State Children’s Health Insurance Program (SCHIP) is the federal-state welfare program to provide health insurance for poor children. The House recently passed a major expansion of SCHIP, which is now under consideration in the Senate. Most of the controversy surrounding this expansion has been related to eligibility. Nobody opposes health care for poor children, but the House has removed two critical requirements. First, they removed the requirement to be poor. Second, they removed the requirement to be a child. That’s right – the bill allows states to raise the income limit (originally twice the federal poverty level), and extends “waivers” granted to several states to cover adults under this “children’s” program.
There is substantial evidence that expanding SCHIP insures some previously uninsured children, but also induces people to drop employer-sponsored private health insurance, and take SCHIP instead. Independent estimates by Jonathan Gruber and Kosali Simon in the Journal of Health Economics, March 2008 conclude that approximately 60% of the increase in SCHIP coverage during 1996-2002 came from families that dropped the private health insurance they already had when they became eligible for SCHIP.
This means people who were already insured on their own are now getting health care at taxpayer expense. Taxpayers who were sold a program on the basis that it would cover poor, uninsured children are now also paying for children who were insured before through their parents’ employers – and that’s more than half of the total.
What we don’t know is the level of collateral damage — how many people actually become uninsured because of SCHIP. How could that happen? Well, suppose an employer has a lot of employees with income low enough that they qualify for SCHIP. When the employees choose SCHIP, they no longer demand – or even accept – health insurance from their employer for their children. They might even drop insurance on themselves and save the “employee share” of the premium, if they were buying in only to make sure their children were covered. If enough employees drop the employer-sponsored insurance, the employer might choose – or be compelled – to drop insurance for all their employers. Most insurance plans require a minimum participation rate (usually 75% of employees).
It’s quite possible that for many employers, more than 25% – but less than 100% – of their employees are eligible for SCHIP.
If more than 25% of the employees choose SCHIP, the employees not eligible for SCHIP – including their families – will be forced to join the ranks of the uninsured.