Executive Summary: SCHIP: How Congress Can Avoid Repeating LastYear's Mistakes
Congress may soon debate-again-the reauthorization of the
State Children's Health Insurance Program (SCHIP).
Congressional leaders have an opportunity to take a fresh approach
to the issue, learn from past mistakes, and avoid the serious
flaws that emerged in the crafting of last year's legislation.
Extension of the popular program last year should have been
simple and quick, but policy took a back seat to politics. Because
they left little room or time for serious deliberation about the
impact or broader significance of proposed policies,
congressional leaders were unable to quell anxieties about
controversial elements of the proposed legislation, such as
provisions to include higher-income children, coverage of
adults, the "crowd out" of private insurance, loopholes that would
have allowed non-citizens to become eligible, and the imposition of
tax increases. Worse, they resorted to various budget gimmicks
that marred their efforts to achieve full reauthorization.
Moreover, the dispute was never about poor children. There is
already a $1 trillion commitment to children on Medicaid and SCHIP
over the next 10 years.
Preparing for Next Time. Congress should hold balanced
hearings-with outside policy experts thoroughly examining the
policy alternatives-and then begin to mark up legislation through
regular order. Last year, legislation went through dramatic changes
without the opportunity for Members to digest differing
explanations about policy or what was really being accomplished.
Leaders seemed determined to spend a pre-set level of money to the
extent of rewarding unsound state policies. For the next debate,
Congress needs to:
- Set clear policy first. During the last SCHIP debate,
Congress seemed to pick budget numbers first and then
back into certain policies. Congress could not spend its target
budget increase of $35 billion without expanding eligibility
to the middle class or federalizing a greater share of the cost of
Medicaid, the huge government health program for the poor and
the indigent jointly financed by the federal and state
governments. Only 14 percent of enrollment gains (800,000 newly
enrolled but previously uninsured out of 5.8 million enrollees) was
attributable to the uninsured, low-income children who were
eligible for SCHIP.
- Be clear on eligibility. Contrary to what some Members
said or believed, the legislation did not cap eligibility at
300 percent of the federal poverty level (FPL); it would have
substituted the lower Medicaid match rate (average of 57 percent)
for eligibility above 300 percent. Even worse for taxpayers, the
legislation did not apply the lower match rate if an expansion,
to any income level, was made through Medicaid. Allowing
states to circumvent eligibility caps by expanding Medicaid renders
the policy meaningless.
Clarity in determining who should be eligible for SCHIP is also
critical in maintaining public support. According to an
October 2007 National Public Radio/Kaiser Family Foundation/Harvard
School of Public Health survey, only 32 percent of Americans
support SCHIP eligibility at $60,000 per year. Greater transparency
in policies, not obscured interpretations, is needed.
- Don't favor wealthier states at the expense of taxpayers in
poorer states. Expanding eligibility to 300 percent of FPL
and beyond is likely to be attractive only to a minority of
wealthier states. Of the 10 "richest" states, seven
(California, Connecticut, Maryland, Massachusetts, New
Hampshire, New Jersey, and New York) have already expanded or are
seeking to expand SCHIP eligibility to 300 percent of FPL. Of the
10 poorest states, none has expanded above 250 percent of FPL. Of
the 13 states that have expanded to 300 percent of FPL or are
seeking to do so, only Missouri and Oklahoma are from the South or
Plains states. Congress sacrificed the interests of those
lower-income families in favor of wealthier states that want to
provide coverage to higher income levels.
Last year's SCHIP debate appeared to be less about providing
affordable health care to low-income children than about bailing
out states that had overextended their budgets. Among the states
that received nearly $1.3 billion in additional federal funds
in 2006 and 2007 because of budget shortfalls, seven (Illinois,
Maryland, Massachusetts, Minnesota, Missouri, New Jersey, and
Rhode Island) received 79 percent of the funds and covered children
at higher income levels, adults, or, in some cases, both.
- Play It Straight with Funding. Funding should be
straightforward, maintain the capped allotments that reflect
reasonable growth rates, and have an updated allotment formula.
Congress should jettison gimmicks like Express Lane
eligibility, which would have allowed non-citizens to slip through,
and the Contingency Fund and Performance Bonus, essentially slush
funds that would have rewarded states for letting non-citizens join
the programs. Under the final version of the Performance Bonus, the
federal government would have paid at least an 81 percent match
rate for certain additional Medicaid enrollees: The national
average is 57 percent. A wealthier state would receive $906.25 per
additional enrollee, compared to $725 for a poorer state. The
Performance Bonus formula thus provided a disproportionate benefit
to wealthier states.
Conclusion. Congress can return SCHIP to its original
focus on uninsured low-income children by setting a firm cap on
eligibility that applies to both SCHIP and Medicaid and by
restoring fiscal discipline. Blindly expanding SCHIP up the
income scale would eclipse the potential of other more desirable
alternatives to expanding health coverage for children in lower-
and lower-middle-income families-especially refundable health care
tax credits, an option that has already attracted a broad
bipartisan and philosophical consensus.
Congress must recognize that expanding public programs into the
middle class drives up the cost of private coverage. No longer
should Congress ignore the detrimental effects that "crowd out" has
on the millions of privately insured families. An expansion of
private coverage, including employer-based coverage, through
tax credits would revive the states' ailing private health
insurance markets by adding young and healthy lives and the
resources that would enable them to thrive, thus contributing to a
reduction in average health insurance claims costs. This alone
would be a tremendous step toward addressing the larger problem of
the uninsured in America.
Dennis G. Smith is Senior
Fellow in the Center for Health Policy Studies at The Heritage