More cost, not much else
SCHIP gets larger, but likely not better
An Orange County Register editorial
The great American journalist H.L. Mencken tried to tell us, way back in 1920: "There is always a well-known solution to every human problem – neat, plausible, and wrong." That's a pretty good characterization of the $115 billion expansion of the State Children's Health Insurance Program, commonly known as SCHIP, that President Obama signed Wednesday.
The problem that the SCHIP program, originally enacted in 1997, purported to address was the poor quality of health care for children in low-income families. Its method is to enroll an increasing number of children in the SCHIP program, which is similar to Medicaid, the program for low-income families, with a couple of twists. The SCHIP program is aimed at families with too much income to qualify for Medicaid but too little to afford private health insurance. Unfortunately it embodies perverse incentives that make whatever good it does extraordinarily expensive, and it is likely not the most effective means of improving the health of poor children.
Because the SCHIP program gives states 69 percent of the funds to provide insurance to the eligible, the program gives an incentive to states to expand eligibility to those who can afford private insurance and indeed to those who already have it, knowing the feds (i.e., taxpayers in other states) will cover more than two-thirds of the cost.
Sure enough, as Jonathan Gruber of MIT and Kosali Simon of Cornell demonstrated in a recent paper for the National Bureau of Economic Research, six of every ten families enrolled in SCHIP in recent years already had private health insurance, meaning that subsidized insurance was crowding out private insurance. As Michael Cannon, director of health policy studies at the libertarian Cato Institute put it to us, "Only in government is a program deemed to 'work' when it covers four uninsured children for the price of ten."
The other fallacy embodied in SCHIP (and other programs) is that providing health insurance is the key to improving the health of poor and near-poor children. Helen Levy of the University of Michigan and David Levy of the University of Chicago medical school have explored extensively the fact that improving health is more complex than generally acknowledged. It turns out that targeted programs, policies that lead to increased incomes and even improved education offer more bang for the buck than providing insurance.
Given all this, it is not difficult to imagine that the real reason to expand SCHIP is to crowd out private health insurance, and when families are faced with fewer and less affordable choices, they'll opt for a government-run or "single-payer" system. As P.J. O'Rourke once warned us, however, "If you think health care is expensive now, wait until it's free."
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