The Party of Scrooge

The State Children's Health Insurance Program (SCHIP) was originally a Republican program, designed to provide health insurance to children in near-poor families who do not qualify for Medicaid. Democrats in Congress are now pushing for a huge expansion – one rightly resisted by the White House.  Senate Finance Committee Republicans have already caved on an unwise compromise. House Democrats will now see if they can get the GOP to cave some more.

On the surface, the Democratic Party appears to be the party of Santa Claus, rescuing children from the scourge of uninsurance. The reality is quite different. If congressional Democrats get their way, millions of children will have less access to health care than they do today. Surprisingly, the same will be true for many low-income seniors. And the cost will mainly be paid for with highly regressive taxes. It's a scheme only Ebenezer Scrooge could love.

Bah to Children.  Studies by Jonathan Gruber at MIT show that public insurance substitutes for private insurance and the crowd-out rate is high. In general:

  • For every extra dollar spent on Medicaid, private insurance contracts by 50 cents to 75 cents.
  • For SCHIP, private insurance contracts by 60 cents.

These findings make sense. Why pay for something if the government offers it for free? Under Congressional proposals to expand SCHIP, the crowd-out would likely be worse:

  • The Senate bill would expand eligibility from 200 percent of poverty to 300 percent of poverty ($62,000 annual income for a family of four) and House Democrats want to push for 400 percent ($83,000 annual income).
  • Yet almost 8 in 10 kids between 200 percent and 300 percent of poverty already have private coverage!
  • Between 300 percent and 400 percent, 9 in every 10 are already insured!

Why is crowd-out bad? One reason is that most SCHIP programs pay doctors at Medicaid rates – rates so low that Medicaid patients are having increasing difficulty getting health care. In fact, anecdotal evidence suggests that U.S. Medicaid patients face waits for specialist care and hospital surgery that are as bad as the waiting in Canada. So, children who lose private coverage and enroll in SCHIP are likely to get less care, not more.

Humbug to Seniors.  When millions of people shift from private to public coverage, not much happens to the overall rate of uninsurance. But the government's cost soars. How are these costs going to be paid? One idea popular in the House is to reduce federal payments to Medicare Advantage plans. These plans provide comprehensive coverage to low-income seniors who can't afford supplemental insurance to fill all the gaps in Medicare. One in five seniors has enrolled in these plans and one in four of those is a minority.  

Bah and Humbug to Poor Taxpayers. The principal source of funds for SCHIP expansion would be new taxes on tobacco. Question for Congress: Guess who still smokes? The lowest fifth of the family income distribution spends 10 times as much on tobacco as a percent of income as the highest fifth. Ironically, some of the same politicians who have complained the loudest about tax cuts for the rich are now preparing to sock it to the poor.

Read the commentary here:

Comments (10)

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  1. House Republican staffer says:

    Another point you should make is that the Democrats are making promises that they can’t keep. The Senate bill slashes funding for SCHIP in 2013, because they didn’t have enough to pay for the ten year costs (funding allotment goes from $8 B to $400 M). House Democrats will face the same problem, because their bill is currently $76 B short of being budget neutral over 10 years. Democrats are promising to expand health insurance, but it’s actually a huge bait and switch, because they fail to provide for the true costs of their massive SCHIP expansion. Bottom line is more kids will eventually lose health insurance coverage under the Dem bills.

  2. David J. Lenihan says:

    Excellent editorial… usual.

  3. Vijay Goel, M.D. says:

    Terrific article. As I mention in my blog, which cites your article, the SCHIP expansion focuses on an entitlement that doesn’t affect the day-to-day lives of children. Looking to meaningfully improve the long-term health of children requires an examination of many other aspects of their lives– and our neglect of nutrition in schools, physical education programs, and healthy habits are much bigger targets that can fundamentally change the economics afor our future generation’s health needs (as well as allow them to live fuller, more fulfilling lives).

  4. Jim Brankin says:

    Great job. Keep up the good fight.

  5. Regina Herzlinger says:

    This is really great!

  6. Linda Pejchar says:

    How can you sleep at night? You are saying it’s okay if 2 out of 10 kids don’t receive health care? What if those were your kids? I am trying to help a woman with a 6 year old…she works 40 hours a week, her husband has disability of 1,000 a month and they bring in $580 more than can qualify for insurance, not only for the mother but for the child. The total household income for a family of 3 cannot exceed $2800 a month. Before taxes etc they bring home $28,580. You tell her what she is to do? Why is it that the US is the ONLY developed country in THE WORLD that does not provide health care to all of its citizens? It’s ok to spend a trillion dollars on a disastrous war in Iraq but not ok to provide the basic of all human needs…access to healthcare.

    What is your ‘innovative private-sector solution’ to millions of mothers and children like this?

  7. John B. Sullivan, MD, MBA says:

    I am troubled by your editorial regarding the children’s health insurance program. No doubt about it, America has no health care system to compare to Canada’s. Waits for both private pay and government covered patients in the USA are long, probbably as long as any wait yoiu may anecdotally identify in Canada. Most physicians in Arizona would prefer an end to the managed care for- profit insurance system because it is more miserable than the goverenment systems we endure. Universal health care is a necessity and can be in the form of a hybrid: government, private for prfit and private not-for-profit. As a health care administrator in Tucson, Arizona and as a physician, I can assure you that medicaid (AHCCCS) patients receive care as fast and equal to any person in a private plan. And the government plans pay more and cost less to administer than the “privates.” You have no rational or financial basis for your argument, just ideology. Please prepare yourself for universal care.

  8. Luis J. Gonzalez says:

    Thank you for your interesting article. You are right and the ways things are going with the Democratic controlled Congress, things will get worse and eventually we will wind up having “universal health care.” But what can I as a citizen do??

  9. I truly appreciated this article. Much of it was well rationalized and thought provoking. But I must agree with Linda above – are 8 out of 10 kids enough? Is covering the remaining 2 kids worth the crowd-out and lower quality care (by your standards)? And as for the tobacco tax – wouldn’t it be justified for the lowest fifth pay for the care that will be benefiting this same demographic?

    I would also like to make an observation about Medicare Advantage as this is a common bone of contention among politicians. The cuts to Medicare Advantage outlined by the House Bill are often used (or rather, misused) as a soundbite by Republicans – it is common to hear that these cuts will negatively impact seniors’ quality of and access to care. However, Medicare Advantage is currently well over-funded, and studies have shown that this overpayment has not been reflected in improved quality of care nor physician reimbursement. In many cases, traditional fee-for-service patients receive better care.

    I thoroughly enjoy being exposed to all sides of this issue. Please keep up the great work.

  10. […] to tax the poor to fund the State Children's Health Insurance Plan (SCHIP) program here and here. A Competitive Enterprise Institute (CEI) reenactment of the tobacco settlement is here. This is […]