Policy Documents

State Children's Health Insurance Program (SCHIP)

Jeff Emanuel –

The State Children's Health Insurance Program (SCHIP) was created in 1997 as a supplement to Medicaid. It was originally designed to serve as a "safety net" for children in families whose annual incomes exceed Medicaid limits but who cannot afford private health coverage. The program has grown in scope since its inception, and today just over 10 percent of the 6 million enrollees nationwide are over the age of 18.

Congress initially limited eligibility for SCHIP to children whose families earn an income less than twice the federal poverty level (FPL). But states have flexibility in implementing the program, and as of 2007 41 states had extended coverage to families with higher incomes. Seven of those states use SCHIP to cover families living at three times FPL.

Making SCHIP available to the children of families who can afford private insurance, as several states have, creates a likely "crowding-out" effect, whereby already-insured consumers abandon the private market for taxpayer-funded programs due to the lower out-of-pocket cost that results from massive government subsidies.

A National Bureau of Economic Research study in 2002 found that as much as half of new SCHIP enrollment was offset by declining private coverage. The crowding-out effect was further reflected in U.S. Censure Bureau figures reported in August 2008. Between 2006 and 2007, the percentage of Americans enrolled in private insurance plans fell by 0.4 percentage points, while the percentage enrolled in government programs like SCHIP simultaneously rose by 0.8 points.

The crowding-out effect has been felt by individual states, as well. In 2008, Hawaii implemented a taxpayer-funded children's health insurance program, called Keiki Care, which was designed to bridge the gap between children in SCHIP-eligible families and those who could afford private coverage. The targeted income level would have been eligible for the expanded version of SCHIP proposed in 2007. If the 111th Congress were to approve the expansion, enrollment in the Keiki program could have paved the way for several thousand people newly added to the state health care rolls to be transitioned to the federally funded SCHIP.

According to state figures, more than 85 percent of the 2,000 enrollees in Keiki Care previously had private insurance, which they dropped in order to enroll in the state program. The unexpected crowd-out caused Hawaii Governor Linda Lingle (R) to terminate Keiki Care after only seven months.

By crowding out private insurers, SCHIP threatens to destabilize the private insurance marketplace, contributing to rising costs on health insurance premiums as well as to larger state budget deficits.

Rather than expand enrollment eligibility for SCHIP, which will result in a crowding-out of private insurance and overall lower quality of care for children, policymakers should focus on improving the program so that it effectively serves those it was designed to help.

States that Use SCHIP to Cover Adults Face Funding Shortfalls
According to a Government Accountability Office report, states that use SCHIP to cover adults are more prone to funding shortfalls than those whose SCHIP programs cover only children.

SCHIP Is for Children in Name Only
If Congress is really concerned about children and our health care system, it won't approve another dime for this program until or unless it is reformed and monitored responsibly.

Hawaii's Keiki Crash Offers Lesson for All
Grace-Marie Turner, president of The Galen Institute, notes, "Hawaii just had a vivid lesson in health care economics, learning that if you offer people insurance for free--surprise, surprise--they'll quickly drop other coverage to enroll. As a result, Hawaii has ended the only state universal children's health care program in the country after just seven months."

Hawaii Pulls Plug on Universal Child Health Care
Hawaii Governor Linda Lingle (R) terminated the state's seven-month-old children's health insurance program in response to massive departure of private coverage in favor of the taxpayer-funded option.

Sink This SCHIP
SCHIP's record shows Washington has no special wisdom that gives it the right to dictate how the states provide medical care to the needy.

SCHIP Reauthorization Loses Focus
States already misuse funds allocated for SCHIP.Turning it into an even more expansive program would encourage them to inappropriately use and increase federal payments, as they have already done in Medicaid.

SCHIP Rules Get Mixed Reviews in States
Experts point out the SCHIP program was intended to cover only the poor, and that states' health insurance regulatory environments are the main obstacle preventing families from being able to afford coverage without taxpayer assistance.

SCHIP Needs to Focus on Children
SCHIP reform should take the shape of renewed focus on the poor children not receiving aid, rather than expansion of something fraught with misuse and misdirection.

The Hijacking of Children's Health
Hijacking children's health insurance hurts poor children, deceives voters, and robs taxpayers.

The Truth About SCHIP Shortfalls
SCHIP was not designed to be an entitlement program with an open-ended commitment from the federal government. The redistribution process and recent infusions of additional federal funding reward overreaching, fiscally irresponsible states that exceed SCHIP guidelines.

SCHIP: A Step Towards Socialism
Attempts to expand SCHIP would result in more than 2 million children with private coverage moving to the government's rolls, according to the Congressional Budget Office.

Proof That SCHIP Could Destroy Health Care
Lawmakers should rally around an alternative that enables the working poor to own their own coverage and not depend on the inferior coverage that comes with programs such as SCHIP--and they should emphasize just how mediocre and, at times, even deadly government-controlled coverage can be.

For further information on the subject, you can visit The Heartland Institute's Web site at www.heartland.org, where you will find articles on the issue available through PolicyBot, Heartland's free research database.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Health Care News Managing Editor Jeff Emanuel at jemanuel@heartland.org.