In August of 2007, the Centers for Medicare and Medicaid
released a directive on the State Children's Health Insurance
Program (SCHIP). The directive keeps the program focused on its
core population-low-income uninsured children-and pays particular
attention to the impact that SCHIP expansions have on existing
The SCHIP statute describes the purpose of the program as
assisting uninsured low-income children. Although there is some
disagreement over its interpretation, the statute defines
"low-income" children as those children whose family income is at
or below 200 percent of the poverty line. In an effort to keep the
program focused on uninsured children, the statute also includes
provisions to ensure that the program does not substitute for
coverage under a group health plan and to inform parents, through
outreach efforts, of the possible availability of private
Impact of Expansion on Existing Private
Many low-income children have private health insurance. The
Congressional Budget Office estimates that 50 percent of children
between 100 percent and 200 percent of poverty have private
coverage and that 77 percent of children between 200
and 300 percent of poverty have private coverage. It is critical to
appreciate these numbers when considering expanding public
programs, such as SCHIP, beyond the 200 percent threshold.
Estimates of the degree to which expansion of public programs
affects the availability of and enrollment in private coverage vary
widely. Economists Jonathan Gruber and Kosali Simon, looking at
public programs in general, found that "the number of privately
insured falls by about 60 percent as much as the number of publicly
insured rises." Gruber and Simon also concluded that the
"crowd out" phenomenon is far more dramatic when considering the
entire family. Thus, expansions reduce private insurance options
for family members more dramatically.
The Congressional Budget Office conducted a review of the
literature and estimated that there is a 25 percent to 50 percent
reduction in private coverage due to SCHIP.Since its estimates
consider only children and not parents, the CBO, like Gruber and
Simon, points out that these estimates "probably understate the
total extent to which SCHIP has reduced private coverage."
The Heritage Foundation's Center for Data Analysis conducted an
econometric analysis based on a modified and extended version of
the methodology developed by Gruber. This analysis concluded that
for every 100 newly eligible children in families with incomes
between 200 percent and 400 percent of federal poverty, 54 to 60
children would lose private coverage.
Protecting SCHIP and Private Coverage
First, the directive is not aimed at all states, but those
states that have expanded eligibility above 250 percent of poverty.
Ironically, many of the affected states at or above 200 percent of
poverty have received additional federal funding after overspending
their allotments to address "shortfalls" within their programs,
which leads to questions about whether these states have already
expanded beyond capacity.
The Administration directs states that want to expand SCHIP
above 250 percent of poverty to meet certain requirements to ensure
that the basic goals of the program are being met by preserving
SCHIP for the core population it is intended to service and
deterring further erosion of private coverage. This directive
helps to reinforce and clarify existing law. Meaningful cost
sharing and standard waiting periods, for example, will help
protect SCHIP as a safety net program and ensure that the program's
design does not create an incentive for families to drop their
existing private coverage.
Policymakers need to balance access to public coverage with the
need to avoid eroding private coverage. Instead of focusing solely
on SCHIP as a vehicle for covering children, policymakers should
broaden its efforts make private coverage more affordable for
working families. Offering a federal tax credit to working families
is one way to give families the help they need to afford private
coverage. A dual approach that protects SCHIP for its intended
low-income uninsured populations and offers a tax credit for others
has a long history and broad support.
These SCHIP directives help to preserve SCHIP as a safety net
program for low-income uninsured children. Efforts to undermine
these directives will both lead to further erosion of the private
health insurance market and overburden public programs. In order to
address the coverage needs of children, policymakers must look
beyond public program expansion and consider solutions that will
bolster-not unravel-the foundation of private health insurance in
America's health care system.
Owcharenko is Senior Policy Analyst for Health Care in the
Center for Health Policy Studies at The Heritage Foundation.
This WebMemo is based on testimony before the
U.S. Senate Finance Committee, Subcommittee on Health,
on April 9, 2008.
Congressional Budget Office, "The State Children's Health Insurance
Program," May 2007, p. 12, at www.cbo.gov/ftpdocs/80xx/doc8092/05-10-SCHIP.pdf
Jonathan Gruber and Kosali Simon, "Crowd-Out Ten Years Later: Have
Recent Public Insurance Expansions Crowded Out Private Heath
Insurance?" National Bureau of Economic Research Working
Paper No. 12858, January 2007, p. 2, at www.nber.org/papers/w12858.
CBO, "The State Children's Health Insurance Program," p.11.
example, six states at or above 250 percent of the federal poverty
level (FPL) received additional funding under the Deficit Reduction
Act (PL 109-171), and eight states are projected to receive
additional funding through the Medicare, Medicaid, and SCHIP
Extension Act (PL 110-173). See Chris L. Peterson, "SCHIP
Financing: Funding Projections and State Redistribution Issues,"
Congressional Research Service, May 8, 2006, and Chris L. Peterson,
"FY 2008 Federal SCHIP Financing," Congressional Research Service,
January 9, 2008.