SCHIP Plus a Tax Credit: A Compromise Health Insurance Plan for Kids
President Bush is expected to veto the proposed expansion of the
State Children's Health Insurance Program (SCHIP). If that happens,
Congress should not engage in a protracted political contest with
the White House. Rather, the proper response would be to propose a
compromise that attracts broad bipartisan support. Such a
compromise would aim to expand coverage for uninsured children
while helping to preserve existing coverage for modest-income
families who are struggling to make ends meet. The best way to
achieve this goal would be to combine a reauthorized SCHIP program
with a tax credit for children in families just above the basic
eligibility level for SCHIP.
This dual approach has a long history and broad support. Just
last January, a bipartisan coalition called the Health Coverage
Coalition for the Uninsured (HCCU) endorsed an initiative along
these lines. The HCCU included such groups as the American Medical
Association, the American Association of Retired Persons (AARP),
Families USA, the Catholic Health Association, and major hospital
and insurance organizations.
A Balanced Approach to Covering Kids
The current debate has focused almost exclusively on SCHIP--as
though expanding SCHIP is the only way to expand health coverage
for children. However, there are drawbacks to expanding SCHIP
eligibility above the original income ceiling of 200 percent of the
federal poverty level (FPL). For certain family income levels, as
many as 60 percent of new SCHIP enrollees would be children who
already have private coverage. Also, expanding SCHIP does
nothing to help modest-income families who currently have private
insurance for their children (typically through their place of
work) but who are likely to need assistance if they are to be
unable to afford their children's coverage in the future.
Members of Congress should widen the discussion to include other
policy ideas that could easily bridge the divide. Senator Mel
Martinez (R-FL) and other lawmakers recently started to design a
Specifically, a reasonable compromise could be formed around
three simple concepts:
- 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. The legislation should include provisions
to increase outreach to enroll eligible children who do not have
private health insurance coverage. Congress should allow for
reasonable accommodation for those states that have previously
obtained waivers from the Administration to increase the income
- 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 supporters of the SCHIP
expansion), Congress should provide assistance to help them
purchase private health insurance or retain the private coverage
they currently have. Congress should permit these families to claim
a $1,200 tax credit that could be used to enroll their children in
dependent coverage through an employer or the individual market.
This credit would take two forms: a non-refundable tax credit for
taxpaying families, and a refundable tax credit (in effect, a
voucher) for families that do not pay enough in taxes to secure a
credit. The credits would be paid for in two budget-neutral
The non-refundable tax credit could be paid for by capping the
current tax exclusion for employer-provided insurance (a change
long supported by economists, both liberal and conservative) for
upper income families. This could take the form of limiting the
tax-free amount to the cost of an average plan (just over $12,000
for family coverage) for those earning above, say, $150,000. All
revenue generated by this reform of the tax exclusion would be used
for tax relief for taxpaying families in the 200-300 percent of FPL
Under the federal budget process, the refundable part of the
credit is considered a federal expenditure and should be fully
offset by cutting wasteful or unnecessary spending such as
- 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.
Already enjoying broad support in both parties, this element would
provide states with even stronger incentives and flexibility to
find more efficient ways of using existing federal and state funds
to increase insurance coverage.
Advantages to a Broader Compromise
Balancing SCHIP with other policy ideas would increase
children's coverage in a more efficient and fairer way than an
SCHIP expansion would do. Such an approach offers the following
- It would ensure that SCHIP is available for low-income,
uninsured children. Most Members of Congress want to
reauthorize SCHIP. The main disagreement is over whether to expand
the program to children in new, higher-income populations, and to
adults. A simple reauthorization of the program would keep the
program in place for the core population it is intended to
serve--uninsured children in lower-income, working families.
Continued debate over expansion subjects states to fiscal
uncertainty, leaving the program in flux for the millions of
children who depend on it.
- It would expand access to private coverage for uninsured
children. Preliminary estimates indicate that approximately 1.3
million uninsured children would gain private coverage if offered
the tax credit described above.This would be in addition to
the children covered by a reauthorized SCHIP program. Typically,
the 1.3 million children are in families that have access to
coverage through one of the parents' place of work but cannot
afford it. The proposed tax credit would enable children in these
families (whether or not these families pay federal income tax) to
sign up for their parents' coverage.
- It would protect existing private coverage for working
families. Some77 percent of children between 200 percent and
300 percent of the FPL already have private health insurance.
However, many parents are struggling to afford this coverage. When
they can no longer afford coverage available through their
employer, the employee's spouse and children often lose coverage.
Adopting a tax credit for all children in this income range would
help parents as well as children to stay in the coverage that the
family has chosen. Moreover, survey research shows that a majority
of workers prefer private coverage--whether obtained through an
employer or on the individual market--over public programs.
Preliminary estimates show that approximately 9 million families
would be eligible to receive this tax credit.
- It would encourage initiatives to broaden coverage at the
state level. Instead of using SCHIP as a vehicle for expanding
health coverage, the federalism concept would give states the
opportunity to develop more robust proposals to cover more people.
State proposals would not be limited to public program expansions,
as in the current SCHIP debate, but would include innovative
approaches tailored to the needs of particular states.
Many supporters of an SCHIP expansion have cast the
debate as being either "for" or "against" children's health
insurance. This false dichotomy is both disingenuous and a threat
to the shared objective of covering more children. In reality, the
debate is over the most efficient way to achieve that goal.
Congress should aim to expand health coverage in such a way that
does not disrupt families' current coverage and that helps those
families who are in danger of losing private coverage. An
"SCHIP-only" approach cannot achieve these goals. Congress needs to
craft an alternative that combines the best policy tools for each
of these goals.
Stuart Butler, Ph.D., is
Vice President of Domestic and Economic Policy Studies at The
Heritage Foundation. Nina
Owcharenko is Senior Policy Analyst in the Center for Health
Policy Studies at The Heritage Foundation.
Show references in this report
S. 325 and H.R 506
2009 and assumes automatic enrollment. Estimates by Lewin
2009. Estimates by Lewin Group.
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
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