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Subcommittee Holds Hearing on State Children’s Health Insurance Program

On January 29, the House Energy and Commerce Subcommittee on Health held a hearing, “Covering Uninsured Kids: Missed Opportunities for Moving Forward,” on the State Children’s Health Insurance Program (SCHIP).

Chair Frank Pallone (D-NJ) said, “Last week the House tried for the second time to override the president’s veto of bipartisan, bicameral legislation that would have reauthorized the [State] Children’s Health Insurance Program [SCHIP] and moved our nation closer to making sure that no American child has to go without health insurance. Unfortunately, we fell short of the votes we needed to prevail…I think we all have forgotten, or simply do not understand, the challenges American families face in securing affordable health coverage for their children. Perhaps today’s hearing will remind us about the day-to-day struggle millions of American families face in order to afford the cost of health insurance.” He continued, “The Bush administration has tried to tie the hands of states with a torrent of erroneous policies on SCHIP and Medicaid…Some of the most egregious regulations are targeted toward health care services for low-income and disabled children. In addition to Medicaid regulations, the administration’s misguided SCHIP directive contained in the August 17th letter to state Medicaid directors is truly atrocious. It would, amongst other things, force a child to go one full year without health insurance before they could enroll in SCHIP…The bottom line is that instead of working with us to move our nation forward and provide health care to kids, the president has chosen to wage an all-out attack on our nation’s safety net system and those who rely upon it.”

Ranking Member Nathan Deal (R-GA) said, “I find it regrettable that your opening statement is so partisan, a continued effort to beat up on our president…We ought to ask ourselves the very hard question why was it that in both iterations of the SCHIP bill that came before the House to vote on we never had a legislative hearing on either of those versions.” He continued, “The GAO [Government Accountability Office] recently issued a report looking at those states that have covered adults in SCHIP and they conclude that, overall, adults accounted for 54 percent of the total SCHIP expenditures in those nine states. That’s not a children’s program and it ought not to be working that way. Another thing we should have learned was that [SCHIP] was intended at the outset to focus on children that were above the Medicaid eligibility levels [but] at 200 percent or below of the poverty level…We had states that were using income disregards that could bring a family of four’s income well above the $42,400, which should have been the target area.” Rep. Deal closed, saying, “Where are we and what can we do? First of all, I think we ought to acknowledge that the program has value and merit and it should be reauthorized. But it should not be used as a springboard for a larger plan of universal, government-run health care for everybody.”

Cindy Mann, executive director of the Center for Children and Families at Georgetown University, focused her remarks on two outcomes from the failure to reauthorize SCHIP: the growing number of children who need coverage because of the worsening economy and the August 17th directive from the Centers for Medicare and Medicaid Services (CMS) that “radically altered longstanding state flexibility to set SCHIP and Medicaid income eligibility levels for children.” On the former, she noted that a recent study by the Kaiser Family Foundation found that for every 100 people who lose their job, 85 also lose their health insurance. “The lack of a strong reauthorization of SCHIP would have hurt efforts to lower the number of uninsured children in the best of times,” she said. “In a downturn, the missed opportunity will be even more acute.”

On the latter, Ms. Mann explained that the CMS regulation “effectively imposes a gross income cap equal to 250 percent of the federal poverty level (FPL), the equivalent of $42,925 a year for a family of three… Contrary to statements often made during the [reauthorization] debate, SCHIP has always permitted states the discretion to set their income eligibility levels, subject to available state and federal funding. This flexibility has allowed states to address differences in costs of living, health care costs, and state income levels.” She discussed the importance of this flexibility, especially in a nation where the cost of health insurance coverage can vary widely from state to state; the average employer-sponsored family health insurance plan cost $12,106 per year, but can reach as much as $20,000 in New Jersey and other high-cost states.

