Sinking SCHIP: although presidential hopeful Hillary Clinton, House Speaker Nancy Pelosi, and the rest of the Democratically controlled Congress have other ideas, a perfect first step toward stopping the growth of government health programs would be for lawmakers to curtail contributions to Medicaid and the State Children's Health Insurance Program.

• Author: Cannon, Michael F.
• Position: Medicine & Health

DESPITE PRES. George W. Bush's decision to veto Congress' October bill--and the legislative branch's failure to override that veto--Federal lawmakers still are contemplating further efforts that could result in millions more middle-income families obtaining health insurance from government; too bad the debate over expansion of the State Children's Health Insurance Program is divorced from the reality of who truly needs assistance and the forces that are making health insurance increasingly unaffordable. SCHIP and its larger sibling Medicaid currently enroll many people who do not need government assistance, including some fatuities of four earning up to $72,000 per year. That is a direct result of Federal funding rules that reward states for making more Americans dependent on government for their health care services.

Congress created the State Children's Health Insurance Program in 1997. That program gives Federal grants to states that provide federally defined health insurance coverage to eligible children. In 2006, SCHIP spent approximately $8,000,000,000 to cover 7,400,000 individuals. SCHIP's original goal was to supply health insurance to children whose family income is too high to qualify for Medicaid yet too low to afford private health insurance. Medicaid is the much larger Federal-state health insurance program targeted presumably at the country's poorest citizens. Medicaid spends $317,000,000,000 to cover 60,900,000 persons.

SCHIP currently enrolls 6,600,000 children, many from families that neither are needy nor low-income. The Congressional Budget Office (CBO) estimates that maintaining existing SCHIP benefits for the next five years would require an additional $8,000,000,000 of Federal funding above and beyond existing levels. Pres. Bush has proposed increasing spending by $5,000,000,000 over five years. Democrats in Congress want to raise Federal SCHIP spending by as much as $60,000,000,000 over five years.

A better strategy for providing health care to those in need would use deregulation to make private health insurance more affordable for middle- and low-income families, thereby allowing government health programs to focus on those patients who most need assistance. We propose a two-part strategy for improving health care access: block-granting Federal Medicaid and SCHIP funding to encourage states to rededicate those programs to the truly needy and using competitive federalism to make private health insurance affordable for more low-wage earners.

Medicaid and SCHIP provide necessary medical services to millions of people. At the same time, these programs have significant downsides. For example, there are indications that Medicaid and SCHIP err on the side of providing too much assistance. That is, they induce many people to become dependent on government for medical care and, in some cases, trap enrollees in dependence. Medicaid and SCHIP weaken private health care markets by crowding out private health insurance and driving up prices for private purchasers. Expanding SCHIP or Medicaid would exacerbate these problems.

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Medicaid and SCHIP have grown beyond their original purposes and well beyond what is necessary to provide health insurance to needy Americans. Many Medicaid enrollees are elderly nursing home residents who could have obtained private long-term care insurance. Economists Jeffrey Brown of the University of lllinois and Amy Finkelstein of the Massachusetts Institute of Technology estimate that Medicaid's loose eligibility rules discourage 66% to 90% of seniors from purchasing such insurance. Indeed, a cottage industry of Medicaid estate planners exists to help middle-class seniors spend Medicaid funds, rather than their own resources, on their nursing home care. Other Medicaid enrollees come from nonelderly families that could obtain health insurance on their own. More than one out of every five people eligible for Medicaid actually has private health insurance, suggesting that Medicaid's eligibility criteria is overly broad.

Rich kids on the dole

The same is true of SCHIP. When Congress created SCHIP, more than 60% of eligible children already had private health insurance. In 2005, about 55% of SCHIP-eligible children had private health insurance. Depending on the state, SCHIP now provides health insurance to children in families earning up to 350% of the Federal poverty level (FPL) or more. For a family of four, that is the equivalent of nearly $72,000 per year. New York wants to increase its SCHIP eligibility cutoff to 400% of the FPL, or roughly $82,000 per year for a family of four. Nationwide, an estimated 89% of children in families earning between 300-400% of the FPL already have private coverage. As a basis for comparison, median family income for all families in 2005 was just over $56,000. This suggests that, if all states raised their eligibility cutoff to New York's proposed level, well over half of all families could enroll their children in a government health program. Finally, SCHIP also enrolls some 670,000 adults.

As a result of past Medicaid and SCHIP expansions, the share of children eligible for those programs rose from less than one-fifth in 1987 to nearly one-half in 2002. That is, despite the fact that the share of children living in poverty actually fell over the same period, Medicaid and...