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SCHIP--Pairing Coverage Expansions with System Reform

Recent passage of bills in the House and Senate to extend the State Children's Health Insurance Program (SCHIP) became in part a debate over how best to reform the health care system. Despite widespread agreement on the need to ensure that all U.S. children have access to care, there were sharp divisions about the role of government and private markets in extending health insurance coverage and improving quality and efficiency in the health care system. In the end a stronger role for government prevailed in both the House and the Senate, but there are significant differences between the two bills to be worked out and the President has threatened to veto any bill that goes beyond his own proposal to extend SCHIP but restrict its coverage to poor and near-poor children.

The debate is a portent of the issues likely to emerge in consideration of universal health insurance coverage in the 2008 presidential campaign. The central issues include whether public programs such as SCHIP or private insurance are better vehicles for covering uninsured children in families with modest or middle-class incomes, whether coverage expansion should be coupled with system reform measures to improve quality and efficiency, and, if so, whether system reform would best come through incentives in the private market for health care or through stronger national leadership.

While our nation's political leaders are sharply divided, diverse health care opinion leaders throughout the health sector are largely in agreement both with the need to cover children under SCHIP up to three times the poverty level and for a strong federal government role in reforming the health care system to ensure quality, safety, and efficiency. Further, the general public seems to be in agreement.

Health Insurance Coverage
The House and Senate SCHIP bills include funding to continue coverage for 6 million currently covered children. The House bill would add another 7 million uninsured children at a five-year additional cost of $50 billion, while the Senate bill would add 6 million uninsured children at a five-year additional cost of $35 billion. The Senate bill would permit states to cover children up to 300 percent of the poverty level, with some limited provisions for coverage of children in families above that level. The House bill does not set a fixed income eligibility limit, but rather provides flexibility and funds for state coverage of uninsured children.

The House bill also would permit states to extend coverage under Medicaid and SCHIP through age 25. Half of poor young adults are uninsured, as are 42 percent of those with incomes between the poverty level and twice poverty level. Unlike full-time college students, low-income young adults don't typically have coverage under their parents' insurance. Such a provision could potentially help the 5.7 million uninsured young adults. The Senate bill, however, does not change the age of eligibility—one factor in its lower price tag. The House bill also allows states to cover legal immigrants and pregnant women, rather than limiting such coverage to those who have been in the U.S. for five years or more, as Medicaid and SCHIP currently do.

Health care opinion leaders are strongly supportive of these coverage expansions. Nine of 10 favor extending SCHIP to legal immigrant children and to children with incomes in families below 300 percent of poverty. Only 14 percent favor restricting SCHIP to children in families with incomes below 200 percent of poverty, as the President has proposed. However, only half would go so far as to cover all children under SCHIP regardless of income.


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One of the major arguments against the House SCHIP bill was that it would replace private coverage among higher-income children. This is rooted in both budgetary concerns and differing views about the effectiveness of private insurance and public programs in fostering better quality and efficiency in the health system. The budgetary concern is that employers and families now share the responsibility for health insurance premiums and out-of-pocket medical costs for children. If public programs cover children in working families, those sources of financing would be replaced with federal budgetary outlays, increasing the size of the federal budget. Supporters point out that they would finance coverage with an increase in the tobacco tax, but opponents worry about the long-run financial commitments such coverage entails—especially if the same argument is subsequently advanced to subsidize public coverage of modest- and middle-income parents and childless adults.

The preference for private coverage is also based on a belief that private insurers are more flexible and innovative about improving quality and encouraging efficient provision of care. To some extent, this argument is muted by the heavy reliance of most state Medicaid and SCHIP programs on coverage through private managed care plans. Moreover, state governments exert considerable clout in negotiating Medicaid plan premiums, and often provide financial incentives to managed care plans for better quality. Despite the strongly divergent views on the performance of private coverage versus coverage through private managed care plans participating in public programs like SCHIP, there is very little concrete information on the relative cost-effectiveness of such coverage options.

