Seeking middle ground

Renew the children's health program, but reform it, too

Monday, July 16, 2007

There's a middle ground in the Washington showdown over renewing the State Children's Health Insurance Program (SCHIP) - the initiative that subsidizes medical policies for children of the working poor. As with all compromises, however, each side would have to concede something.

Unfortunately, the proposal backed by SCHIP's biggest cheerleaders could easily morph into an exploding new entitlement that Americans - who already face unsustainable retirement obligations - could not afford. Backers initially tried to expand the $25 billion program by $75 billion over the next five years. More recently they have pared that request slightly - to $10 billion a year.

Meantime, the Bush administration is pushing a stripped-down renewal plan, costing an extra $5 billion over five years. That would immediately kick hundreds of thousands of recipients off the rolls with no adequate substitute available.

We don't like either alternative. Instead, we'd prefer a deal that would keep enrollment constant and give Washington time to work on taxpayer-friendly reforms. The test will be whether there's any stomach for compromise in Washington.

SCHIP has been around for a decade. It was first enacted to help families who earn too much to enroll in Medicaid get basic, affordable coverage. Washington gives states direct grants; they can use this money to either enroll more people in Medicaid, set up a separate subsidized program (as Colorado has done), or build some hybrid of the two.

The feds kick in $2 for every $1 the state provides. Programs like Colorado's Children's Health Plan Plus require modest annual enrollment fees (no more than $35 for two or more kids) and tiny co-payments ($5 or less). Families that earn roughly twice the federal poverty level qualify.

By most accounts, the program has been a success. It now covers 7.4 million kids who might not otherwise have insurance, though an estimated 6 million to 9 million children are eligible but have not enrolled.

There is one problem, however. States can get waivers and set their own eligibility standards. And some have gotten awfully generous. Fourteen of them let adults enroll in SCHIP (in Colorado, pregnant women qualify); and in New York, any family that earns up to four times the poverty level (or about $82,000 a year for a family of four) can sign up.

Sen. Hillary Rodham Clinton, D-N.Y., wants her state's income qualifications to apply across the country. Not only would such a standard be remarkably expensive, it would entice families who qualify for SCHIP to forgo opportunities to enroll in private insurance.

On the flip side, the White House proposal would cut off half the 57,000 kids covered by CHP+ in Colorado, leaving them reliant on emergency rooms for care.

What's the alternative? The Government Accountability Office recently concluded that an extra $14 billion over five years would keep enrollment in the program stable.

Congress should authorize that level of funding - but with more strings attached. For instance, states should not be allowed to subsidize middle-class families at the expense of all taxpayers. Colorado's income guidelines seem appropriate for the nation.

Next, Washington should consider tax and insurance reforms that a number of health-care economists argue would make it easier for low-income people, and those who work for small companies or themselves, to buy coverage.

The three big changes are:

• Tax individual and employer-provided health insurance the same; now, people who get medical insurance at work get a break.

• Guarantee renewal for individual medical policies. People who purchase group insurance (at their jobs, for instance) cannot be denied coverage so long as they pay premiums. Individual policies don't have that guarantee, so insurers can cancel your policy if you get sick.

• Subsidize premiums for low-income workers with refundable tax credits, similar to the Earned Income Tax Credit. This would let them buy insurance and not rely on public programs or emergency rooms.

Despite the calls in many quarters for a much larger government role in health care, it's possible to expand insurance coverage while maintaining the entrepreneurial innovation that makes U.S. medical care the best in the world for so many conditions. That's the approach Washington should pursue.