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Senate Committee Addresses SCHIP Directive

On April 9, the Senate Finance Subcommittee on Health Care held a hearing, “Covering Uninsured Children: The Impact of the August 17 CHIP Directive.” On February 26, the House Energy and Commerce Subcommittee on Health held a hearing on the State Children’s Health Insurance Program (SCHIP) directive (see The Source, 2/29/08). SCHIP was created by the Balanced Budget Act of 1997 (P.L. 105-33) and provides health insurance to low-income children who are ineligible for Medicaid, but unable to obtain private health insurance coverage; the program’s current authorization (P.L. 110-173) expires March 31, 2009.

The hearing focused on a directive issued by the Centers for Medicare and Medicaid Services (CMS) on August 17, 2007. The directive requires that states enroll at least 95 percent of eligible children with family incomes at or below 200 percent of the federal poverty line (FPL) ($42,400 for a family of four in 2008) in either SCHIP or Medicaid before enrolling children from families with incomes above 250 percent of the FPL in SCHIP. It also requires that states show that private insurance coverage for children with family incomes at or below 200 percent of the FPL has not decreased by more than two percentage points over the prior five-year period. The stated goal of the directive is to reduce “crowd-out,” which is said to occur when families drop private health insurance coverage for their children to enroll in government-subsidized programs, such as SCHIP.

Chair John Rockefeller (D-WV) said, “A cornerstone of the Children’s Health Insurance Program has always been state flexibility. And at [a] time of growing economic uncertainty, we should be making it easier not harder for states to cover those working families who are in need of assistance. This is particularly true since many employers may be reducing private coverage because of increasing economic pressures. That’s why I’m so frustrated with the Bush administration’s August 17 directive that has placed an unobtainable mandate on states. In my judgment, its aim is simple: to make it virtually impossible to provide greater access to health insurance for children. To be blunt: the August 17 directive is a solution to a problem that doesn’t exist, except in the mind of Washington bureaucrats.”

Ranking Member Chuck Grassley (R-IA) said, “Before a state can expand to cover kids with higher incomes, they have to cover their poor kids first. It makes absolutely no sense to me that a state that’s not covering poorer kids should expand their programs to cover higher income kids. States should be covering their lower income kids first…[W]e also know that coverage of higher income kids leads to what we call crowd-out for kids with private insurance. Think about it for a second: if we don’t require states to cover their low-income kids first, a state can cover a higher income kid while lower income kids still go without coverage. And such a state would be devoting resources to finding and covering that higher income kid and then another higher income kid could lose private coverage to the crowd-out effect. And when tax dollars are spent to provide coverage to someone who was already covered, that doesn’t make any sense either. It is not an effective use of scarce federal dollars. Letting that continue makes no sense whatsoever.”

Dennis Smith, director of the Center for Medicaid and State Operations at the Centers for Medicare and Medicaid Services, said, “Crowd-out, or substitution of public coverage for private coverage, is a public policy concern because it increases public expenditures without necessarily improving access to care or health status. It is also a concern because, as healthy lives are shifted out of private sector insurance pools, there is a detrimental impact on those who remain in the private sector pools. Insurance fundamentally means the sharing of risk. When the pool of healthy insured lives shrinks and the risk cannot be spread as widely as before, the cost will rise for those who remain, triggering another cost increase, which is likely to displace yet another group of people employers, employees, or both. It is counter-productive for government policies to drive up the cost of private coverage and thereby result in more people becoming uninsured.”

Mr. Smith continued, “To the extent that SCHIP makes private coverage less attractive (and less affordable) for some lower-income workers, employers may seek to save money by reducing their contribution to health insurance premiums, or by eliminating their contribution altogether. Such concerns were substantiated last year by the Congressional Budget Office (CBO) who, after reviewing the volume of research on crowd-out, observed that for every 100 uninsured children covered as a result of SCHIP, there is a corresponding reduction in private coverage of 25 to 50 children. At a minimum, we should not accept substitution as inevitable and be indifferent to potential ways to reduce it. Our current health insurance system relies heavily on employment-based coverage options; erosion of that coverage cannot be taken lightly.”

Dr. Peter Orszag, director of the Congressional Budget Office (CBO), said, “SCHIP should be expected to have had the greatest effect on the extent of insurance coverage among children in families with income between 100 percent and 200 percent of the poverty level because that was the group that had the greatest increase in eligibility for public coverage. According to CBO’s analysis, the percentage of children in that income range who were uninsured fell from 23 percent in 1996 (the year before SCHIP was created) to 17 percent in 2006, a reduction of about 25 percent. The uninsurance rate was relatively stable among children in families with income over 200 percent of the poverty level. For example, among children whose families had income between 200 percent and 300 percent of the poverty level, the uninsurance rate remained at about 10 percent from 1996 to 2006…Those changes in the percentage of children who were uninsured do not yield an estimate of the impact of SCHIP because there are many other factors such as changes in employment levels, family income, and health insurance premiums that affect children’s health insurance coverage. Nevertheless, the fact that the greatest reduction in the percentage of children who were uninsured occurred among those who had the greatest increase in eligibility for public coverage after SCHIP was established strongly suggests that the program has reduced the number of children in low-income families who are uninsured…[E]stimating the effect of SCHIP on children’s health insurance coverage requires a more sophisticated analysis that controls for other factors that influence coverage and accounts for the program’s effects on the number of people with private insurance.

Paula Novak of Lebanon (OH) discussed the August 17 directive’s impact on her family. Ms. Novak said, “I represent my family and many others like ours that are self-employed, hardworking and yet struggle to maintain adequate health care coverage. This becomes particularly true when one person in the family has a chronic illness or disability. In our situation, our youngest son, Seth, who is four years old, was born with Down Syndrome and struggles with related health and developmental issues. This time last year, Ohio was moving to expand its Medicaid/SCHIP program to include children like Seth. The expansion was stopped, however, by the August 17th directive, and now Seth, as well as his sister and brother, are uninsured…Under the expansion, Seth would have been able to have the health coverage he so critically needs. Not only Seth, but my other two children would have been able to be covered under this expansion. In a country as prosperous as America, it is just not acceptable that they do not have access to affordable health coverage.”

Alan Weil, executive director of the National Academy for State Health Policy (NASHP), said, “CMS’ directive requires states to establish for children with family incomes above 250 percent of the federal poverty level a minimum one-year period of uninsurance before receiving coverage under SCHIP…States are…concerned about the adverse consequences of a longer waiting period for children’s health. Requiring children to remain uninsured for a full year prior to enrolling in public coverage, especially if there are no exceptions, increases the risk to their health and development. Research indicates that children with gaps in health coverage greater than six months have the highest rates of unmet needs, and that children with gaps in coverage are less likely to report they have a usual source of care other than an emergency room compared with children insured for a full year. Gaps in coverage may deny children the preventative and diagnostic care that could have lasting implications for their healthy development. Considering the success to date of SCHIP in providing children with important health coverage and the potential the CMS directive has to reverse some of that success, affected states largely view this waiting period provision as poor public policy. Requiring a standard one-year waiting period will reduce the state flexibility, impose unfunded administrative burdens, and will have potential negative consequences for children’s health.”

Cindy Mann, executive director of the Center for Children and Families at Georgetown University’s Health Policy Institute; and Nina Owcharenko, senior policy analyst at the Heritage Foundation, also testified.

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