Does SCHIP Work?

Does SCHIP Work? By Michael F. Cannon
Obama wants to expand the program, but eliminating it would be best for all involved.
NRO, February 02, 2009, 4:00 a.m.

Pres. Barack Obama proclaimed in his inaugural address, “The question we ask today is not whether our government is too big or too small, but whether it works.” If he was serious, he should veto the $115 billion expansion of the State Children’s Health Insurance Program that is soon to reach his desk—and insist that Congress eliminate the program entirely.

For two years, SCHIP has been mired in an ideological standoff. Republicans described the Democrats’ proposed expansions—which were more moderate than those in the current bill—as “socialized medicine.” SCHIP supporters, like Nobel Prize-winning economist Paul Krugman and columnist E.J. Dionne, claim the program works.

Researchers who actually study the program find that SCHIP does help uninsured children find coverage, but at great expense. They find no evidence that SCHIP actually improves health outcomes, or that the program addresses the systemic quality problems that confront even insured children.

SCHIP’s great expense stems from the fact that in many cases, it simply enrolls children who were already insured privately. Economists Jonathan Gruber and Kosali Simon estimate that out of every ten children added to the SCHIP rolls, six already had private coverage. Only in government is a program deemed to “work” when it covers four uninsured children for the price of ten.

The current proposal will only exacerbate this problem. Congressional Democrats want to expand SCHIP to children in families of four earning up to $80,000 per year. The Congressional Budget Office reports that 77 percent of such children already have private health insurance.

In terms of actually improving health outcomes, SCHIP looks even worse. Economist Robert Kaestner and his colleagues conclude, “The proposition that health insurance is the cure for adverse health outcomes among poor and near-poor children has not been adequately demonstrated.” About SCHIP specifically, they write, “It is remarkable that there is so little empirical evidence to support so large an expenditure.”

Economists Helen Levy and David Meltzer write that there is “no evidence” that SCHIP and similar programs are a cost-effective way of improving children's health. They observe that targeted health programs, policies that increase incomes, or even improved educational opportunities could deliver greater health improvements per dollar spent.

It’s not even clear that SCHIP’s method for improving children's health—expanding insurance coverage—is the right one. The New England Journal of Medicine reports large gaps between the quality of care children receive and what they should receive, even if the children have insurance. That study’s authors conclude, “Expansion of access to care through insurance coverage, which is the focus of national health care policy related to children, will not, by itself, eliminate the deficits in the quality of care.”

One thing SCHIP does accomplish is to discourage work. SCHIP and similar programs create enormous disincentives to climb the economic ladder. A single mother of two earning minimum wage in New Mexico who increased her earnings by $30,000 would find no change in her net income: She would pay an additional $4,000 in taxes and lose $26,000 in SCHIP and other government benefits, according to data compiled by the Urban Institute for the federal government.

Expanding SCHIP would pull even more families into that low-wage trap. Since income is an important determinant of health outcomes, expanding SCHIP could actually harm many children’s health.

The one positive thing that can be said of SCHIP is that, for all the inefficiencies and perverse incentives it creates, it does insure some children who wouldn’t have had coverage otherwise. But oddly enough, eliminating SCHIP could have this effect to an even greater degree.

When Congress eliminated Medicaid benefits for non-citizen immigrants in 1996, opponents predicted an explosion in the number of uninsured immigrants. But according to Harvard economist George Borjas, that didn’t happen: Immigrants sought out jobs that provided benefits, and were so successful that the employer-provided insurance completely offset the loss in government benefits. In fact, in the states that offered the fewest benefits, the immigrant insurance rate rose.

SCHIP families, which are more affluent than the families affected by the 1996 policy, would likely fare even better.

If President Obama wants to cover more uninsured children, he should set ideology aside and repeal SCHIP. After all, you can’t argue with what works.

Michael F. Cannon is director of health-policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.