Democrats are claiming they want to throw at least another $50 billion over five years at the State Children’s Health Insurance Program (SCHIP), which comes up for reauthorization soon.
That effort would only exacerbate what economists and health policy experts call the “crowd-out effect.”
SCHIP passed under a Republican Congress in 1997 and was signed by President Clinton, a Democrat. It provides states with generous matching funds to encourage them to set up a health insurance program for children from modest-income families who may not have access to employer-provided health insurance and made too much to qualify for Medicaid.
Last year, some 6.6 million children — and, ironically, about 670,000 adults, too — participated in the program.
While many economists warned Congress that SCHIP might crowd-out private health insurance — that is, people would drop the private coverage either they or their employer were paying for in order to move into the rich benefits and low cost of the heavily subsidized SCHIP — few heeded those warnings.
Now, however, a new analysis of SCHIP from the Congressional Budget Office (CBO) states that, “for every 100 children who enroll as a result of SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children.”
In other words, crowd-out is real. The CBO goes on to explain why:
The available evidence, which is quite limited, suggests that the bulk of the reduction in private coverage occurs because parents choose to forgo private coverage and enroll their children in SCHIP (because of better benefits, lower costs, or some combination thereof), rather than employers deciding to drop coverage for such children.
Given the CBO’s findings, Congress needs to tread very carefully if it is determined to expand SCHIP. Democrats are already pushing to extend SCHIP’s eligibility to 400 percent of the federal poverty level. That is clearly operating in the middle-class range, where the large majority of people already have coverage.
SCHIP was intended to help modest-income kids get health insurance, not to become the safe harbor for all of the people who would rather have the federal government pay for their coverage than pay for it themselves. A massive SCHIP expansion just moves us one step closer to socialized medicine.