States would become instruments for expanding dependency on the
federal government under the House-passed Children's Health and
Medicare Protection Act (H.R. 3162).[1] Legislation to reauthorize
the State Children's Health Insurance Program (SCHIP) is now headed
to House-Senate conference.
If enacted in its current form, the House bill would usher in a
major expansion of Medicaid, a welfare program, as well as SCHIP,
originally designed to provide health care coverage to children in
low-income families. H.R. 3162 goes far beyond helping low-income
children. The bill actually weakens private health insurance and
uses budget gimmicks to encourage states to maximize enrollment.
The House bill also makes SCHIP permanent and removes the existing
cap on federal SCHIP funding.
Congress should backtrack and instead encourage states to expand
access to private plans of families' own choosing. For the sake of
taxpayers and the truly needy, Congress must not use states as
blunt instruments for transitioning families en masse from private
coverage into a state of permanent government dependency.
How States Would Expand Dependency
With H.R. 3162, Congress aims to use states for the purposeful,
vigorous recruitment of new government dependents. Several
mechanisms in the bill would have the effect of incorporating more
individuals, families, and states themselves into the web of
federal entitlements.
State Bonus Payments. H.R. 3162 would create
"performance bonus payments"-essentially "bounty payments"-for
states that exceed specified Medicaid and SCHIP enrollment levels.
States qualify for "bounty payments" only if they implement
specific outreach and retention practices, such as:
- "liberalization of asset requirements" (eliminating
verification of income eligibility);
- doing away with in-person interviews in determining
eligibility;
- establishing a process of continuous eligibility;
- implementing a joint application for Medicaid and SCHIP;
- implementing automatic administrative renewal of eligibility;
and
- establishing "presumptive" eligibility.
Another option for expediting Medicaid and SCHIP enrollment is
through what the sponsors call an Express Lane. By eliminating
normal screening requirements, the Express Lane speeds up the
process whereby states may grant-but not deny-Medicaid and SCHIP
applications.[2]
Special Incentives.To the extent that a state enrolls
kids in Medicaid and SCHIP at a rate faster than its population
growth, it is, under the terms of the House bill, entitled to
"bounties." Inherent in the calculation of bounty payments is an
incentive for the states to enroll persons at maximum levels. The
state's target enrollment level, or baseline, for any given year is
determined by the previous year's enrollment, plus a percentage
increase to account for population growth. Enrollment levels above
the targeted baseline are designated by tiers; the higher the tier,
the greater the number by which the targeted baseline enrollment is
exceeded.
Bonuses for exceeding the enrollment baseline within the first
tier are substantial, but bonuses associated with exceeding the
second tier are significantly higher. In other words, the more a
state exceeds its targeted baseline, the higher its bounty.[3] The
objective is unmistakable: States are given a strong incentive to
enroll as many children and qualifying adults as possible. States
could find many ways to expand enrollment, including with waivers
or by raising the income threshold.
Increased Federal Spending
The Medicaid and SCHIP programs are jointly financed by the
federal and state governments. For every dollar a state spends, the
federal government is responsible for a matching payment. The
federal match for each program differs from state to state, but it
is generally between 50 percent and 76 percent for Medicaid and
between 65 percent and 83 percent for SCHIP.[4] H.R. 3162 would
allow the states to use the bonus payments for their share of the
funding. This creates a fiscal no-brainer for states: The more they
expand public program enrollment, the greater their bonus grows,
and the smaller their funding burden becomes.
The House bill would thus worsen the flaws in existing SCHIP
financing. Today, each state's federal allotment is determined by a
formula that takes into account several factors, including the
number of low-income children in the state, the number of uninsured
children in the state, and the cost of health care in the state.
States where spending exceeds the budget are called "reallocation"
states. States that remain within their specified budgets are
"retention" states. Currently, those states that operate within
their means (the retention states) are permitted to keep 50 percent
of their unspent federal funds, and the other 50 percent is
redistributed among the reallocation states. Such an arrangement
clearly favors fiscally imprudent states.
Currently, federal SCHIP spending is capped at a level set by
Congress. H.R. 3162 would remove the allotment cap; thus, federal
SCHIP matches would be limited only by the number of recipients
that states enroll. This-in conjunction with the absence of a
sunset provision-paves the way for SCHIP to become a full-blown,
open-ended, and permanent entitlement.
