The large number of uninsured children is universally acknowledged as a serious problem, but policymakers have inappropriately fixated on expanding the State Children’s Health Insurance Program (SCHIP) as the sole solution. Rather than expanding the role of SCHIP, Congress should consider efforts to cover children in the broader context of health reform by refocusing SCHIP to help children in low-income working families, as originally intended, and promoting policy prescriptions that reach beyond SCHIP and improve the health care system for all Americans, including children.

In the context of the upcoming SCHIP reauthorization, lawmakers should resist efforts to rubberstamp its reauthorization or to use SCHIP as a vehicle to establish what amounts to a universal entitlement for children. Instead, policymakers could help to refocus SCHIP and advance new ways to address the needs of children that empower families and strengthen access to private health care coverage. Specifically, Congress should:

• Establish a responsible system of program financing. Congress should maintain the current block grant structure for SCHIP while prioritizing funds to states that demonstrate fiscal prudence and stay within the original context of the law by targeting lower-income uninsured children. Congress should also limit states’ ability to secure additional federal taxpayer money to cover their budget shortfalls.
• Set rational eligibility rules. SCHIP was designed to help children in lower-income working families at or below 200 percent of the federal poverty level (FPL). States should retain flexibility to experiment but keep within their budgets and federally established income eligibility thresholds. SCHIP should not be used as a mechanism to establish a welfare program for middle-class or upper-middle-class families.
• Broaden flexibility in health benefit design. Unlike Medicaid, which targets truly low-income children, SCHIP was intended to target children in families that earn too much to qualify for Medicaid. Therefore, the SCHIP benefit package should resemble private coverage more closely than Medicaid. To help families make the transition into private coverage, SCHIP coverage options should reflect the broadest array of insurance products available in the private market.
• Promote private coverage alternatives. SCHIP should allow greater opportunities to take advantage of private-sector health insurance options. One way to do this would be to liberalize administrative rules to facilitate premium assistance at the state level and expand the availability of premium assistance through SCHIP. Policymakers should look beyond SCHIP for ways to facilitate private insurance coverage for working families by providing a refundable federal health care tax credit to facilitate private-sector family coverage; allowing the purchase of insurance across state lines; creating state-based health insurance exchange mechanisms that facilitate the purchase of individual, portable health care coverage; and transforming existing subsidies for uncompensated care into direct financial assistance to help families purchase private coverage.

A Clash of Visions on Children’s Health Coverage: The lack of health insurance coverage among children reflects today’s patchwork health care system in which individuals slip through the cracks of the current structure. While arguably the most politically attractive group, children actually have one of the lowest uninsurance rates relative to other age groups. The U.S. Census estimates that 11 percent of children were uninsured in 2005, compared to 31 percent of adults between the ages of 18 and 24. Policymakers would be wise to consider proposals that benefit children as well as other in-need populations by addressing the core problems of the health care system instead of further compartmentalizing groups and perpetuating this patchwork system.

The uninsured—whether children or adults—do get care, but it is often delayed and obtained in an inefficient and costly manner (e.g., in hospital emergency rooms). Furthermore, surveys show that uninsured children have less access to care than others. One study reports that 54 percent of children without coverage have not made any well-child visits and that 30 percent had no usual sources of care in the past year.

The lack of coverage also affects taxpayers. Researchers at the Urban Institute found that federal, state, and local governments spent $34.6 billion on uncompensated care in 2004. Moreover, other research shows that the uninsured are not the only ones underserved by the system. Enrollees in poorly performing public programs, specifically Medicaid and SCHIP, often cannot get the kind of care they need and thus go to already overburdened hospital emergency rooms.

The conventional approach to addressing the problems of the nation’s uninsured children is to focus on program reauthorization, such as SCHIP, and build on it as a model. This narrow approach ignores serious structural changes—a typical Washington response to many public policy issues—and can also be seen as an incremental approach to expanding the role of government in the health care system.

The broader approach looks at the health care system as a whole and establishes coherent and integrated policy prescriptions that address the system’s fundamental, core problems. This approach is far more likely to provide longer lasting solutions that will improve the health care system for all Americans, including children.

The Narrow Approach. Two current legislative proposals are excellent examples of the narrow, incremental approach: the Children’s Health First Act (S. 895 and H.R. 1535), introduced by Senator Hillary Clinton (D–NY) and Representative John Dingell (D–MI), and S. 1224, introduced by Senators John Rockefeller (D–WV) and Olympia Snowe (R–ME). These bills rely on government-run models and use SCHIP as the foundation to establish greater government control over health care decisions affecting children. They also share a common focus on enrolling more children in SCHIP, increasing funding obligations for SCHIP to accommodate new enrollees, and broadening the scope of eligibility and services in SCHIP.

The Broader Approach. President George W. Bush has outlined a more comprehensive approach that incorporates SCHIP into a larger vision that addresses the fundamental problems facing the health care system. The President’s proposal focuses on maximizing existing SCHIP funds to cover low-income children; reforming the Federal tax treatment of health insurance to enable families, regardless of job or job status, to receive federal tax assistance to purchase private health insurance and providing states with greater flexibility to use federal funding to target assistance more effectively to those who need it.

Talking Points: The lack of health care coverage among children is a serious problem, but the State Children’s Health Insurance Program is not the only solution, and certainly not the best.

Policymakers should resist efforts to use SCHIP to effect narrow and incremental expansion of the government’s role in the delivery of health care. Such approaches would move SCHIP closer to becoming an entitlement, increase the fiscal burden on the states and taxpayers, and crowd out existing private coverage for working families.

Instead, policymakers should consider refocusing SCHIP to help children in low-income working families, as originally intended, and promoting alternatives that improve the overall health care system and strengthen access to private coverage for all Americans, including children.

In the context of SCHIP reauthorization, policymakers should establish a responsible system of program financing, set rational eligibility rules, broaden flexibility in health benefit design, and promote private coverage alternatives.

This solution is excerpted by the author from an article first published on the The Heritage Foundation website
(c) 2007 The Heritage Foundation