Politics & Policy

Out-of-Control S-CHIP

Presidential reins.

On Thursday, Congress is expected to vote on whether to vastly expand S-CHIP, the State Children’s Health Insurance Program. Legislation already passed Congress in September, but fell short of a veto-proof majority. As expected, President Bush vetoed the bill earlier this month. Now Congress will try to muster enough votes to override the veto.

Let’s hope it doesn’t succeed.

Supporters of expanding S-CHIP are alarmed by Bush’s opposition. But the president is right to oppose beefing up coverage for middle-class kids and adults if the program does not first fulfill its core purpose of insuring low-income children, many of whom are eligible but aren’t enrolled.

The president simply wants to require the program to deliver on its promise — i.e., provide insurance to poor children. Specifically, Bush wants S-CHIP to insure children in families with incomes below 200-percent of the federal poverty level.

The program has bulked up considerably since it began in 1997 — a consequence of increasing unaccountability. Enrollees today number more than six million, including 600,000 adults, a detail seldom mentioned in the news.

President Bush vetoed Congress’s proposal to reauthorize and expand S-CHIP to families up to 300-percent of the federal poverty level, with funds that included a federal tobacco tax.

Meanwhile, S-CHIP has failed to enroll almost two million qualified children. But instead of focusing on how to get these children to enroll, lawmakers simply want to increase the size of the program’s budget. That will do nothing to help enroll truly poor children.

Fortunately, the Bush administration has remained steadfast in keeping S-CHIP focused on its original purpose of helping low-income children by insisting that states enroll at least 95-percent of children below 200-percent of federal poverty level.

Another problem with Congress’s proposal is that it would allow families to claim lower annual income using a loophole called “income disregards.” Families could withhold expenses for things like childcare or child support, thus declaring less income, and potentially qualifying for federal subsidies.

This provision specifically discriminates against parents who stay at home. For example, if two families make the same income, but one puts a child in day care and the other has a stay-at-home parent, the first may deduct child-care expenses, but the latter may not. States would have the freedom to craft their own specialized “income disregards” to help more families discount personal expenses.

Congress’s plan also would create perverse incentives for states to enroll children regardless of their financial need through “performance bonuses” intended to offset additional enrollment costs. Unfortunately, the bonuses are unrestricted, so they’re not tied to income levels. This is a recipe for recruiting more middle-class Americans into government dependency.

Families that can afford private coverage should buy private coverage.

Sixty percent of children now in S-CHIP were enrolled in private plans the year before the program existed. “Crowd out” estimates for Congress’s proposal, or the percentage of people likely to leave private care for government subsidized care, range from one third to more than half of private enrollees.

Medicaid families, meanwhile, still have no financial incentive to become self-sufficient. When they earn more income, they eventually lose government subsidies and are left in a “gap” between welfare and private coverage.

Congress should craft a solution for these Americans using tax incentives and credits, so they can continue to own their own health care, rather than rely on a government bureaucracy. In addition, S-CHIP subsidies should enroll children into their parents’ plans if they choose, conveniently keeping families together.

President Bush is right and responsible to realign S-CHIP with its original purpose. He should stand his ground.

– Diana Ernst is a public-policy fellow in health-care studies at the Pacific Research Institute.

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