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SCHIP: Analyzing The Insurance Program’s Hot-Button Issues



August 22nd, 2007

In a wistful and wise editorial in the August 3 Washington Post, David Broder mourned what the SCHIP debate had become–an ugly polarizing event.

Many commentators have wondered how a bipartisan program passed during the waning years of the Clinton administration under a Republican-dominated Congress descended into an ugly scrimmage beset by cries of socialized medicine, government-run health care, Hillary care, or free health care to illegal immigrants. Few have talked about how SCHIP has improved child health.

No matter how many times nonpartisan researchers at the GAO, CRS, or CBO or research foundations such as the Kaiser Family Foundation run the numbers and explain the program, the charges do not go away. The State Children’s Health Insurance Program (SCHIP) reauthorization debate appears to be taking place in a politically charged vacuum far from reality. Little has been said about how the program actually operates on the ground. To help fill this vacuum, Health Affairs is publishing the latest research on SCHIP this month on its journal Web site, including:

The Health Affairs Blog is also publishing commentary on the SCHIP debate across the spectrum from Sarah Rosenbaum on the politics; Grace-Marie Turner on the September showdown; Leonard Burman, Kim Rueben and Genevieve Kenney on the tobacco tax; Stan Dorn and Anna Sommers on reaching eligible kids; and Nina Owcharenko of the Heritage Foundation on market-based solutions. And watch for an upcoming blog post from Cindy Mann of Georgetown University.

How the state program works. SCHIP is not an entitlement but a block grant to each state. States get their federal allotment based on a formula created ten years ago off the Current Population Survey. The CPS is not perfect, but other surveys, such as the Medical Expenditure Panel Survey (MEPS), that ask about access to insurance have generally found the same ballpark figures for the numbers of uninsured but eligible kids.

Most of the states–48–in fact, use the block-grant moneys to enter into contractual relationships with for-profit and nonprofit insurers, to participate in SCHIP programs. They do not run a one-size, one-program, socialized, or government-run health care system. Mark B. McClellan, former administrator of the Centers for Medicare and Medicaid Services, in the current Bush administration, said in a New York Times article [NYT Select access], ”The Children’s Health Insurance Program today is delivered mostly by private insurance plans, using public money.”

For example, California has 24 SCHIP programs; 22 are private, and the average SCHIP enrollee’s family income stands at 163 percent of the federal poverty level (FPL), approximately $32,660 for a family of four in 2007. The Congressional Research Service (CRS) estimated that 91 percent of the children covered through SCHIP in 2006 had incomes below 200 percent of poverty.

As members of Congress head to their home districts during the August recess and the presidential candidates head to Iowa, New Hampshire, and other early primary states, both Republicans and Democrats are likely to encounter health care as a leading domestic concern of their constituents. A look at SCHIP, particularly its reauthorization in the S. 1893 9on the assumption that a bill coming out of a conference committee will more closely resemble the Senate bill than the House version), provides a focal point for the national health care debate through both a local and a national prism.

Take a look at Arizona. Arizona presents an interesting perspective on SCHIP because of the confluence of local and national politicians, the salience of its geographical location for the immigration debate, and its status in 2006 as the fastest-growing state in the country. Its two Republican Senators, John Kyl and John McCain, both voted against the Senate bill. Kyl was one of the four Republican senators in the Senate Finance Committee who voted against the bill and against six Republican colleagues. McCain, running for president, voted against it on the roll call. Arizona also has a Democratic governor, Janet Napolitano, who strongly supported SCHIP both in the state and nationally and has spearheaded the National Governors Association support for SCHIP.

SCHIP has had a somewhat checkered history in Arizona. Arizona was a state with high levels of uninsured children and adults. It was estimated that a quarter of the children under age 18 in the state were uninsured when SCHIP was passed. There was hostility in the state legislature over SCHIP, and, in an effort to dampen enrollment, schools were kept from participating in outreach for enrollment and retention. The gag rule was not lifted until June 2007, when legislation was signed to allow schools to participate in outreach for SCHIP.

In some other respect, Arizona is a fairly typical SCHIP state. The income level is set at 200 percent of poverty. At least ten plans participate in KidsCare, and county residents have at least three choices. There are monthly premiums. The plans participating in Arizona’s coverage were determined appropriate for targeted low-income children.

Covering adults. Arizona is also one of 14 states that cover adults in SCHIP, and in fiscal year 2005 it was one of four states that actually covered more adults than children–113,621 adults were enrolled, compared to 88,005 children, in 2005. (Enrollment numbers represent the whole year, not a per month enrollment figure.)

Arizona began covering adults under its Section 1115 waiver at the end of 2001 and parents of SCHIP eligible children at the end of 2002. The waiver provides coverage to childless adults up to 100 percent of poverty and parents up to 200 percent. It does not cover pregnant women.

