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Broadening the Safety Net for Child Health

Graham Ramsay Joseph Ladapo

Introduced in 1997, the State Children’s Health Insurance Program (SCHIP) is devoted to reducing the number of children in the ranks of the uninsured. Its long-term viability is now being tested as lawmakers battle with President Bush over issues related to SCHIP’s funding, size, and scope. Forming a backdrop to this feud are fundamentally distinct perspectives on the management of the uninsured population in our country and whether public or private market solutions should ultimately lead the way.

SCHIP was established during the Clinton administration as a bipartisan effort to provide health insurance to children whose families did not have private insurance but earned too much money to qualify for Medicaid. Flexible in design, the program provided dollars that many states used to expand existing Medicaid plans, while others established entirely new programs. Last year, more than six million children were covered by SCHIP, and its success in reducing the number of uninsured children has made it broadly popular among Americans.

According to Katherine Swartz, professor of health policy and economics at the Harvard School of Public Health, “the supporting argument for SCHIP is that there are a large number of children who do not have access to employer-sponsored health insurance because their parents do not work for a firm that offers [it].” Without employer-sponsored health plans, many Americans opt out of health insurance entirely because the cost of enrolling in nongroup coverage is often prohibitively high. In fact, more than 80 percent of uninsured Americans come from working families.

SCHIP was initially funded for 10 years, and now, as its funding window closes, the Democratic-led Congress is embroiled in a debate with President Bush over how to design the program going forward. Lawmakers have proposed bipartisan measures to significantly increase SCHIP’s funding and relax the low-income requirements that define family eligibility. Their intention is to expand coverage to some of the 9 million children who are still without health insurance. President Bush, on the other hand, has already vetoed two SCHIP bills that Congress has approved, arguing that the expansions they propose would harm private insurance companies by moving children from private to government health care coverage.

This phenomenon, called “crowd-out,” prevails when patients who might otherwise have received health insurance through private sources are instead enrolled in public programs. It occurs because parents faced with a choice between more expensive private plans and cheaper public programs may opt out of the former or because employers may feel less pressure to offer their workers health insurance when public alternatives are available. Or it may exist for other reasons. In fact, SCHIP’s potential distortion of the choices available to families and employers is one of its biggest challenges.

According to Sheila Burke, adjunct lecturer in public policy at Harvard’s Kennedy School of Government, “the crowding out of private insurance is a tough issue. Policymakers don’t want to supplant private coverage, but they would like to capture people whose incomes cannot support nongroup coverage.”

Crowding out is an unavoidable consequence of any government-led initiative to address the uninsured problem and underscores the larger issue: whether public or private solutions are best suited to cover the 47 million Americans who remain without health insurance.

Americans widely agree that they would like to see more uninsured Americans gain coverage, but the complex nature of health care markets, which includes challenges to efficiency such as adverse selection, information asymmetries, and a paucity of price-based competition, have kept this goal out of reach. Competitive, private markets have historically facilitated the development of nearly every industrial sector, but in the context of the uninsured problem, it is unlikely they will be able to do so—at least not without government intervention.

—Joseph Ladapo is a Harvard medical student and a PhD student in health policy.

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Copyright 2007 by the President and Fellows of Harvard College