On September 21, House and Senate leaders announced a deal to
expand the State Children's Health Insurance Program (SCHIP) by $35
billion over five years, to $60 billion. This "compromise" does
little to bridge the differences in opinion on how best to address
the needs of uninsured children. Instead, Congress should consider
a bipartisan approach that is broad and balanced. Congress should
reauthorize SCHIP and use innovative policy tools to expand access
to private coverage for children.
The Shortcomings of the SCHIP Compromise
The compromise reflects the less extreme bill passed by the Senate
and drops the Medicare provisions found in the House bill.
However, based on the Senate-passed bill, the following fundamental
- It extends the program's scope beyond its original
focus on low-income children. SCHIP was originally
targeted at covering low-income, uninsured children whose families
earned an income at or below 200 percent of the federal poverty
level (FPL). The compromise would raise that threshold to 300
percent of the FPL-covering families who earn $62,000 per year. It
would also encourage government coverage for other populations such
as pregnant women, parents, and childless adults. Moreover, the
bill extends standardized benefits, making SCHIP operate more like
Medicaid than private coverage.
- It displaces existing private coverage. By
expanding coverage further up the income scale and to new
populations, the compromise will undoubtedly erode existing private
coverage. Numerous studies have attempted to measure the
"crowd-out" effect. While exact findings vary, the studies
generally agree that as public programs expand, private coverage
declines. Recent analysis by The Heritage Foundation
finds that expanding SCHIP coverage to children in families with
incomes between 200 percent and 300 percent of the FPL would lead
to a 45-51 percent crowd-out effect. For every 100 children made
newly eligible, 45 to 51 of those children would lose private
coverage that they have today.
- It depends on unsound financing. The
compromise pays for the expansion with a 61-cent increase in the
tobacco tax. Although politically popular, this funding solution
disproportionately burdens lower income families (the population
targeted for expansion). Also, raising the tobacco tax would reduce
the number of smokers, which dries up the source of funding.
Ultimately, an additional 22 million new smokers would be needed to
fund the SCHIP expansion through the tobacco tax hike.
Needed: A More Balanced Approach to Covering
The current debate over expanding health care coverage for
children has focused exclusively on SCHIP. Members of Congress
should expand the discussion to include innovative policy ideas.
Specifically, a reasonable compromise could be formed around three
- Reauthorize SCHIP for eligible children.
Congress should approve a straight reauthorization of the SCHIP
program for uninsured children in families with incomes at or below
200 percent of the FPL. Members should include provisions to
increase outreach to enroll eligible children who do not have
private health insurance coverage.
- Enact a child health care tax credit. For
families with incomes between 200 percent and 300 percent of the
FPL (the core population targeted by the SCHIP expansion), Congress
should provide assistance to help them purchase private health
insurance, whether through their place of work or on their own.
This assistance could come in two forms: 1) a non-refundable tax
credit for taxpaying families; and 2) a refundable tax credit (in
effect, a voucher) for families that do not pay enough in taxes to
secure a credit.
The non-refundable tax credit could be paid for by capping the
current employer exclusion (a change long supported by economists,
both liberal and conservative).
As a direct subsidy, the cost of the refundable tax credit should
be offset by cutting funding for wasteful or unnecessary programs,
such as corporate welfare. This would ensure that any revenue
generated would be used for tax relief, not to fund the refundable
- Adopt a "federalism" health care initiative.
Legislation introduced by Senators Jeff Bingaman (D-NM) and George
Voinovich (R-OH) in the Senate and by Representatives Tammy Baldwin
(D-WI) and Tom Price (R-GA) in the House would encourage greater
experimentation at the state level to expand coverage, which
complements both the reauthorization of SCHIP and the tax relief
for working families.
The compromise proposal turns SCHIP into a vehicle for
incrementally expanding government-run health care and undermining
the private model. With the President reaffirming his threat to
veto the current proposal, it is clear that Congress will need to
go back to the drawing board if it is serious about reauthorizing
SCHIP and expanding coverage to more children.
A more balanced compromise would combine the approaches
preferred on both sides of the political spectrum. Earlier this
year, agreement on a very similar approach was reached by a wide
coalition of organizations, including the U.S. Chamber of Commerce,
the American Medical Association, America's Health Insurance Plans,
and Families USA. Congress should reauthorize SCHIP and use
innovative policy tools to expand access to private coverage for
Owcharenko is Senior Policy Analyst in the Center for Health
Policy Studies at The Heritage Foundation. Stuart M. Butler, Ph.D.,
is Vice President of Domestic and Economic Policy Studies at The
Stuart Butler, "The Voinovich-Bingaman Bill: Letting the States
Take the Lead in Extending Health Insurance," Heritage Foundation
Web Memo No. 1128, June 15, 2007, at www.heritage.org/static/reportimages/B696DEECDDC7668F2208C161E5BCF463.pdf
and Stuart Butler and Nina Owcharenko, "The Baldwin-Price Health
Bill: Bipartisan Encouragement for State Action on the Uninsured,"
Heritage Foundation Web Memo No. 1190, August 7, 2006, at