S-CHIP Fiasco

If you're always on defense, eventually you lose. No matter how inept the other side, if they always have the ball, eventually they will cross your goal line.

This is common knowledge among sports fans everywhere. Yet the insight still has not sunk in with Republicans in Washington.

What should be done? Let's concede for the sake of argument that government (society as a whole) has a legitimate interest in kids' health insurance. Almost a decade ago, Gene Steuerle (Urban Institute) and I proposed a "least bad" solution to this problem. He didn't collaborate with me on this iteration, however, so give me all the blame for what follows.

The proposal is to combine three bad Republican ideas into one good idea – at least a strategically good idea. The bad ideas are (1) the $1,000 child credit, (2) S-CHIP and

(3) the refundable tax credit – all brought to you courtesy of the GOP. Here is how to create a new Phoenix from the ashes of bad public policies:

  1. The $1,000 child credit (currently in the tax code) should be conditional on proof of the child's insurance. No insurance, no credit. What could be more simple? Almost any credible insurance would count – employer plan, S-CHIP, Medicaid, Department of Defense, etc.
  2. Make the credit refundable for families who earn too little to pay income taxes. Even if they have no tax liability, families would pay for their child's insurance premiums dollar-for-dollar with tax "refunds" up to $1,000. (To discourage waste, some portion of the amount could be deposited in a flexible Health Savings Account – one that could wrap around any insurance plan.)
  3. Pay for the refundable tax credit with funds currently being spent on S-CHIP and Medicaid, and money that currently goes to hospitals for uncompensated children's health care.

Why is this proposal better? How is this plan better than the Democrat's S-CHIP expansion proposal before Congress? Let us count the ways:

  1. In one fell swoop, the federal government makes up to $1,000 available for health insurance for every child in America – without spending any new money!!!
  2. In one fell swoop, we wipe away the current arguments over who's poor versus who's middle class; who's deserving versus who's not deserving; etc.
  3. This plan encourages people to drop government coverage in favor of private coverage – instead of the other way around! In fact, with any luck S-CHIP would wither on the vine. The children part of Medicaid would also probably wither on the vine. (This result alone makes the whole thing worthwhile.)
  4. No longer would low-income children move in and out of eligibility for Medicaid, S-CHIP, employer coverage, etc., as their parents' incomes rise and fall. Instead they would have a continuing relationship with insurers (and therefore with providers), regardless of family income.

Finally, if all this works well for children (almost all of whom are healthy), maybe we could consider extending the idea to adults (some of whom are actually sick).

Comments (11)

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  1. Gene Steuerle says:

    Just to be clear, we didn’t run estimates on this…so be a little careful on the exact budget balance, once you make it refundable.

  2. Lucy says:

    You’re good, John!

  3. Michael Cannon says:

    Are you asking me to concede, for the sake of argument, that government has a legitimate interest in kids’ health insurance? Or that government equals society as a whole?

    Either way, my answer is NIEN!

  4. Dawn Richardson says:

    Instead of calling it S-CHIP, we’ve been calling it BULL-CHIP.

    Keep up the good work.

  5. Bob says:

    Free care is worth exactly what you pay for it.

  6. Richard Green says:

    John, once again you forget the real purpose of “insurance” is to keep humans well and in the best possible live state. You do not seem to care what kind of health plan [and eventually health treatment or no treatment] the little children have as long as you can get credit for solving a problem. Please think of your solutions to the REAL problems and NOT to imaginary ideals. Believe it or not the conservative initive really does want to help keep little children healthy and disease free–we just do not want to pay for middle class and upper-middle class adult’s and children’s health expenses, if they have money to pay for their own.

    To make it simple–we do not want socialization of medical expense.

  7. Peter Ferrara says:

    Your piece here is a ray of light in the darkness. But only a ray of light.
    We need to be on the offensive, quite right. But the other factor is that we should not be discussing SCHIP out of the context of Medicaid. We are spending on Medicaid altogether what now, over $400 billion a year? Yet we are debating SCHIP as if Medicaid and the enormous contribution to the poor from taxpayers it represents doesn’t exist. Republicans who don’t want to expand SCHIP by 140% are being told that they dont care about poor children, even though they have supported a program providing $400 bilion a year in health care for the poor, a program by the way that even the richest country in the world cannot afford.

    The problem with using tax credits to try to deliver assistance on health care is that it is creating another welfare entitlement program for health care on top of Medicaid. Your proposal, and the tax credits Heritage proposes, would be a good substitute for Medicaid. But on top of Medicaid?
    Is our position now that Mediciad is not enough health care assistance for those of low and moderate income on health care and we need to do more?

    This is why the real alternative to doubling or tripling SCHIP is to block grant both of them back to the states on the model of the 1996 AFDC reform.

    This frames the issue at the federal level as how much should the feds devote to this program each year. That leads to a focus at the federal level on the overall budget problem.

    This leaves for each state to decide who gets how much health care assistance at what income level. With fixed, finite block grants, each state decides the issue effectively as if the state is paying for all of it. If we can just limit Federal spending on Medicaid and SCHIP to grow no more than the rate of growth of GDP, these programs would no longer contribute to growing Federal spending as a percent of GDP, one really huge accomplishment.

  8. Ron Lindsey says:


  9. Gregory Isaacs says:

    I have a suggestion. Why not send out some self-employed or employed w/o furnished insurance with the usual medical histories to try and buy insurance on the open market? You will then have proof that they can buy the insurance for $1000 a year per child and demonstrate that there is affordable coverage out there in the private market for any family or individual that puts forth the effort to find it.

  10. Chris Conover says:


    I deserve no credit for crafting this inspired idea, but hope I get some credit for recognizing an excellent idea when I see one. Count me among its supporters.

    The 4th unstated advantage is that by putting it on the table, you can pretty quickly separate those interested only in making political hay over this situation from those actually interested in reducing the ranks of uninsured children. Judging from the snippet of Paul Krugman’s overheated, flagrantly inaccurate (but also largely unchallenged) Bush-bashing remarks on this issue that I overheard this AM on the Diane Rehm
    show, I fear there are too many like-minded Democrats interested in leveraging this veto into a 2008 campaign issue to make consensus around your idea a politically viable one.

    Keep up the good work.

  11. Dave Racer says:

    Far too simple and logical to catch the attention of politicians. By the way, I’d like to find a way to shed 95% of political oversight, limiting the pols to only issues dealing with enforcement of legitimate contracts. But as they said about Ronald Reagan’s ideas, that sounds too simple.