Health System Reform
The House and Senate SCHIP bills also include modest provisions to improve quality, and represent the beginning of a national quality agenda to strengthen quality measurement and reporting efforts—but fall short of what could be done to ensure value for money spent. Again, SCHIP is providing a window on the possible shape of future legislation to enact universal coverage. Half of health care opinion leaders support coupling universal coverage with health system reforms designed to improve quality and efficiency, and enhance value for money spent on health care. About one-third would focus on achieving health insurance for all, and not couple the "carrot" of improved coverage with the "broccoli" of system reform.


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The passed House SCHIP bill (HR 3162) requires establishing children's quality and performance measures and creates a children's payment advisory committee for SCHIP and children's Medicaid. It also would promote quality measurement by requiring the Secretary of Health and Human Services (HHS) to collect, analyze, and report Medicare Advantage data on the race, ethnicity, and primary language of Medicare beneficiaries. When combined with data on health care quality, such information could help to pinpoint where health disparities lie and target resources to address them. It also would require private fee-for-service plans and preferred provider organizations to report the same quality data as Medicare Advantage plans.

The Senate SCHIP bill includes $45 million for a quality initiative within HHS to develop and implement quality measures and improve state reporting of quality data. In addition, it finances a series of demonstration projects on child health quality issues and development of a model electronic health record for children in Medicaid and SCHIP.

The House bill also would create a national Center for Comparative Effectiveness Research to conduct research on the outcomes, effectiveness, and appropriateness of health care services. It would establish an independent commission to set priorities and ensure credibility for the Center's work—an example of how the public and private sectors could work together to provide valuable information and improve efficiency in the health care system.

The House bill improves coverage of preventive services under Medicare, permitting the HHS Secretary to add new services recommended by the Preventive Services Task Force and eliminating copayments and deductibles on preventive care.

These are all important steps and certainly would help put the health system on the right course. But far more could be done to improve care for children. As Anne Beal, M.D., a pediatrician and assistant vice president of the Commonwealth Fund, has said, "Insurance coverage helps people gain access to health care, but the next thing you have to ask is 'access to what?'"

The most obvious step that could be taken is to require that all children covered by Medicaid or SCHIP enroll in a "medical home"—a medical practice that ensures accessible and coordinated care. The concept of a medical home originated with the American Academy of Pediatrics; the goal was to ensure that children with special needs had one provider that was familiar with all of their specialist care and able to assist families in navigating our complex health care system.

Today, one expectation for medical homes is that they could ensure children are up to date on preventive services. A recent Commonwealth Fund Commission on a High Performance Health System State Scorecard found that only 82 percent of children ages 19 to 35 months have received all recommended doses of five key vaccines—a rate that varies from 67 percent in Nevada to 94 percent in Massachusetts. The health of our nation's future workforce is too important to be left subject to such variation in practice.

The Senate and House bills improve mental health services, but requiring enrollment in a medical home also would help children find needed help. The State Scorecard found that the percent of children with emotional, behavioral, and developmental problems receiving mental health care ranged from 43 percent in Texas to 77 percent in Wyoming. Medical home providers that are familiar with community resources could assist families in gaining access to needed services.

Asking pediatric and other practices to be accountable for the health of the children they care for also requires provider payments sufficient to implement the information systems and hire the staff needed to carry out these responsibilities. The federal government has historically been silent on Medicaid payment policies—and as a result underpayment for pediatric care, including mental health and dental care, has been a factor in an inadequate supply of services for at-risk children. Medical homes should receive a monthly payment for ensuring optimal care of children and reporting results to Medicaid/SCHIP.

Fundamental Reform Requires Leadership
The House and Senate SCHIP bills go a long way toward solving the uninsured problem among children. Investing in the health of our children and future workforce deserves high-priority action. But the bills also demonstrate that national leadership needs to do far more to address the fundamental problems of health system performance.

The recent congressional bills aimed at improving health care quality and efficiency are important steps along the way to a high performance health system. But Congress also needs to address the "missing agenda" of payment reform, reorganization of our health care system, and support of the infrastructure, information systems, and tools required to ensure that the U.S. health system becomes the best it can be.

As always, I'm interested in your feedback. Please e-mail me at [email protected].


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May 2007


Written with the assistance of Martha Hostetter, editorial adviser.