NCPA - National Center for Policy Analysis

SCHIP AND THE CROWD-OUT EFFECT

June 22, 2007

As Congress considers expanding the State Children's Health Insurance Program (SCHIP) up the income ladder, it should recognize that throwing more money into the program will increasingly "crowd out" private funding and coverage while doing less to expand overall coverage, say Andrew Grossman and Greg D'Angelo of the Heritage Foundation.

According to a Congressional Budget Office (CBO) report:

  • Reliable estimates of crowd-out in SCHIP range from 25 to 50 percent.
  • As the report notes, however, the studies from which these numbers are drawn estimate the reduction only among children and so probably understate the total extent to which SCHIP has reduced private coverage.
  • Another reason that crowd-out in SCHIP expansions is likely to be greater is because the children eligible for SCHIP are from families with higher incomes and greater access to private coverage.
  • Thus, as SCHIP expands up the income ladder, more of the children enrolled in it will be transitioning from private coverage and fewer will come from the ranks of the uninsured.

As a result, the risk of increased crowd-out is real, say Grossman and D'Angelo:

  • Fully 61 percent of children who became eligible for public insurance due to the creation of SCHIP already had private coverage.
  • As SCHIP grows to allow children from wealthier families, this figure will rise.
  • A CBO analysis of Census data finds that current SCHIP proposals in Congress would reach children in income groups in which 89 percent or more of children currently have private coverage.

Raising income eligibility limits for SCHIP will inevitably draw in more children who today have private coverage, increasing the problem of crowd-out.  In this way, expanding SCHIP actually diverts the program from its original purpose -- providing health coverage to uninsured children from needy families.

Source: Andrew Grossman and Greg D'Angelo, "SCHIP and "Crowd-Out": How Public Program Expansion Reduces Private Coverage," WebMemo No. 1518, Heritage Foundation, June 21, 2007.

 

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