The current SCHIP debate is about more than just children’s health coverage. Behind the rhetoric from both sides lies the struggle to define the future of health care in America. One side in the debate is using SCHIP (State Children’s Health Insurance Program) reauthorization to incrementally expand the role of government in the health care system. The other is trying to minimize the role of government and argues for a more market-based solution to the troubles in the health care system.

The reauthorization bills passed in the House and Senate should raise concern among those who want to preserve the current private sector health care system. The bills not only expand the scope of the program beyond its original mission but also replace private coverage with public coverage, sending the bill to current and future taxpayers.

First, the expansion plans are poorly targeted. The original intent of SCHIP was to help states address the needs of targeted low income, uninsured children. Generally, this population was defined as those uninsured children in household with income levels at or below 200 percent of the federal poverty level (FPL). Both bills, however, would open eligibility far above this threshold. The Senate bill expands eligibility to 300 percent of the FPL and provides exceptions for states above this mark. The House bill seemingly has no income cap.

The bills also expand eligibility to include pregnant women and open avenues for other populations, such as parents and childless adults. While some would argue that these expansions are optional, the enhanced matching rate makes such options irresistible to states, especially those that are able to raise the necessary revenue.

Both The House And Senate Bills Would Move The Country
More Toward A Government-Run Health Care System

Second, both bills would fundamentally change the dynamics of the health care system by moving further from a private market-based system to a government-run system. The bills would inevitably encourage those with private coverage to drop it in favor of SCHIP. Today, families at all income levels enjoy private coverage. The Congressional Budget Office has warned that this “crowding out” would be extensive. The CBO estimates that 50 percent of children in families with income between 100 and 200 percent FPL have private coverage. For those between 200 and 300 percent FPL—the key demographic that these bills are targeting—this number jumps to 77 percent, and to 89 percent for those between 300 percent and 400 percent FPL. SCHIP expansions upward of 400 percent FPL would result in 71 percent of all children being eligible for either SCHIP or Medicaid.

Some argue that SCHIP and Medicaid do, in fact, offer private coverage because they can contract with private health insurers. But contracting with a private health insurer to administer a government-designed and -regulated plan is not the same as having a private market where plans compete for enrollees based on benefit design and price.

Finally, these proposals would increase the burden on taxpayers to finance this ever-expanding health care program. The original structure of SCHIP created a block grant, not an open-ended entitlement. However, under the reauthorization bills, SCHIP evolves from a block grant into a quasi-entitlement. A new health entitlement is the last thing we need when Medicare is $32 trillion out of long-term balance. The bills pay significant attention to finding all eligible but unenrolled children, and increased demand on the program will inevitably increase federal and state obligations. If the recent experiences with “shortfall” states, states that have overspent their federal allotments, are any example, states will certainly demand more from the federal government, and Congress will buckle and oblige them.

With Presidential veto threats on both bills, the conference for these bills will be interesting and hopefully will lead to some second thoughts. Congress should either do a simple SCHIP reauthorization that avoids the contentious and problematic policy changes that move the program into a dangerous new direction, or it should have an honest debate on reforming the health care system as a whole that includes reforming the tax treatment of health insurance and encouraging innovation at the state level. Combining better enrollment of children currently eligible for SCHIP with a tax credit for lower-income families, and encouragement to states to try bold new approaches, was the three-part proposal a few months ago from a “common ground” group including the Chamber of Commerce, Families USA and the American Medical Association. These solutions, unlike a large SCHIP-only expansion, would protect and improve the private health insurance market as the cornerstone of America’s health care system, and would help children, their parents, and all Americans afford and access private health insurance.