Free the Kids
Is the Obama team really serious about having a public health insurance plan compete against private plans? Here's a way to try out that idea on children.
Currently there is a $1,000 tax credit for every child. Many Democrats would like to make it refundable (which means parents would get the money even if they owe no taxes). At the same time, many Republicans view the State Children's Health Insurance Program (SCHIP) as a wasteful expenditure that crowds out private insurance. So here's how to satisfy everyone in one fell swoop.
- Use the funds now allocated (and about to be allocated) to SCHIP to make the child tax credit refundable.
- Make the tax credit conditional on proof of any creditable insurance – employer plan, individual plan, SCHIP, Medicaid, etc.
- Let the states charge actuarially fair premiums for children who enroll in SCHIP and/or Medicaid.
Several advantages of this plan immediately pop to mind:
- Universal coverage. Children are the healthiest segment of our population and they are relatively cheap to insure; $1,000 per child should do the trick almost everywhere. (SCHIP is spending almost $2,000.)
- Parental responsibility. The child tax credit was originally $500 and it was a Republican idea. At the time, Gene Steuerle and I said that if (1) the government has a legitimate interest in seeing children insured and (2) parents have an obligation to insure their children, we should make the credit conditional on proof of insurance. Now that the credit is $1,000, the case is even stronger. Middle class families should not be given $1,000 per child if they have neglected to insure their children.
- Choice. Parents would decide who gets the premium dollars. They could pay a premium to enroll in SCHIP, or pay a premium for private coverage or enroll in any other insurance plan for which their child qualifies. And provided their child has creditable coverage, they could keep any money they do not spend.
- Competition. This proposal would allow a public plan to compete with private insurance on a level playing field. In particular, SCHIP would not get any funds other than premiums paid by parents based on competition with other insurers in the marketplace.
- An end to crowding out. Estimates are that every additional dollar spent on Medicaid and/or SCHIP causes a reduction in private insurance of 50¢ to 75¢. This is especially bad because access in SCHIP and Medicaid is often much worse than with private insurance. This proposal would end the perverse incentives to drop private coverage for public coverage because the latter is free.
- Family friendly insurance. This proposal would make it easier to enroll children in the same health plans their parents are enrolled in.
- Revenue neutrality. Even if this proposal is not exactly revenue neutral, I'm sure it is less expensive than what the Obama administration is going to propose to spend to insure children anyway.
- Economic stimulus. Consider the millions of parents who have already insured their children. For these parents, the refundable $1,000 would be a boost in aftertax income. And unlike all the stimulus package proposals, this boost in income would be permanent. So following Milton Friedman, we would expect that most of it would be spent, rather than saved — giving a spending boost to the economy.
- State funds. Money currently spent by state government (and matched by federal dollars) would be used to supplement the tax credit. In particular, state funds would be used to augment the funds available for special needs children with high health care costs – thereby encouraging a market for sick children, much as there is a market for chronically ill seniors under the Medicare Advantage program. However, control over all health care dollars would initially go to people, not to SCHIP.
- State responsibility. States would have the responsibility to make sure no child is left behind.
The child tax credit was originally $500 and it was a Republican idea. At the time, Gene Steuerle and I said that if (1) the government has a legitimate interest in seeing children insured and (2) parents have an obligation to insure their children, we should make the credit conditional on proof of insurance. Now that the credit is $1,000, the case is even stronger. Middle class families should not be given $1,000 per child if they have neglected to insure their children.
Super idea. And if Obama and Daschle and the new crowd really believe public insurance should compete with private then let SCHIP compete with employer plans and other private options.
And align SCHIP with Medicaid by requiring that people prove citizenship. It is suggestive that when Medicaid ID requirements went into effect in July 2006, Medicaid caseloads started falling while SCHIP enrollment increased. SCHIP did not require that people prove citizenship. It still didn’t under the expansion bill that failed.
