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CBO Report Says SCHIP Moved Children from Private to Government Insurance

By Alex Wayne, CQ Staff

May 10, 2007 -- The government's creation of a health insurance program for children in 1997 has caused them to leave—or lose—private insurance, the Congressional Budget Office (CBO) reported Thursday.

But the reasons for the phenomenon, called "crowd-out" by health policy experts, are unclear. And CBO Director Peter R. Orszag said it is unavoidable if Congress hopes to reduce the nation's rate of uninsured children.

"The uninsured and insured are swimming around in the same pool," Orszag said in a conference call with reporters. "It is very hard to sort of reach a little net into that pool and pick out the uninsured. You're almost inevitably going to pick out some of each."

For every 100 children who enrolled in the State Children's Health Insurance Program (SCHIP), between 25 and 50 left private health insurance plans, CBO reported. That is in line with the agency's predictions in 1996, before SCHIP was created, when CBO said it expected that about 40 percent of children enrolling in the program would leave private health insurance.

Senate Finance Chairman Max Baucus, D-Mont., and the committee's ranking Republican, Charles E. Grassley of Iowa, jointly requested the CBO study. But they had divergent views of its findings.

Baucus, who supports spending $50 billion over five years to expand SCHIP, said the report affirmed the program's value. CBO found that the rate of uninsured children—those living in families with income between 100 percent and 200 percent of the poverty level—fell from about 22.5 percent in 1996 to 16.9 percent in 2005.

"When the Finance Committee renews and improves SCHIP in new legislation, we'll find ways to cover more lower-income children who desperately need this health care," Baucus said in a statement. He expressed little concern about SCHIP replacing private health insurance; every public health program, he says, covers some people who might be able to obtain private insurance.

But Grassley called the findings alarming. "This report tells us that Congress needs to make sure that whatever it does, it should actually result in more kids having health insurance, rather than simply shifting children from private to public health insurance," he said.

The report said available evidence suggests the main reason for the shift is that the government program is cheaper, or offers better benefits.

"This is a necessary trade-off involved in any significant effort to reduce the ranks of the uninsured," Orszag said.

SCHIP covers about 6 million children. About 6 million more are estimated to be eligible but not enrolled. The program, funded at about $4 billion per year for the last 10 years, is set to expire Sept. 30. Baucus said he plans to have his committee vote on legislation to renew SCHIP in early June.

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