July 23, 2007 | WebMemo on Health Care
The best way to ensure adequate, dependable health care for all children is to strengthen private insurance coverage and make it more affordable for lower-income working families. The reauthorization of the State Children's Health Insurance Program (SCHIP) presents Congress with an opportunity to move in that direction. Unfortunately, the approach taken by the Senate Finance Committee-which focuses only on expanding the traditional program-will displace private insurance with government-sponsored health care coverage.
Instead, lawmakers should address the underlying problems in the health care system that make private insurance unaffordable for so many families. Congress should take the following steps in designing an alternative SCHIP reauthorization proposal: Include budget-neutral tax reform designed to help lower-income families pay for dependent coverage; use SCHIP funds to help families enroll in private coverage; and encourage an affordable and competitive private health insurance market at the state level.
Senate Finance Bill Would Do
Senate Finance Committee Chairman Max Baucus's (D-MT) reauthorization bill may be less expensive and expansive than other proposals offered in the Senate and House, but it still lacks the steps needed to protect and strengthen existing private coverage. Based on certain provisions in the Senate bill, the Bush Administration has signaled its intention to veto it. The Baucus bill would have the following consequences:
[A]n additional 1.6 million individuals (or approximately 33 percent of the total) who were previously covered under private insurance would be enrolled in SCHIP. Billions of dollars for health insurance coverage would be shifted from the private sector to the public sector and from state government to the federal government with little actual gains in insurance coverage for children. In addition, expansions to new populations (those previously not eligible for SCHIP) are offset by the estimated reductions in private coverage.
These CBO numbers are consistent with independent findings in professional literature on the subject-such as a recent study by Jonathan Gruber and Kosali Simon on the loss of private health coverage through public program expansion.
Supporters claim the bill would improve premium assistance-the one aspect within SCHIP that could expand private coverage. However, the effect would be neutralized, because the provisions do not remove the program's most onerous and problematic feature, the "wrap-around" requirement. This feature requires states to fill in the cost-sharing and benefits differences between SCHIP and private plans covered by premium assistance. The SCHIP program also focuses exclusively on employer-based coverage, and so, is biased against the possibility of a family obtaining coverage in the private, individual market.
Some Members of Congress are considering alternative strategies to address America's health care needs. Senators Richard Burr (R-NC), Tom Coburn (R-OK), Bob Corker (R-TN), Jim DeMint (R-SC), , and Mel Martinez (R-FL), along with Representative Jim McCrery (R-LA), have outlined an approach that tackles the broader issue of improving access to, and the affordability of, private health care coverage.
broader health care system is a better strategy for meeting the
needs of lower-income families and their children. The alternative
plan's aim is to ensure that SCHIP remains a targeted safety net
program for low-income families while avoiding an expansion that
would displace private coverage.
Congress should take a more ambitious approach than the limited SCHIP reauthorization in the Baucus bill-one that directly addresses, not sidesteps, the underlying problems plaguing the health care system.
Congress should take the following steps to strengthen private coverage for all American families:
SCHIP and the broader health care system are at a crossroads. Some want to expand the role of government in the delivery of health care, while others believe in empowering families to obtain private health insurance coverage.
Policymakers should reject the narrow approach, taken by the Senate Finance Committee, to address children's health care through SCHIP expansion. Tackling the fundamental problems in the health care system would have a broader, longer-lasting impact. Congress can accomplish this by reforming the tax treatment of health insurance, expanding the role of SCHIP to subsidize private coverage for lower-income families, and promoting an affordable and competitive private health insurance market at the state level. Every step is critical for changing the status quo and improving access to health care coverage for all Americans, including for lower-income families.
Nina Owcharenko is Senior Policy Analyst in, and Robert E. Moffit, Ph.D., is director of, the Center for Health Policy Studies at The Heritage Foundation. Greg D'Angelo, Research Assistant in the Center for Health Policy Studies, contributed to this WebMemo.
 Letter to the Honorable Max Baucus, Chairman of the Committee on Finance, United States Senate, from the Honorable Michael Leavitt, Secretary of the United States Department of Health and Human Services, July 17, 2007, p. 1.
 See Title I, Sect. 110, "Description of the Chairman's Mark: The Children's Health Insurance Reauthorization Act of 2007," U.S. Senate Finance Committee, at finance.senate.gov/sitepages/leg/LEG%202007/Leg%20110%20071307%20Mark.pdf. For example, New Jersey's level of coverage at 350 percent of the FPL, or $72, 275 for a family of four, would still qualify, as would that of New York, which recently passed legislation to expand coverage to 400 percent of the FLP, or $82,600 for a family of four.
 See Title I, Sect. 106.
 Letter to the Honorable Max Baucus, Chairman of the Committee on Finance, United States Senate, from the Honorable Michael Leavitt, Secretary of the United States Department of Health and Human Services, p. 3.
 Jonathan Gruber and Kosali Simon, "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?" NBER Working Paper No. w12858, January 2007.
 Andrew M. Grossman and Greg D'Angelo, "SCHIP and 'Crowd-Out': How Public Program Expansion Reduces Private Coverage," Heritage Foundation WebMemo No. 1518, June 21, 2007, at http://www.heritage.org/static/reportimages/BEBE25A0F901E00E2B1126914F702D5D.pdf.
 See Title IV, Sect. 401.
 In 1997, SCHIP was originally authorized at $40 billion over 10 years, and proposed expansions are increases above the program's baseline.
 For a description of the impact of the Senate bill's tobacco tax, see Michelle C. Bucci and William W. Beach, "22 Million Smokers Needed: Funding SCHIP Expansion with a Tobacco Tax," Heritage Foundation WebMemo No. 1548, July 11, 2007, at http://www.heritage.org/static/reportimages/F9C5E6A39FF6A8EDF8BCDC3418FD822E.pdf .
 Nina Owcharenko, "The Truth About SCHIP Shortfalls," Heritage Foundation WebMemo No. 1381, March 5, 2007, at www.heritage.org/Research/HealthCare/upload/wm_1381.pdf.
 As Michael Leavitt, Secretary of the U.S. Department of Health and Human Services, observes, "The Mark would effectively balloon the (state) allotments in 2012 to $16 billion, then plunge them to $3.5 billion in 2013. This is clearly not a credible assumption." Letter to the Honorable Max Baucus, Chairman of the Committee on Finance, United States Senate from the Honorable Michael Leavitt, Secretary of the United States Department of Health and Human Services, p. 2.
 See Title II, Sect. 201, and Title III, Sect. 302.
 See Title I, Sect. 107.
 See Title III, Sect. 301 and Title VI, Sect. 605
 See Kimberly Strassel, "Socialized Medicine Showdown," The Wall Street Journal, June 29, 2007.
 Janet Stokes Trautwein, "The Children's Health Insurance Program in Action: A State's Perspective on CHIP," Testimony before the United States Senate Committee on Finance, April 4, 2007, at
 Paul Fronstin, "Employment-Based Health Benefits: Access and Coverage, 1988-2005," Employee Benefit Research Institute, Issue Brief # 303, March 2007.
 Nina Owcharenko, "Reforming SCHIP: Using Premium Assistance to Expand Coverage," Heritage Foundation WebMemo No. 1466, May 22, 2007, at www.heritage.org/static/reportimages/40B0F2ACC3704C9D63517A602ED2A07C.pdf.