If households making less than $80,000 qualify for CHIP, it will greatly raise the potential CHIP population. Historically, few doctors accept CHIP patients because reimbursement is so poor, it costs the physician money to see a CHIP patient. Access to medical care will further decline for these kids as fewer and fewer physicans and institutions will be able to afford to see them.
Mr. Goodman, when was the last time you personally tried to buy private health insurance, for yourself, a child or a family?
Brilliant idea. Make sure Medicaid is included. I cannot imagine anyone choosing SCHIP or Medicaid over private insurance.
On the surface this idea has intuitive appeal — as is apparent from the many laudatory comments you have elicited — given that under the Obama plan every family, rich or poor, would get the $1,000 tax credit anyways.
But there’s a hitherto well-kept secret that I will now share with you, John, and your readers.
Fact No. 1: Not all children are equally healthy. Indeed, some of them are sickly and actuarially very expensive to any insurance pool.
Fact No. 2: Ever since I have leaked this secret to the private health insurance industry some years ago, they have abandoned their erstwhile practice of charging all comers — healthy or not — the same “community-rated” premium. They now medically underwrite the premium, which means the premium for sickly children would be much higher than that for healthy children.
Now that I have leaked the secret to you, too, John, could you please tell us what you would do about this problem? Or SHOULD parents of sickly children be charged higher health insurance premiums? If so, perhaps you can explain that to me as well.
Best,
Uwe
“Mr. Goodman, when was the last time you personally tried to buy private health insurance, for yourself, a child or a family?”
I just checked ehealthinsurance.com for a 5 year-old in my zip code (22307, Alexandria, VA. There is a United Health One policy for $43.74/month. There is a $2500 deductible with zero co-insurance after the deductible. For preventive care, vaccines are free.
This policy make the maximum out of pocket/year after premiums to be $2500. A pretty good plan. There would still be $1000-$43.74×12 = $475.12 available after premiums for well-baby appointments, so most years there would be no expense.
For a baby just born the policy is $77.73/month. I would have expected that for this age there would have been a few free well-baby doctor visits for preventive care, but no. I would certainly hope that should Dr. Goodman’s plan be implemented that some insurance agency would offer such a plan. It would probably pay off, resulting in lower premiums in future years.
Mr. Blanford:
Are you sure that the United Health One policy is community-rated, that is, that every child, healthy or sick, can be insured at $43.74 a month with the same benefit package?
U. Reinhardt
“Now that I have leaked the secret to you, too, John, could you please tell us what you would do about this problem?”
If the child had a policy from before birth, there would be very few children caught by underwriting and the insurance companies would have everyone in the pool.
During a transition period, until all children had had a policy since birth … perhaps 18 years, the government should reimburse insurance companies for sickly children.
This is similar to the approach I advocate at plan.bipartisanhealthplan.com
“Are you sure that the United Health One policy is community-rated, that is, that every child, healthy or sick, can be insured at $43.74 a month with the same benefit package?”
No, the web site says that underwriting is required. That’s why I responded as above to your implied question.
Another weakness of this policy is that it does not cover dental, eyeglasses, and hearing tests which I believe are critical for children. Children’s policies should cover those aspects and it might be useful for government to offer either more money to parents, or to subsidize insurance companies so that they can offer such preventive checkups for free.
Robert Blanford’s idea to sell insurance for children before birth (akin to a Rawlsian Veil of Ignorance) would go a long way to reduce cherry picking.
I would go further, and Mr. Blanford may well agree, that neither race nor residence nor the parents’ income could be used to calculate premiums, becauses these can serve as actuariel proxies for health status. In other words, I would require every insurer to charge for all kids the same premium, although each insurer could set the level of that premium.
And it would then be fair to keep the government porgram free from backdoor subsidies. It should be fully premium financed.
I would also require that, once a family has chosen a private or the public carrier, they be required to stay with that carrier for some time — e.g., several years — to prevent the kind of implicit cherry picking that was observed in Medicare during the 1990s. Presumably the private carriers could each offer their own benefit package. If so, manipulation of that package could be used to dump kids into the public program when they become expensive — e.g., by putting judicious upper limits on drugs.