In 2003 Senator McCain passionately defended Arizona’s decision to seek a Section 1115 waiver to cover adults:

“In my home State of Arizona, our SCHIP program, KidsCare, was developed to provide low income children with medical, dental, and vision coverage. KidsCare has successfully enrolled almost 50,000 uninsured children and is anticipating reaching 60,000 by FY 2004. When Arizona found that children are more likely to receive health care if their parents also have access, and the flexibility of SCHIP enabled Arizona to expand its program. Last October Arizona began covering not just children, but also their parents. Arizona now provides health coverage to almost 8,000 uninsured parents. Although a substantial number of eligible children and parents still need coverage, I believe this relatively young program is nothing short of a success.”

It’s not surprising that more adults were covered under SCHIP than children in a state where legislative efforts were directed at limiting child enrollment. One could also reasonably assume that the decision to seek the waiver to cover adults was one method of getting around the constraints on outreach placed on the SCHIP program by the state legislature. With the waiver in place, child enrollment in SCHIP also increased. It rose 17 percent from June 2005 to June 2006, increasing from 50,638 to 59,205 children.

Crowd-out issues. Senator Kyl voiced objections to the Senate SCHIP bill on NPR. His objections centered on crowd-out. He stated that for every 100 children covered, 25 to 50 have private insurance. This was the figure quoted by the Congressional Budget Office, but the CBO also noted that the proposed reauthorization had an estimated crowd-out rate of 34 per 100–a very moderate amount compared to other government programs. It is worth noting that in 1997, when SCHIP was created, the CBO estimate for crowd-out was 40 percent. Both Arizona senators supported the Balanced Budget Act of 1997, which established SCHIP.

Perhaps the most interesting aspect of this crowd-out issue is the number of adults who picked up insurance through SCHIP. In 2003, when Arizona was just starting to enroll parents, Families USA estimated that the number of uninsured adults in Arizona was approximately 639,600.

The SCHIP waiver allowed Arizona to reduce the number of uninsured adults by almost 20 percent (113,621 people) two years later. SCHIP legislation also allows states to seek waivers to subsidize premiums for low-income parents to buy insurance in the private market. Arizona investigated that option but decided against it because of limited availability of employer-based coverage for low-wage workers.The state’s Medicaid commissioner wrote in 2002 that while small employers dominate the insurance environment in Arizona, only one-third of small employers offer health care coverage to employees in Arizona. It was unlikely that employers would step forward to offer coverage for a number of reasons, but the chief reason was the great difficulty of purchasing affordable insurance in the small-group market in Arizona.

Under these conditions, it is difficult to imagine that crowd-out affects a significant number of SCHIP beneficiaries in Arizona. Instead of working parents and other adults dropping employer-based coverage en masse for themselves and their children as critics of SCHIP have charged, Arizona demonstrates the pent-up demand for health insurance by families, when none previously existed for parents and children alike. It also supports the research findings that one of the best ways to reach uninsured kids is to insure their parents, as Senator McCain wrote in 2003.

Arizona’s ability to cover adults, however, will be severely tested by the Senate bill. The Senate, in an effort to garner bipartisan support, decided to limit SCHIP’s reach in the adult population. Under the provisions of the Senate bill, states such as Arizona can only continue to cover adults with SCHIP funds through 2008 with a possible waiver for 2009. There are certain contingency arrangements for 2010 and beyond, but it would be a steep challenge in Arizona to maintain the number of low-income parents currently enrolled in SCHIP beyond 2009. No new adults can be added, and the childless adults (in Arizona those covered up to 100 percent of poverty) would have to be transitioned off of SCHIP by 2009.

Since it seems unlikely that employer-based health care coverage will experience a rebirth in Arizona and reach all low-income workers at small firms, one wonders what will happen to those 100,000 plus adults after 2009. Since none of them are illegal aliens, and most probably are citizens, one can also ask what happens to their votes. Will Governor Napolitano continue to support SCHIP even if the compromise bill that is crafted by the House and Senate (conceivably closer to the Senate version) disenrolls the majority of Arizona’s SCHIP’s beneficiaries? Will Senator Kyl continue to talk about crowd-out in a state where many employers do not offer insurance? What did Senator McCain like about the current program and not about the Senate bill?

How will express-lane provisions for enrollment in SCHIP and Arizona’s new ability to enlist schools in outreach affect enrollment in the fastest-growing state in the Union? Is Arizona’s relatively high rate of uninsured children and adults hurting its ability to recruit physicians, a problem exacerbated in a state with a rapidly growing population?

Immigrants. SCHIP does not cover undocumented immigrants, but undoubtedly immigration will play a role in the discussion in a state that borders Mexico. Immigrants and SCHIP is already a hot topic on the blogosphere in Arizona.

With the August recess is now upon us, it will be interesting to see if the rhetoric about SCHIP will subside and be replaced with a consideration of the program and the bills to reauthorize it. Or will the rhetoric grow louder as SCHIP becomes the poster child for the national health care debate in the 2008 presidential election?

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  1. Patrick Knowd Says:

    Immigrants. SCHIP does not cover undocumented immigrants, but undoubtedly immigration will play a role in the discussion in a state that borders Mexico.
    I’m curious what affect this will have in the State of California.

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