State Children’s Health Insurance Program Expansion: Robin Hood in Reverse

Mr. Chairman and members of the Committee, I am Devon Herrick, Senior Fellow at the National Center for Policy Analysis, a nonprofit, nonpartisan public policy research organization dedicated to developing and promoting private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. I welcome the opportunity to share my views in writing regarding HR 3963. 

The families of millions of children currently in SCHIP would have otherwise had private coverage, and most of the children that would be newly eligible already have private coverage. Furthermore, the cost of expansion would be borne by poor families and seniors. 

Unnecessary Benefit.

Most uninsured children are already eligible for SCHIP or Medicaid. More than 8 million children lack coverage at some point during the year, and it is estimated that about 70 percent of these may qualify for public coverage. However, the duration of uninsured spells tends to be short, and only 4.9 million children are uninsured for the entire year. According to the Congressional Budget Office (CBO), of the children who are uninsured for an entire year:

  • More than one million children currently qualify for public coverage but are not enrolled.
  • Another 1.1 million do not qualify because they are illegal (or temporary) immigrants.
  • About 403,000 are income-eligible immigrants who have not been legal residents long enough to qualify for Medicaid benefits.

SCHIP expansion would do nothing to increase enrollment among children who are already eligible, and most of the additional children are already covered by private insurance. 

Cost: Less Private Coverage.

Estimates vary, but virtually everyone agrees that expanding "free" (or highly subsidized) public insurance crowds out private insurance. For instance:

  • Between half and three-quarters of spending on Medicaid expansions in the 1990s went to people who would have been privately insured, according to economist Jonathan Gruber.
  • Up to 60 percent of spending on SCHIP is for people who otherwise would have been privately insured, according to Gruber's research.

Furthermore, the parents of children targeted for expansion have shown they want insurance coverage for their children badly enough to pay for it. On the other hand, since millions of uninsured children who already qualify for Medicaid or SCHIP have not enrolled, it is entirely possible most of the new spending will replace existing private coverage.

  • In families earning 200 percent to 300 percent of the poverty-level income, 77 percent of children already have private coverage, according to the CBO.
  • In families earning 300 percent to 400 percent of poverty, 90 percent of children are already covered by private health insurance.

Cost: Less Health Care for Children.

When their parents trade "free" coverage for private coverage, millions of children will have less access to care. The reason: Most SCHIP patients have less access than privately insured patients because the programs pay doctors the same, low reimbursement rates as Medicaid pays. A recent study found that two-thirds of Medicaid patients are unable to obtain an appointment for urgent ambulatory care, and in three-fourths of the cases, the reason is that the provider does not accept Medicaid. SCHIP enrollees face similar problems accessing care.

Cost: Higher Taxes on the Poor.

The Senate Finance Committee proposes to fund SCHIP expansion by hiking the federal cigarette tax by 61 cents a pack. Lower-income people are more likely to smoke than upper-income individuals. In fact, families in the lowest fifth of the income distribution spend 10 times as much of their earnings on tobacco as families in the highest fifth. Thus, the principal source of funding for middle-class kids would be taxes on the poor.

Cost: Higher Taxes on Future Generations.

Federal health spending is already out of control and SCHIP expansion will not help. In 2002, government spending on health care was nearly 7 percent of gross domestic product. Without significant reforms in Medicare, Medicaid and other programs, federal health outlays are on a course to increase to one-third of GDP by midcentury. The CBO estimates income taxes paid by the middle-class will reach 66 percent by 2050, and marginal tax rates for the highest earners will reach 92 percent!


The increase in federal spending on health insurance for kids will go largely to children who could have had private coverage anyway. Yet under SCHIP, these children will have less access to care than they currently have. Funding for this effort will come from people who have less income than the families who will benefit. And future generations are being ignored.

Thank you for the opportunity to submit testimony. I look forward to working with Subcommittee and Committee as this debate continues.