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Return SCHIP to Its Roots

Michael O. Leavitt

By Michael O. Leavitt, Secretary of the U.S. Department of Health and Human Services

Every American should have access to basic health insurance at an affordable price, especially children. To that end, this administration has supported efforts to extend health insurance to children through the State Children's Health Insurance Program (SCHIP). Some 2 million low-income children have been added to the program in the past six years.

But now some members of Congress want to expand SCHIP well beyond the low-income children it was designed to serve. Some members even desire a single, government-run health system, and SCHIP is their vehicle for getting there.

This administration supports reauthorizing SCHIP and has proposed boosting SCHIP spending by $4.8 billion over the next five years, to ensure that no child loses coverage under current eligibility rules.

But the administration will not support a gradual government takeover of the health care market, and neither will the American people. If the world has learned anything from the 20th century, it is that free markets beat governments at delivering value and controlling costs. The government's proper role is helping the market meet the needs of citizens by organizing the marketplace for fair, efficient competition.

Governments also have a responsibility to help those who can't afford access to the market. SCHIP was designed to assist low-income children not eligible for Medicaid. Low-income meant children in families earning less than twice the federal poverty level. For a family of four, that would be an annual income less than $41,300.

Today, however, 37 percent of American children fall into that category, yet 45 percent of American children are enrolled in either Medicaid or SCHIP. A program intended for low-income children has been extended to more and more middle-income children. Ten states and the District of Columbia now cover children from families with incomes of over three times the poverty level. In those states, SCHIP will provide health insurance for children in a family of four earning up to $61,950. New Jersey has extended eligibility to $72,275 for a family of four.

Fourteen states now use SCHIP funds to cover adults. This year, 13 percent of SCHIP funds will go to adults other than expectant mothers. One-third of these adults are not even parents. Some states now use SCHIP funds mostly for adults. Wisconsin covers almost twice as many adults as children—and spends 75 percent of its SCHIP funds on them. Minnesota spends 61 percent on adults; Illinois, 60 percent; Rhode Island, 57 percent; New Jersey, 43 percent.

The extension of SCHIP to middle-income children and adults accounts for much of the projected shortfall in funds. Five of the 14 states expecting shortfalls cover children not considered low-income, and five of the 14 cover adults other than expectant mothers.

Some in Congress have proposed that we triple SCHIP spending—from $5 billion to $15 billion per year—and expand SCHIP to families of four earning up to $82,600. That would put 71 percent of American children on public assistance.

Expanding SCHIP won't solve the problem of the uninsured, however. Since the 1980s, we have seen a dramatic increase in persons covered by public programs, but we have also seen a nearly equal increase in the uninsured. Only the privately insured have decreased. Since SCHIP's creation, the percentage of privately insured children in families with income between one and two times the poverty line has dropped from 55 percent to 36 percent.

Instead of insuring the uninsured, the expansion of public insurance through SCHIP and Medicaid is "crowding out" private insurance. A recent study published by the independent National Bureau of Economic Research estimated that roughly 60 percent of Americans newly enrolled in public insurance programs like SCHIP were formerly insured by private plans.

This is not what SCHIP was meant to do, and it is not what we ought to be doing. More than 10 million low-income children still have private insurance. Our goal should not be taking that insurance away.

There is a better way to cover everyone, and it begins with making health insurance more affordable for all families.

First, we must level the playing field for health insurance purchasers so that families can purchase insurance as cheaply as employers can. That means a tax break for families buying their own insurance, similar to the break we give employers for buying it.

Second, we must support state efforts to provide basic health plans that even low-income families can afford. There is a torrent of activity right now as states aggressively move to make health insurance available to all their citizens. We can learn from their efforts what works best.

Third, we must continue to fund Medicaid and SCHIP, but redirect SCHIP toward its original target—low-income, uninsured children.

We should remember that health care is not just a problem for the uninsured. Ever escalating costs threaten the insured as well, burdening employers with uncontrollable expenses, costing employees more and more of their own money, and pushing more and more Americans out of the market. Insuring everyone is a critical goal, but it is not enough. We must also rein in runaway costs.

A government takeover of health care cannot control costs without rationing care. The result would be fewer choices, longer waits, lower quality, and higher taxes. Only the free choices of American consumers and the competition of an organized marketplace can keep costs in check, and only by keeping costs in check can we as a nation provide access for all.

The views presented in this commentary are those of the author and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.

Publication Details



M. Leavitt, Return SCHIP to Its Roots, Modern Healthcare and The Commonwealth Fund, April 2007