Germany uses an interesting approach. If people choose private insurance, rather than the Statutory Social Insurance system, that cannot come back to the latter, unless they were truly paupers. That strikes me as the best idea.
It is never easy to stitch together private and public competitors. We have seen this with Medicare Advantage, which could thrive only with a tip averaging 13% above the AAPCC cost per beneficiarry under government-run traditional Medicare.
It might not be necessary to require the family to stay with an insurance company.
Since the policies would be guaranteed renewable, in return for this they would have higher premiums early in life in return for lower premiums later in life.
So if someone left their initial policy, they could expect to have to pay higher premiums because the new company would not have had the benefit of the higher premiums when there was low risk.
A reference for this type of policy is in my proposal: plan.bipartisanhealthplan.com : Herring and Pauly (2004), NBER Working Paper W9888, Incentive-Compatible Guaranteed Renewable Health Insurance.
In my proposal I also suggest that insurance companies should be allowed to *lower* premiums for those with good health experience. This would help them combat skimming of healthy customers by other insurance companies.
John,
I like it except for the delivery method. Let's distribute any federal contribution to health care via accounts set up for this purpose (similar to HSA's) for the following reasons:
Thanks for your work on health issues. You bring great clarity to the debate. For more details on our ideas, see http://www.comingtogether.info/.
Regardless of all else, there has to be some recognition of moral hazard. I personally see children all the time for the most trivial of reasons, things for which no one in my family when I was a child would have dreamt of going to see a physician about-(eg, slight white spot on the arm)and a lot of these children are on Medicaid. There is no brake on their parents ability to freely use the resources of the taxpayers, and many of them have the resources to go to Disney World, or to support 12 show horses.
Meanwhile, I observe the young children gulping sugar-laden soft drinks and other junk food; they are often quite obese; they sit in the room punching buttons on small electronic gadgets, which they are said to have as a major interest instead of getting any exercise, and they are having their minds poisoned by the bilge from TV, videos and movies, while government functionaries hyperventilate about toy safety.
I work at a clinic providing SCHIP enrollment in an innercity health Clinic. Everyday I enroll children into Public Health Insurance Programs. All of you who have the audacity to say that we should simply slash children’s health S-CHIP because ‘kids are simply more health’ are crazy. Why don’t you mr. Jon the bigwig, try living under the federal poverty line of 760 dollars or even 200% of the federal poverty line of 1800 dollars in a city such as New York with a child. Or how about making only 2400 dollars for a family of 6? Neither you or I can possibly imagine the hardships faced by those who are poor. (Especially YOU). My responsibility is to listen and answer many of the concerns of those who exist on the edge, marginalized by people like you who wish to push the health of children out of the mainstream. You fail to understand that S-CHIP is a BRIDGE between private insurance and public insurance. You fail to recognize that many of those who are ‘crowding out’ of private insurance are those who suffered under excruciating premiums and are selecting a plan that allows them to fulfill other duties to their children such as affording nutritious lunches or (god forbid) a college education. You must understand that the poor live in a CONSTANT state of trade-off thinking what do I have to give up to get this? Widening the S-CHIP eligibility and providing more money to states will afford individuals the opportunity for self-actualization and fulfillment. Something that I feel is a basic human right. Ms. Rosenwasser says that she sees young children gulping sugar laden soft drinks and other junk food. Do your research lady, obesity and food insecurity go hand in hand. You must see the continuum between P.H.I programs and other areas of life. Those foods you mention are calorie rich filler foods that the poor eat because it is the only way to fill their bellies. Children often sit at home for hours unattended while their parents work 15 hour days forced to make dinner for themselves. As a case worker I SEE this with my own eyes, I see their hopelessness, I witness the hesitation to ask for help because they have heard the word NO too much to endure hearing it again. Ms. Rosenwasser I do not know where you see poor people going to disney world or supporting twelve show horses. Those people do not sound poor to me. The poor are those who QUALIFY those making less than 17,000 a year and supporting a child. You people make me sick.