for
lower-income, working families instead of displacing it. Recent
analysis by the Congressional Budget Office (CBO) estimates that
the "crowd-out" effect of SCHIP-the correlation between increases
in SCHIP enrollment and decreases in private coverage-is between 25
percent and 50 percent. In other words, for every 100 children
enrolled in SCHIP, 25 to 50 fewer are in private coverage.
Moreover, the CBO reports that most estimates have generally
focused on children and not the family as a whole, so figures
likely underestimate the full impact of the crowd-out effect.
Second, premium assistance helps to unify children and parents
under one private, family plan and promotes greater continuity of
care. Today, the parent of a child enrolled in SCHIP may be insured
or uninsured. If the parent is covered, the benefits and
participating providers will likely differ from the child's.
Further complicating the family's health care situation is that
income fluctuations may affect the child's eligibility and
insurance status. Some children may eventually join their parents'
plan, and some may face periods of not being insured. Thus, premium
assistance can help mainstream these children off the government
plan and into private, family coverage. Most importantly, it would
ensure that parents, not government bureaucrats, control the
medical decisions affecting their children.
Researchers found that in Oregon, families who chose the premium
assistance option "were more likely to receive their care in a
doctor's office or health maintenance organization (HMO), whereas
children [enrolled in the traditional SCHIP plan] were more likely
to visit a hospital clinic or community health center." 
Families using the premium assistance option also reported fewer
unmet primary and specialty care needs than those in traditional
While premium assistance in SCHIP holds great promise, it is
riddled with burdensome administrative and regulatory obstacles.
The following reforms would make premium assistance a viable and
robust piece of any state's SCHIP plan.
As the debate on SCHIP reauthorization gains momentum,
policymakers should consider ways to preserve and improve access to
the private market for lower-income families. Premium assistance is
a viable solution to counteract the pressure to expand SCHIP to
populations well beyond the original intent of the law. Without
premium assistance and its reforms, SCHIP will continue to supplant
private coverage and replace it with more government control over
health care decisions for a growing number of families. Premium
assistance in SCHIP would help transition working families into
private coverage and be a stepping stone for future changes to the
overall health care system.
Owcharenko is Senior Policy Analyst in the Center for Health
Policy Studies at The Heritage Foundation.
example, Oregon's premium assistance program allows eligible
individuals to access employer-based coverage or coverage in the
individual market. See Janet B. Mitchell, Susan G. Haber, and Sonja
Hoover, "Premium Subsidy Programs: Who Enrolls, and How Do They
Fare?" Health Affairs, Volume 24, No. 5, September/October
2005, at www.healthaffairs.org.
Carrie J. Gavora, "KidCare Implementation: A Helpful Guide for the
States," Heritage Foundation FYI #168, December 31, 1997,
Jennifer N. Edwards et al., "The Erosion of Employer-Based
Health Coverage and the Threat to Workers' Health Care: Findings
from The Commonwealth Fund 2002 Workplace Health Insurance Survey,"
Issue Brief, Commonwealth Fund, August 2002, p. 7, at
footnote No. 39, Congressional Budget Office, "The State Children's
Health Insurance Program," May 2007, p. 12 at www.cbo.gov/ftpdocs/80xx/doc8092/05-10-SCHIP.pdf.
Ibid. Interestingly, 15 states have set SCHIP eligibility
above 200 percent of the FPL, and recent proposals for SCHIP
reauthorization are suggesting raising the eligibility to 300
percent of the FPL and 400 percent of the FPL respectively.
Congressional Budget Office, p. 12.
Mitchell, et al., p. 1350.
Ibid, p. 1351.
Some estimates place this figure at about $1,220. See "Children's
Health First Act," U.S. House Energy and Commerce Committee,
Summary of Legislation, at http://energycommerce.house.gov/chfa/
See Kathryn G. Allen, U.S. Government Accountability Office,
"Children's Health Insurance: States' SCHIP Enrollment and Spending
Experiences in Implementing SCHIP and Considerations for
Reauthorization," statement before the subcommittee on Health,
Committee on Energy and Commerce, U.S House of Representatives,
February 15, 2007, GAO-07-447T, p. 19 at www.gao.gov/new.items/d07501t.pdf, and
Donna Cohen Ross, Laura Cox, and Caryn Marks, "Resuming the Path to
Health Coverage for Children and Parents: A 50 State Update on
Eligibility Rules, Enrollment and Renewal Procedures, and
Cost-Sharing Practices in Medicaid and SCHIP in 2006," Henry J.
Kaiser Family Foundation, January 2007, pp. 59-62, at www.kff.org/medicaid/upload/7608.pdf.
Rather than displacing private coverage with a government-run plan,Congress should empower families to make their own health caredecisions and set the stage for future health care reforms.
Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Read More >>
Request an interview >>
Please complete the following form to request an interview with a Heritage expert.
Please note that all fields must be completed.
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 200,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2013, The Heritage Foundation Conservative policy research since 1973