It’s called the “crowd-out effect,” and it refers to a situation where the government starts paying for something that many people were paying for themselves, even if reluctantly.
That’s what happened with children’s health coverage over the past 20 years, as millions of moderate-income parents who had been or could provide their children with coverage decided to jump on the taxpayer-funded wagon.
In 1997 Congress passed the Children’s Health Insurance Program (CHIP) in an effort to increase health coverage for children from moderate-income families that made too much money to qualify for Medicaid. The program is up for funding once again and may become part of the December budget battle.
The National Center for Health Statistics, part of the Centers for Disease Control, just released a survey of health insurance coverage from January to June of 2017. In the survey, the NCHS tracks children’s (aged 0-17) coverage between 1997 and 2017.
Notice from the chart that in 1997 some 67 percent of children had private health coverage. Roughly 21 percent had public coverage (Medicaid only, since CHIP was still in process), and about 13 percent were uninsured.
Over the next 20 years, boosted by CHIP, the percentage of children with public health coverage grew to 42.6 percent while those with private coverage dropped to 54 percent. The percentage of uninsured declined to 5 percent.
Thus, children with private coverage, paid for by their parents or employers, dropped by some 13 percentage points over 20 years, while those with public coverage grew by about 21 percentage points.
Yes, CHIP apparently did increase the number of children with coverage. But it also siphoned off millions of children whose parents were apparently able and willing to provide coverage—because they were doing just that. That’s what we mean by the crowd-out effect.
More children got coverage; but more taxpayers got the shaft.
Some of us tried to warn Congress at the time that would happen. Congress didn’t listen. And it’s probably too late to fix the crowd-out effect in CHIP now.
However, the Republican-led Congress and President Trump say they want to tackle welfare reform next year. However, reforming welfare programs so that they help people who really need it and not those who don’t will be a challenge. Imposing a work requirement on most welfare programs would be a good start.
Let’s hope this time Congress recognizes the crowd-out problem and doesn’t follow the same path it did with CHIP.