SCHIP Can Work with a Free Market Approach

August 27, 2007

By Beverly Gossage

The State Children’s Health Insurance Program should not be expanded, especially at the expense of our senior citizens. This program was originally created to provide health care for children whose families could not afford insurance but earned a little too much income to qualify for Medicaid. That would be those families whose annual incomes are up to 200 percent above the poverty level or approximately $41,500. Now, because the federal government matches an average of 72% of SCHIP funding—as opposed to 60% of Medicaid funding—many states have begun expanding their SCHIPs to include children in families whose incomes exceed 200 up to 400 percent of the poverty level.

According to the Congressional Budget office, 77% of children in families whose income is between 200 and 300 percent of the poverty level already have private insurance. Instead of helping children who have no health insurance, expanding SCHIP will only cause more middle class families who already have health insurance to take their children off of private insurance plans and put them on SCHIP. How is that really insuring more kids? Plus, 14 states have expanded their SCHIPs to cover adults too. In Minnesota, Wisconsin and Arizona, more than half of SCHIP funding is going to adults.

The more people move from private plans to government plans, the more those of us on private plans pay. Why? Since providers are reimbursed at a lesser amount for government plans, they must charge more to the private payers which is passed along in the form of higher health insurance premiums and costs.

And where will we get the extra $35 billion to $50 billion proposed by the legislature to provide health coverage for all of these adults and children of middle class families who already had health insurance to begin with? Congress proposes to use taxes from cigarette sales as well as funding that would go to the Medicare Advantage program, a popular health care plan for seniors.

Despite the fact that expanding this program hurts seniors, raises health care costs for all of us, and won’t actually help uninsured children, many in Congress are supporting an expansion of SCHIP because of appearances. Who wants to vote against giving health care to children? But many of the children in question are either already covered or aren’t, in fact, children at all.

How can a free market approach to SCHIP make it more effective in covering low income children?

Maintain the original intent of the program.
Cover children only. Do not expand the program beyond its 200 percent of poverty limit.

Equalize the subsidies.

The federal government match should be the same percentage for Medicaid and SCHIP, so that states do not have an incentive to focus on those children in families with higher incomes.

Establish premium assistance programs.
We have not established government-run stores, limiting where low income families can shop with their food stamps. Why do we have a government-run insurance plan for them? Let’s let them pick from a broad market place to use subsidies for health insurance. States can use federal matching funds currently allotted for Medicaid and SCHIP to give vouchers based on income to subsidize the purchase of private health insurance plans for children either through an individual policy or through an employer. As the family’s income grows, the subsidy is reduced.

Family’s can select a High Deductible Health Plan (HDHP) with a lower premium and couple that with a Health Opportunity Account (HOA) or Health Savings Account (HSA). These funds can be used for medical expenses, including over the counter medications and dental or vision expenses. Plus unused funds can roll over annually to be saved for future medical needs.

This use of the free market helps families stay together on one plan instead of pulling children off to be in the SCHIP program.  Since many providers are no longer taking Medicaid patients, a private plan allows the family broader choices of providers. The family can select from an employer’s plan or a wide variety of plan designs in the large market of individual policies. It puts children (a healthy segment of the population) back into the private risk pool to help reduce rates for all of us.

Beverly Gossage is the Director of HSA Benefits Consulting and research fellow for Show Me Institute and a serves on the health board for Flint Hills Public Policy.