The State Children’s Health Insurance Program was designed to cover children in families who earn too much to qualify for Medicaid but too little to afford private coverage. Numerous opinion polls show that Americans support continuing the program to cover children in these lower-income families. This was the original mission of SCHIP, and it should be the focus of reauthorization.

However, both houses of Congress have passed legislation that would expand SCHIP by extending eligibility to children well into middle-income families. This would crowd out the private coverage that the vast majority of these children already have and would change the focus of the program without a full debate over its implications.

Two-thirds of uninsured children are eligible for either SCHIP or Medicaid under current law, including many children under 200 percent of poverty who are not yet enrolled. Expanding SCHIP to children in higher-income families would mean shifting the focus away from these children who most need help and would grow the program into a middle-class entitlement that goes far beyond its current mission of helping near-poor children. Reauthorization of SCHIP should concentrate on reducing the number of near-poor children who are eligible for coverage.

As a result, we recommend the following principles to guide policy development in reauthorizing SCHIP:

• The primary focus of the State Children’s Health Insurance Program should be to cover children in families with incomes at or below 200 percent of poverty. States that wish to expand SCHIP to cover children and adults in higher-income families are free to do so with their own state funds.
   
  For those above 200 percent of poverty, the appropriate federal mechanism for support is through a combination of tax reform and direct financial subsidies to help families purchase the private health insurance of their choice.
   
• The program’s subsidies should be re-structured to encourage the purchase of private health insurance. SCHIP subsidies could be used to allow parents to purchase the health coverage that they believe is best for their children, including adding them to policies that may be offered at their workplaces. Research shows that children and their parents benefit if the whole family is covered.
   
• The federal-state matching ratio for SCHIP funding should be changed to eliminate the distortions that exist in today’s system. States receive a higher federal matching rate for covering SCHIP recipients (which today include many adults) than they receive for covering children eligible for Medicaid, even though these Medicaid children are in families with lower incomes. Congress should focus on fixing the perverse incentives that reward states at a higher level for enrolling higher-income SCHIP children over poorer Medicaid children. The current funding formulas also mean more federal SCHIP dollars will go to wealthier states that can afford to expand the program than to poorer states that do not have sufficient state funds to expand their programs.
   
• SCHIP must not be turned into another entitlement program modeled after Medicaid, with unlimited federal funds matching state spending on benefits. That would add to the taxpayers’ already-overwhelming burden of tens of trillions of dollars in unfunded entitlement liabilities. It also would encourage states to use accounting tricks to inappropriately increase federal payments, as they have done for years in the Medicaid program. SCHIP must remain as a capped funding program to the states, and Congress must require states to live within their allocations.

For more information, please contact Consensus Group signatories:

Grace-Marie Turner
Galen Institute

Nina Owcharenko
The Heritage Foundation

Joseph R. Antos, Ph.D.
American Enterprise Institute

Robert E. Moffit, Ph.D.
The Heritage Foundation

Robert B. Helms, Ph.D.
American Enterprise Institute

Joel C. White
Galen Institute

Roy Ramthun
HSA Consulting Services

Stephen Entin
Institute for Research on the Economics of Taxation

John Goodman, Ph.D.
National Center for Policy Analysis

James Frogue
Center for Health Transformation

Ronald E. Bachman, FSA, MAAA
Center for Health Transformation

Merrill Matthews, Ph.D.
Council for Affordable Health Insurance

Sally Pipes
Pacific Research Institute

Sewell Hinton Dixon, M.D.
Galen Institute

Paul Howard
Manhattan Institute for Policy Research

Benjamin Zycher, Ph.D.
Manhattan Institute for Policy Research

John E. Calfee, Ph.D.
American Enterprise Institute

Eli Lehrer
Competitive Enterprise Institute

Robert Goldberg, Ph.D.
Center for Medicine in the Public Interest

Peter Pitts
Center for Medicine in the Public Interest

Elizabeth Wright
Citizens Against Government Waste

Brian Williams
National Center for Policy Analysis

John R. Graham
Pacific Research Institute

Paul Guppy
Washington Policy Center

Thomas A. Schatz
Citizens Against Government Waste

Stuart Butler, Ph.D.
The Heritage Foundation

Greg D’Angelo
The Heritage Foundation

Thomas Campbell Jackson
Galen Institute

Dean Clancy
Sidley Austin LLP

Eric Novack, M.D.
Phoenix Orthopaedic Consultants

The State Children’s Health Insurance Program was designed to cover children in families who earn too much to qualify for Medicaid but too little to afford private coverage. Numerous opinion polls show that Americans support continuing the program to cover children in these lower-income families. This was the original mission of SCHIP, and it should be the focus of reauthorization.