Louis Rossiter, director of the Schroeder Center for Healthcare Policy at the College of William & Mary, advanced “three missed opportunities” for SCHIP reauthorization. Dr. Rossiter advocated aligning SCHIP and welfare reform. He said that SCHIP “fosters an all-or-nothing welfare-like coverage [that] encourages uninsurance due to switched coverage for children who may already have access to group coverage and a lag in the period of coverage; fragments coverage for families and lures parents to drop their own group coverage; and encourages small employers with low-income workers to abandon coverage.” Dr. Rossiter said that the subcommittee should be concerned about the issue of “crowd-out,” which occurs when public benefits begin to substitute for private health insurance plans: “Since enactment of SCHIP, the rate of employer-sponsored insurance has declined and the uninsurance rate increased. No one really understands why. While we might say these trends would have been worse without SCHIP, with millions of children covered by SCHIP, neither can we rule out an SCHIP effect on all of these families. SCHIP is obviously helping some children, but could be harming the U.S. health insurance system and our ability to cover even more children.” Dr. Rossiter emphasized the need for legislation to allow small firms to pool their resources and purchase health insurance. He said that focusing on subsidizing the purchase of private insurance coverage is more efficient. He also advocated a “sensible work requirement” for the parents of SCHIP recipients. “It is sad when a child goes on Medicaid. We should set the goal of reducing, not increasing, the number of children on Medicaid. Bringing SCHIP into alignment with the original principles of welfare reform is an opportunity we do not want to miss,” he concluded.

Dennis Smith, director of CMS, discussed the recently issued regulations and their relationship to eligibility and crowd-out. One of the recently issued regulations requires states to cover 95 percent of children with family incomes at or below 200 percent of the federal poverty line before expanding eligibility to children with higher family incomes. On the subject of crowd-out, Mr. Smith cited a Congressional Budget Office study that found that “expanding the program to children in higher-income families is likely to generate more of an offsetting reduction in private coverage (and therefore less of a net reduction in uninsurance) than expanding the program to more children in low-income families.” CMS is using several strategies to reduce crowd-out, including instituting waiting periods, subsidizing employer-based coverage, and requiring premium or coinsurance payment contributions from families with higher incomes. Despite these strategies, crowd-out is a problem: “In 1997, according to data from the 2006 National Health Interview Survey, 55 percent of children in families with income at [100-200 percent of the FPL] level had private insurance. But by 2006, the percentage had declined to 36 percent.”

“SCHIP has been highly successful in the mission it was given to increase coverage among uninsured low-income children,” said Mr. Smith. He continued, “But that success does not mean SCHIP can or will be as successful when populations at higher incomes are involved. We hope that the lessons of the past will guide how we use the fresh opportunity before us and the administration looks forward to working with all members to forge reauthorization in the same bipartisan spirit in which SCHIP was created.”

Ann Clemency Kohler, deputy commissioner for the New Jersey Department of Human Services, shared the challenges her state faces in complying with the new CMS regulations. She noted that while New Jersey has one of the highest median family incomes in the country $90,261 for a family of four the 10 largest cities in the state have median incomes of only $30,110 and over 30 percent of that income, on average, is needed to cover family housing costs. In an effort to reduce crowd-out in New Jersey, the state does subsidize private insurance coverage; “however, because private employer plans provide fewer benefits and include co-pays and deductibles, these plans fail to meet the ‘cost effectiveness’ test to qualify for [the state’s] premium support [program].” Ms. Kohler noted that the cost of employer-sponsored coverage in New Jersey is prohibitively high in some instances, a family policy can cost more than $20,000. She urged the subcommittee to review the CMS regulations, saying, “As our country enters a recession, cutting health benefits flies in the face of many efforts needed to stimulate our economy and provide needed services to our working poor. Providing health care benefits improves health outcomes and school attendance, reducing caretaker absenteeism from work, keeping people at work earning a paycheck…There are a multitude of reasons to expand health care coverage for children, not decrease it.”

Bruce Lesley, president of First Focus; Chris L. Peterson, a specialist in health care financing at the Congressional Research Service; and Tricia Brooks, president and CEO of New Hampshire Healthy Kids, also testified.

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