New Taxpayer Costs
In order to determine true cost, one must consider both the
requisite funding of the program itself and residual costs incurred
as a result of the program's success or failure.
The House sponsors of H.R. 3162 made several critical changes to
the legislative language before floor consideration. [5]
In the amended version of the bill, they provided for the
bonus payments to begin in 2009 and run through 2013, with a total
five-year cost of $15 billion. But during the period of 2014-2017,
the House sponsors provide no money for the bonus payments. So, not
surprisingly, the CBO estimates the total ten-year cost at $15
billion over 10 years,[6] because all of the federal spending would
be front-loaded in the first five years.[7]
This is a tricky way of budgeting, especially for health care
expansions. The champions of H.R. 3162 in Congress and elsewhere
are likely to argue that the bounty payments are a one-time
expenditure-that once children are enrolled in the program,
additional funds would not be necessary to maintain their
enrollment.
But there is a problem. The powerful incentives for the states,
at least in the first five years of the reauthorization, are to
enroll as many eligible beneficiaries as possible as quickly as
possible, tapping into as much of the federal bonus money as
possible. The problem arises in 2014, when there is no more bonus
money for the states at the very time that the incentives for
program expansion have created new financial burdens for the
states. With public program enrollment high, and with no more bonus
payments to offset their rising Medicaid and SCHIP contributions,
states would be left holding the proverbial bag; too many
enrollees, not enough money. In other words, the states that were
most "successful" in their enrollment efforts, fueled by the extra
federal "bonus" cash, would be the states most likely to face the
biggest budget shortfalls. Undoubtedly, the situation would
intensify political pressure to increase federal spending to cover
the high costs of an unprecedented number of enrollees in the
public programs.
Conclusion
The House congressional leadership has enacted an SCHIP bill that
would expand welfare spending, while enlisting the states as tools
of that expansion. H.R. 3162 sets up a cunning bait-and-switch
operation: (1) It creates the need for additional federal funds by
rewarding states' zealous enrollment efforts with "bounty
payments"; and (2) it would answer that urgent funding need by
having removed the existing federal SCHIP allotment cap.
Congress should reverse course and demonstrate fiscal integrity
by retaining the existing SCHIP allotment capping mechanism.
Moreover, Congress should reward effective and efficient program
innovation at the state level. Congress can strengthen private
coverage options by offering low-income families direct premium
assistance or tax credits. Creating a culture of dependence on
welfare programs can never be the goal of a free society.
Cheryl S. Smith is a Visiting Health Policy Fellow in the
Center for Health Policy Studies at The Heritage
Foundation.
[1] The
House bill passed on August 1, 2007 by a vote of 225 to 204.
[2] See
Title I, Sec. 111 and 112.
[3]
Under H.R. 3162, for each Medicaid enrollee who is above the
targeted level but within the first tier, the state will receive a
bonus equal to 35 percent of the projected per capita state
Medicaid expenditures; if Medicaid enrollment reaches the second
tier, the bonus percentage jumps to 90 percent. Performance bonus
percentages for first and second tier SCHIP enrollment are based on
5 percent and 75 percent (respectively) of projected per capita
state SCHIP expenditures.
[5] For
example, in the original version, CBO estimated athat the special
bonus payments would cost $35.4 billion over ten years.
Congressional Budget Office, "Estimated Effect on Direct Spending
and Revenues of H.R. 3162, the Children's Health and Medicare
Protection Act, as Ordered Reported by the House Committee on Ways
and Means on July 27, 2007," July 27, 2007, atwww.cbo.gov/ftpdocs/85xx/doc8501/hr3162Rangel.pdf
.
[6] All
program spending would take place within a 5-year window from 2009
to 2013, then go to zero for years 2014 to 2017.
[7]
Congressional Budget Office, "Estimated Effect on Direct Spending
and Revenues of H.R. 3162, the Children's Health and Medicare
Protection Act, for the Rules Committee," August 1, 2007, at cbo.gov/ftpdocs/85xx/doc8519/HR3162.pdf.