Congress is at a crossroads in the debate over the State
Children's Health Insurance Program (SCHIP), which is set to expire
at the end of this month. Competing bills passed by the House and
Senate would expand the program, at great expense to taxpayers, to
include more children from higher income families, but the
President has threatened to veto bills that embody this approach.
Often drowned out in the policy debate is how SCHIP touches many
issues relevant to families: the recognition of unborn children as
recipients of medical services, undercutting existing and superior
family coverage, transforming the middle class into recipients of
government health care, government control over citizens' private
health care decisions, and the impact of significant tax increases.
Congress should keep SCHIP focused on uninsured children from
low-income families and broaden the options available to
middle-income families whose children are uninsured.
Changing the Status of the Unborn
In 2002, the Department of Health and Human Services issued a
regulation making an "unborn child" eligible to receive services
under SCHIP. It explicitly recognized the existence of human life
before birth, thus emphasizing the importance of pre-natal health
care. After all, children who receive proper
prenatal care are born healthier and suffer fewer health problems
than children who are born sickly. Presently, states have the
option of offering this kind of coverage, and 11 states now
recognize the unborn in their SCHIP programs.
The current policy on the unborn is only that--a policy, not
law: It exists at the pleasure of the Secretary of Health and Human
Services. While, under a pro-life president, this "unborn child"
policy would likely continue, under a non-pro-life president, it
would probably not.
If the policy were enacted into law, however, it would be more
permanent. This was the intention of a proposed amendment to the
Senate's SCHIP legislation. It was defeated during floor debate.
The Senate bill, as passed, leaves the current situation intact:
It does not command the "unborn child" language, but it does permit
it as a state option. The language in the House-passed bill,
meanwhile, gives states the option to cover "pregnant women" (the
status quo in the law) but is silent on the unborn.
Focusing on pregnant women, rather than the unborn, raises an
additional issue. If an unborn child is a client of a state's SCHIP
program, at some definitive point it becomes a "child under the age
of 18," one of the clients for whom SCHIP was created. But what
becomes of a pregnant client when she ceases to be pregnant? If the
woman has been covered during the pregnancy, she may harbor an
expectation that government health insurance will continue to be
available to her.
Undercutting Family Coverage
Under current law, states may use SCHIP funds to pay the
additional cost of adding children to a parent's existing health
insurance policy, a practice known as "premium support."
Premium support is family-friendly. In the case where one
parent's employer offers coverage (a situation that applies to half
of the children living in families that earn between 100 percent
and 200 percent of the federal poverty level and 77 percent of
children in families that earn between 200 percent and 300 percent
of the federal poverty level), parents may prefer to have the children
on the same policy. With only one policy, parents have only one set
of rules to memorize and only one set of forms to fill out no
matter which family member saw a doctor. It may even mean that one
clinic or family practice can treat the whole family. For families
with two working parents and two schedules to juggle, the time
savings can be significant.
Unfortunately, premium support is rarely employed because of the
extensive red tape that the government imposes on it. The result is
that few families use premium support to obtain health insurance
for their children. Premium support could be streamlined by an
amendment that would simplify the basis upon which it is calculated
and administered, but no such amendment was offered in the House or
Similarly, the government could give parents health care
vouchers or tax credits to enable them to buy health insurance for
their children, making the purchase of such coverage more
affordable. Though Members of Congress have proposed these options,
they are not embodied in either chamber's SCHIP legislation.
Government Health Care for the Middle
The original mission of SCHIP was to help low-income working
families who need a little extra help to insure their children.
SCHIP was not intended to be a replacement for private health
insurance for the working poor, but assistance toward it. It was
not a program for adults or the unemployed or families in middle-
or high-income groups.
Under both the House and Senate bills, that would change. The
Senate's version of SCHIP would allow the Administration to grant
waivers for states to cover families at 400 percent of the federal
poverty level--$82,600 in annual earnings for a family of four. The
Bush Administration has recently denied New York's request to
expand its SCHIP program to cover children in families up to that
income level, but the Senate legislation would allow such a waiver
if a more liberal political Administration decided to grant it.
In the House bill, there is no explicit income eligibility
limit, and the states are strongly encouraged to enroll as many
families as possible through a special bonus program to boost
enrollment. If eligibility is set at 400 percent of the federal
poverty level, approximately 70,000 American families would be
eligible for SCHIP--a program originally designed as a form of
welfare assistance for low-income persons--while also being subject
to the Alternative Minimum Tax (AMT), which is intended to target
rich individuals and families.