However, both houses of Congress have passed legislation that would expand SCHIP by extending eligibility to children well into middle-income families. This would crowd out the private coverage that the vast majority of these children already have and would change the focus of the program without a full debate over its implications.

Two-thirds of uninsured children are eligible for either SCHIP or Medicaid under current law, including many children under 200 percent of poverty who are not yet enrolled. Expanding SCHIP to children in higher-income families would mean shifting the focus away from these children who most need help and would grow the program into a middle-class entitlement that goes far beyond its current mission of helping near-poor children. Reauthorization of SCHIP should concentrate on reducing the number of near-poor children who are eligible for coverage.

As a result, we recommend the following principles to guide policy development in reauthorizing SCHIP:

• The primary focus of the State Children’s Health Insurance Program should be to cover children in families with incomes at or below 200 percent of poverty. States that wish to expand SCHIP to cover children and adults in higher-income families are free to do so with their own state funds.
   
  For those above 200 percent of poverty, the appropriate federal mechanism for support is through a combination of tax reform and direct financial subsidies to help families purchase the private health insurance of their choice.
   
• The program’s subsidies should be re-structured to encourage the purchase of private health insurance. SCHIP subsidies could be used to allow parents to purchase the health coverage that they believe is best for their children, including adding them to policies that may be offered at their workplaces. Research shows that children and their parents benefit if the whole family is covered.
   
• The federal-state matching ratio for SCHIP funding should be changed to eliminate the distortions that exist in today’s system. States receive a higher federal matching rate for covering SCHIP recipients (which today include many adults) than they receive for covering children eligible for Medicaid, even though these Medicaid children are in families with lower incomes. Congress should focus on fixing the perverse incentives that reward states at a higher level for enrolling higher-income SCHIP children over poorer Medicaid children. The current funding formulas also mean more federal SCHIP dollars will go to wealthier states that can afford to expand the program than to poorer states that do not have sufficient state funds to expand their programs.
   
• SCHIP must not be turned into another entitlement program modeled after Medicaid, with unlimited federal funds matching state spending on benefits. That would add to the taxpayers’ already-overwhelming burden of tens of trillions of dollars in unfunded entitlement liabilities. It also would encourage states to use accounting tricks to inappropriately increase federal payments, as they have done for years in the Medicaid program. SCHIP must remain as a capped funding program to the states, and Congress must require states to live within their allocations.

For more information, please contact Consensus Group signatories:

Grace-Marie Turner
Galen Institute

Nina Owcharenko
The Heritage Foundation

Joseph R. Antos, Ph.D.
American Enterprise Institute

Robert E. Moffit, Ph.D.
The Heritage Foundation

Robert B. Helms, Ph.D.
American Enterprise Institute

Joel C. White
Galen Institute

Roy Ramthun
HSA Consulting Services

Stephen Entin
Institute for Research on the Economics of Taxation

John Goodman, Ph.D.
National Center for Policy Analysis

James Frogue
Center for Health Transformation

Ronald E. Bachman, FSA, MAAA
Center for Health Transformation

Merrill Matthews, Ph.D.
Council for Affordable Health Insurance

Sally Pipes
Pacific Research Institute

Sewell Hinton Dixon, M.D.
Galen Institute

Paul Howard
Manhattan Institute for Policy Research

Benjamin Zycher, Ph.D.
Manhattan Institute for Policy Research

John E. Calfee, Ph.D.
American Enterprise Institute

Eli Lehrer
Competitive Enterprise Institute

Robert Goldberg, Ph.D.
Center for Medicine in the Public Interest

Peter Pitts
Center for Medicine in the Public Interest

Elizabeth Wright
Citizens Against Government Waste

Brian Williams
National Center for Policy Analysis

John R. Graham
Pacific Research Institute

Paul Guppy
Washington Policy Center

Thomas A. Schatz
Citizens Against Government Waste

Stuart Butler, Ph.D.
The Heritage Foundation

Greg D’Angelo
The Heritage Foundation

Thomas Campbell Jackson
Galen Institute

Dean Clancy
Sidley Austin LLP

Eric Novack, M.D.
Phoenix Orthopaedic Consultants