SCHIP Expansion Bedeviled by Cost Concerns

Opponents and advocates of a massive expansion of the State Children's Health Insurance Program (SCHIP) agree that some privately insured children will switch to a publicly backed health program if they are made eligible, but the two sides differ on whether that “crowd out” is reason enough to not expand coverage.

The argument has been a key issue in the ongoing legislative battle to reauthorize and expand SCHIP. Each chamber of Congress has passed a bill to expand the federal and state insurance program, but President Bush has argued the expansion is too large and would crowd out too many children already privately insured (Psychiatric News, September 7).

The House and Senate are negotiating compromises on the two bills (HR 3162 and S 1893) passed before the August recess, which would insure an additional 5 million or 4 million uninsured, respectively, beyond the 6 million children already covered under SCHIP.

These proposed SCHIP enrollees do not include new enrollees crowded out of private insurance. The Congressional Budget Office (CBO) estimates that the program expansions in the House bill would cover 2.4 million minors with private insurance and other health coverage, and the Senate bill would add 2.1 million such children.

President Bush had proposed a smaller expansion of the program and has promised to veto the House and Senate versions.

The impact of crowding out such children, who are overwhelmingly healthy, is that their participation and their families' participation in private employers' health plans help hold down their overall costs because children's expenses are well below their premium payments, according to Janet Trautwein, vice president of government affairs for the National Association of Health Underwriters, who joined other officials in an Alliance for Health Reform discussion of the issue in August.

She and other critics of the larger expansions said the government could more efficiently achieve broader insurance coverage through a subsidy of private insurer plans, beyond existing tax breaks.

“Our research found it would be less expensive for the government to subsidize those plans,” she said.

However, CBO research indicates that the Senate and House approaches are among the most efficient plans offered to cover a larger number of uninsured children with the smallest amount of crowd out, said CBO Director Peter Orszag.

Supporters of the SCHIP expansion bills said they each include measures to encourage states to focus the programs on children without insurance coverage.

“Crowd out is an inevitable byproduct of any effort to increase government coverage,” said Lisa Dubay, Ph.D., an associate professor of health policy management at Johns Hopkins Bloomberg School of Public Health.

However, Dubay said, no evidence has emerged to indicate that crowd out has led any employers to reduce coverage.

The issue of crowd out was again raised during Congress's August recess when the Centers for Medicare and Medicaid Services (CMS) ordered new restrictions on the income thresholds of SCHIP-funded programs, which would limit states to covering children whose family incomes are up to 250 percent of the federal poverty level, or $42,925 a year for a family of three (see chart).

The order directs any state that seeks to expand eligibility for SCHIP-funded children's health plans to those earning more than that 250 percent of the federal poverty level to adopt “crowd-out strategies,” designed to prevent those who might otherwise pay for coverage from private insurers from enrolling in government plans. They include a mandatory one-year waiting period during which individuals must be uninsured before they receive coverage.

Ann Clemency Kohler, New Jersey's deputy commissioner of human services, said such crowd-out mandates would have a major impact in New Jersey and other high-cost states, where children from families with incomes up to 350 percent of the federal poverty level are eligible for SCHIP.

“We have an incredibly high cost of living,” she said.“ Families with those incomes are actually doing poorly, and the state wants to help them.”

She and other expansion advocates said the data indicate that many of the children had insurance earlier in the year they enrolled in SCHIP but lost that insurance through their parents' job loss or discontinuation of insurance coverage by a parent's employer.

Another mandate from the August CMS order requires states to certify that at least 95 percent of children already eligible for health care coverage under SCHIP are receiving that coverage before expanding above 250 percent of the federal poverty level. Kohler said that level of SCHIP enrollment has never been achieved by any state.

The administrative attempts to reduce crowd out may never go into effect, according to some critics, because congressional leaders are likely to override them legislatively before they go into effect.

Further information on insurance crowd out is posted at<www.allhealth.org/event_reg.asp?bi=112>.▪