SCHIP, crowd-out, and the August 17 directive

April 9, 2008

I am testifying this afternoon before the Senate Finance Committee this afternoon on the State Children's Health Insurance Program (SCHIP), crowd-out (that is, the substitution of public insurance coverage for private insurance coverage), and the August 17th directive from the Administration to state health officials (which has generated significant controversy). The testimony is posted here. The testimony makes the following main points:

  • SCHIP has significantly reduced the number of low-income children who lack health insurance coverage. According to CBOs estimates, the percentage of children in families with income between 100 percent and 200 percent of the poverty level who are uninsured fell by about 25 percent between 1996 (the year before SCHIP was enacted) and 2006. In contrast, the uninsurance rate among higher-income children remained relatively stable during that period. The difference likely reflects the impact of the SCHIP program.
  • The states outreach efforts and simplified enrollment processes for SCHIP appear to have also increased the share of eligible children who participate in Medicaid. The result has contributed to a decline in the percentage of children below the poverty level who are uninsured.
  • The enrollment of children in public coverage as a result of SCHIP has not led to a one-for-one reduction in the number of low-income children who are uninsured, however. Almost any increase in government spending or tax expenditures intended to expand health insurance coverage will displace private insurance coverage to some degree. In the specific case of SCHIP, the program provides a source of coverage that is less expensive to enrollees and often provides a broader range of benefits than alternative coverage. As a result, the program displacesor crowds outprivate coverage to some extent. Based on a review of the research literature, CBO has concluded that for every 100 children who gain public coverage as a result of SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children.
  • CBOs analysis of the Childrens Health Insurance Reauthorization Act of 2007, as passed by the House of Representatives, suggested that legislation would result in 5.8 million children gaining coverage under Medicaid or SCHIP in 2012. Of that total, CBO estimated that 3.8 million children would otherwise have been uninsured, and 2.0 million children would otherwise have had private coverage In other words, about one-third of the children who would be newly covered under SCHIP and Medicaid would otherwise have had private coverage. These crowd-out rates are probably about as low as feasible for a voluntary program, given the size of the proposed coverage expansion. (It is possible to implement policies to reduce crowd-out below that level, but those policies would most likely also reduce the number of children enrolled in the program who would otherwise be uninsured.)

  • On August 17, 2007, the Administration issued a directive to state health officials that imposes certain minimum requirements on states seeking to enroll children in SCHIP whose families have income above 250 percent of the poverty line. Much ambiguity surrounds how the directive will be implemented, but CBOs analysis suggests that its impact on enrollment is likely to be relatively modest under the official baseline, in which funding for the program is significantly lower than what would be required to maintain current programs. The directive could have a substantially greater impact on SCHIP enrollment and cost if the the Congress expanded the program significantly beyond this baseline. (Interestingly, new research by Jonathan Gruber and Kosali Simon raises questions about whether many of the steps states have adopted and that are called for under the directive -- such as waiting periods and cost-sharing -- are actually effective in reducing crowdout rates.)