Expanding SCHIP coverage to more and more children will separate
family coverage from child coverage because of the need for
different doctors and providers. This is unnecessary: Children
could be more easily added to their parents' insurance plan. The
Congressional Budget Office reports that 50 percent of children
whose families earn between 100 percent and 200 percent of the
federal poverty level have private health insurance, and of those
between 200 percent and 300 percent of the federal poverty level,
77 percent of children have private health insurance. A
growing body of professional literature shows that when government
health insurance expands, up to 60 percent of existing private
coverage is "crowded out." That means that for every 100 persons
covered under a government program expansion, 60 people have lost,
or given up, private health insurance coverage. This malignant
crowd-out effect amplifies as government coverage expands up the
If Congress and state officials permit SCHIP eligibility to
expand to children living in families at 400 percent of the federal
poverty level, fully 71 percent of American children would be
eligible for either Medicaid or SCHIP. The next generation of
children would grow up knowing or receiving nothing but government
Removing Patient Control Over Health
A provision in the House's SCHIP legislation makes an assault on
Medicare that would set a very dangerous precedent. Hidden in the
House bill is a provision that would threaten the ability of senior
citizens to supplement Medicare with their own personal funds.
Medicare is the mandatory government health insurance program
for citizens over the age of 65. Why is anything concerning
Medicare found in legislation concerning health care for children?
That's a good question.
The reason is money.
With the aging of the American population, the financial future
of Medicare is shaky. Many believe that price controls are
inevitable, followed by the rationing of health care services.
Seniors in particular fear that rationing will target end-of-life
Under Medicare today, there is an alternative to rationing that
does not impact the federal budget or require new taxes. Known as
the private fee-for-service option, this alternative permits
Medicare recipients to supplement government premiums for health
insurance with their own money. It ensures that government
bureaucrats cannot impose price controls or rationing on them.
Hidden in a part of the House bill that appears to foster
quality controls is language that would effectively eliminate all
indemnity private fee-for-service plans as of 2009 and all private
fee-for-service plans, including PPOs, as of 2010.
This provision would prevent senior citizens from spending their
own money for their own health care. If this provision becomes law,
the stage will have been set for government rationing of health
Future Tax Increases
When it was enacted in 1997, SCHIP was a limited block grant
program. Federal money was given to the states as matching funds to
provide health insurance coverage to uninsured children in
low-income families. It capped expenditures at $40 billion over 10
An expansion and liberalization of income eligibility, however,
would burst through such caps, and so the House and Senate bills
finance their legislative handiwork with a strange and regressive
tax policy. Congress proposes to pay for SCHIP expansion primarily
by increasing taxes on tobacco products, products
disproportionately consumed by the low-income population. But this
is an unreliable revenue stream: The more lawmakers tax a product
like tobacco, the faster consumption, and thus revenue, will
In order to get the tobacco revenue necessary to fund the
congressional expansion of SCHIP, Congress would need to recruit
22.4 million new smokers.  Barring that, the tobacco tax would only
serve as initial funding and would have to be supplemented by
higher taxes on individuals and families.
The expense to future generations would be gargantuan. When the
projected costs of an expanded SCHIP and other entitlement programs
are combined, the total value of unfunded debts and entitlement
obligations that must be paid down the road is equivalent to
imposing a $170,000 mortgage on every child in America at
birth--but without the house.
SCHIP expires this year, and Congress and the Administration
agree on the need to help needy families with children. How to give
that help is the argument. The sensible course is to focus on
children in low-income families in a fiscally responsible fashion
and to expand coverage options for families with children without
destroying or crowding out their existing family health
For middle-class families who need help, Congress could easily
combine the reauthorization of the current program with a targeted
health care tax credit for children that is focused on children in
families with annual incomes between 200 percent and 300 percent of
the poverty line (approximately $42,000 to $62,000). This child
health care tax credit could be available for individual family
coverage or for enrollment in a parent's employer-based health
There is no reason, however, for Congress to indulge in
extravagant government expansions that serve primarily to undermine
Connie Marshner is a Visiting Fellow
for Domestic Policy Studies at The Heritage Foundation.
that the language of existing policy does not focus on "pregnant
women"; it focuses on "unborn children," a significant break with
previous policy in this area.
Senator Wayne Allard (R-CO) offered an
amendment to the Senate bill to clarify the term "unborn child" and
allow states to extend eligibility for assistance under SCHIP. The
Allard amendment was defeated 50 to 49.
Congressional Budget Office, "The State
Children's Health Insurance Program," Publication No. 2970, p.
Michael O. Leavitt, Secretary of Health and
Human Services, remarks on April 24, 2007, cited in BNA's Medicare
Report Banner, Volume 18, Number 17, April 27, 2007, ISSN
1521-4699, page 453.
Stuart M. Butler, "Solutions to Our Long-Term
Fiscal Challenges," Testimony before the Committee on the Budget,
U.S. Senate, January 31, 2007, at www.heritage.org/Research/Budget/tst013107a.cfm.
Note that this figure includes unfunded obligations for Social
Security as well as Medicare and Medicaid.