Who’s Afraid of SCHIP Crowd-Out?
posted by Frank Pasquale
The Bush administration is threatening to veto a bill that would extend health insurance to poor and near-poor children. The expansion of the State Children’s Health Insurance Program (SCHIP) would subsidize “health insurance for children and some adults with incomes too high to qualify for Medicaid but not enough to afford insurance on their own” by imposing a 61 cent per pack tax on cigarettes. The administration has shown great concern for the tobacco industry before, but I was puzzled by its stated worries about the bill:
“It’s clear that it will have the effect of encouraging many to drop private coverage – purchased either through their employer or with their own resources – to go on the government-subsidized program,” [a spokesman] said. “Tax increases are neither necessary nor advisable to appropriately fund SCHIP.”
This problem is known as “crowd-out,” and has been documented in Medicaid expansions (where about 20% of new enrollees switched out of prior private coverage). One initial question for the Administration: exactly how bad does the crowd-out problem have to get for a veto to be warranted? If, out of every 100 signed up, 80 had no insurance, and 20 switched from private to public plans, is that a dealbreaker? Would we really want to deny insurance to the 80 so that the 20 keep supporting the private insurance system?
I am beginning to think the “crowd out” worries a bit of a canard, given the story of Rhode Island’s experience with the issue related in my colleague John Jacobi’s piece on crowd-out (45 St. Louis U. L. J. 79 (2001)). When Rhode Island’s efforts to expand coverage via CHIP-like programs (known as RIte Care) sparked a crowd-out rate of about 20%, the state legislature had a relatively straightforward solution to the “problem.”
First, it condition[ed] families’ participation in RIte Care on their enrollment in any offered employer-based insurance plans, but create[d] a premium support program which [would] pay some or all of the employee share of such employment-based coverage. The second change was to permit the Department of Human Services to adopt regulations subjecting to cost-sharing, for the first time, a group of public program participants: those with family income between 150% and 185% of poverty. The latter provision, however, limit[ed] the contribution of the low-income family to three percent of income, less than the five percent discussed in a draft version of the statute.
In other words, if the Administration is very worried about crowd-out, there are ways of responding to the problem other than a flat veto threat. RIte Care’s solution sounds like the ideas Republican governors Romney and Schwarzenegger accommodated, and perhaps that’s why Republican senators like Grassley and Hatch signed onto the bill the White House says it will veto.
I’m sure there are some economists out there who think that the proper way to deal with the problem would be to redistribute income to the poor & near-poor, not to regulate in this way. All I can say is: here’s how fantastically well income redistribution programs have worked over the past quarter century:
July 16, 2007 at 3:51 pm
Posted in: Health Law
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Responses (3)
Ken - July 18, 2007 at 9:05 am
I might find the CBO chart somewhat meaningful if those quintiles were fairly static. Unfortunately (or fortunately from my perspective) longitudinal studies indicate otherwise: persons who start out in the bottom quintile are extremely unlikely to remain there for an extended period of time. In other words, there really are no “poor” or “rich”, only those “currently poor” or “currently rich”. Things changes; people’s fortunes wax and wane; life goes on.
Frank - July 18, 2007 at 10:20 am
Ken, this might be of interest:
“Recent research surveyed by the Organization for Economic Cooperation and Development, a governmental think tank for the rich nations, found that mobility in the United States is lower than in other industrial countries. One study found that mobility between generations — people doing better or worse than their parents — is weaker in America than in Denmark, Austria, Norway, Finland, Canada, Sweden, Germany, Spain and France. In America, there is more than a 40 percent chance that if a father is in the bottom fifth of the earnings’ distribution, his son will end up there, too. In Denmark, the equivalent odds are under 25 percent, and they are less than 30 percent in Britain.
America’s sluggish mobility is ultimately unsurprising. Wealthy parents not only pass on that wealth in inheritances, they can pay for better education, nutrition and health care for their children. The poor cannot afford this investment in their children’s development — and the government doesn’t provide nearly enough help. In a speech earlier this year, the Federal Reserve chairman, Ben Bernanke, argued that while the inequality of rewards fuels the economy by making people exert themselves, opportunity should be “as widely distributed and as equal as possible.” The problem is that the have-nots don’t have many opportunities either.”
from
http://www.nytimes.com/2007/07/13/opinion/13fri2.html?_r=1&oref=slogin
TMLutas - July 19, 2007 at 6:16 pm
Pardon me if I am somewhat skeptical of the New York Times. It’s not that they’ve lost nearly all their credibility… wait, that’s exactly it. I think I dug up the study they vaguely referenced (Is the U.S. a Good Model for Reducing Social Exclusion in Europe?) and find it markedly unpersuasive.
Regulation is often gamed by incumbent producers to reduce the opportunity of upstarts upsetting the status quo. Europe is starting to figure that out and the study is a rear guard academic action in trying to maintain some sort of intellectual respectability for the old, failed, europe.
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