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SCHIP: A Falsely Politicized Debate



August 16th, 2007

One of the more peculiar aspects of life in Washington D.C. is the politicization of policy problems, to the point that the political framing effort hopelessly distorts the matter at hand. The 2007 debate over the reauthorization of the State Children’s Health Insurance Program is turning out to be a classic example of this phenomenon.

SCHIP reauthorization should have been a rapid and relatively uncluttered politically. SCHIP is a modest non-entitlement that allocates sums of money to help states purchase health insurance coverage for “targeted low-income” children. The predictable “dustups” might have focused on the total amount of funding, how to define “cannot afford,” whether to alter the federal allotment formula, and whether to strengthen the law’s quality and benefit design requirements.

What one could not possibly have predicted is the ideological vitriol that has invaded the discussion, the most recent example being a Wall Street Journal editorial labeling “Schip” as an effort to “expand government control of health care and undermine private insurance.” This particular accusation is astonishing. Any notion that SCHIP represents the opening salvo in a major philosophical debate about government’s role in health insurance is so wildly off the mark as to be un-tethered from reality. When the editors at the Wall Street Journal, or the President’s senior advisors, or advocates of total market deregulation attempt to frame the debate in this manner, prospects for a reasonable and pragmatic resolution of outstanding issues are thoroughly undermined.

Even a passing glance at the SCHIP implementation experience makes mincemeat of ideologically driven accusations. Indeed, the enactment of SCHIP marked a small but critical initial foray by government into premium subsidization – that is, the use of public funds to buy down the cost of actuarially designed insurance products, in this case, for low-income children. To be sure, Medicaid already was using public financing to enroll children and families in private managed care products, but Medicaid’s comprehensive statutory benefit design conditions of participation resulted in a relatively specialized product market.

By contrast and from the beginning, a primary purpose of SCHIP was to move government much further in a premium subsidy direction. In its statutory structure, SCHIP represents a basic departure from Medicaid. To be sure, states can invest their allotments in Medicaid expansions. But states also establish separate programs that buy private insurance products whose regulatory requirements are defined by the state. With limited exceptions for well-baby and well-child care and patient cost sharing, the terms of coverage are tied to a state’s prevailing market, through the statutory application of a “benchmark” (or “benchmark equivalent”) coverage standard.

The George Washington University School of Public Health and Health Services produced the first published research into how states used this market flexibility. Our results, published in 2003, covered SCHIP’s first five years and found exactly what might have been predicted in view of the program’s statutory structure. At of 2003, 27 of 38 states in which SCHIP was implemented as a separately administered program states reported using comprehensive health service benefit plans to furnish subsidized group coverage to the SCHIP population. We also found that states that their invested SCHIP allotments in Medicaid expansions also enrolled children into Medicaid managed care products.

States with separately administered programs used a combination of techniques to select their vendors; about half amended their Medicaid purchasing contracts to add coverage for the SCHIP child population. The remainder established and developed a wholly separate SCHIP product market, utilizing suppliers that might have eschewed the Medicaid market but nonetheless were willing to participate in SCHIP because of its less regulatory structure. In short, SCHIP implementation played out exactly as anticipated in light of the terms of the law: From enactment, SCHIP became a vehicle for subsidizing children’s enrollment into state-designed insurance products.

Neither the House nor Senate plan proposes to make any fundamental changes to this approach. If anything, the Senate bill boosts the model by broadening SCHIP’s role as a premium subsidy for use in employer-sponsored plans. While both the House and Senate measures would add certain product design and quality improvements, neither measure would alter the basic means by which affordable coverage is achieved. Indeed, SCHIP would continue as a government investor in market-based products, much the way that a refundable tax credit would represent such a government investment. The only difference is that SCHIP combines the government buy-down of the premium with a mechanism for creating an affordable and reasonable group insurance market, much the way the Massachusetts Connector has been used to create affordable group plans for Commonwealth residents. By contrast, legislation that provided only a refundable tax credit essentially would provide a subsidy but fail to address the absolutely essential task of establishing a group purchasing portal through which families can pass in order to find decent and affordable coverage for their children.

So this then leads to the question: What is the battle all about? One plausible answer, I suppose, is that none of the critics has bothered to either read the law or study its evolution. Another answer – and one that is more disturbing in my view – is that the hidden agenda in this aggressive framing exercise is to undo a role for government in creating sound pediatric group health products and instead to leave families to fend for their children in the individual market. This would be very unfortunate indeed. The history of unregulated pediatric health insurance coverage is not pretty, ranging from enrollment denials for newborns to non-existent preventive benefits and harsh limits and exclusions for children with physical, mental, and developmental conditions that can affect growth and development.

Exposing children at any income level to full force of the individual market is an unfair path for any nation to ask its families to travel. One can only hope that the August recess brings everyone to their senses regarding the political framing of SCHIP, so that a rapid, pragmatic, and family friendly resolution of the issues can be achieved.

Editor’s Note: Sara Rosenbaum published a paper entitled “SCHIP Reconsidered” in Health Affairs on August 14. It is free access on the journal’s Web site for two weeks.

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2 Trackbacks for “SCHIP: A Falsely Politicized Debate”

  1. Health Affairs Blog
    August 22nd, 2007 at 6:23 pm
  2. Health Care BS » Blog Archive » SCHIP: Sense and Sanctimony
    August 20th, 2007 at 11:29 am

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