Peter Nelson: Changes to SCHIP won’t hurt Minnesota

This piece originally appeared in the Star Tribune on September 14, 2007.

The state does not rely heavily on this program, and the new rules, at any rate, are constructive. 

Is the Bush administration trying to cut off Minnesota’s State Children’s Health Insurance Program (SCHIP) at the knees, as the Star Tribune charged in a Sept. 5 editorial?


In the midst of a full-throated debate over reauthorizing SCHIP — a program meant to cover children with parents who can’t afford health insurance, but who don’t qualify for Medicaid — the administration indeed just decreed new, more restrictive rules.

Yet far from dismembering SCHIP, the new rules refocus the program to ensure service to the truly low-income children who are eligible for SCHIP but who have been falling through the cracks.

The editorial also overstated SCHIP’s role in Minnesota and understated problems the new rules address.

While it may sound nitpicky, Minnesota’s SCHIP program is now in its sixth year of full funding, not (as the paper claims) “the better part of a decade.” If the subtle exaggeration was meant to imply Minnesotans have come to depend significantly on the program, let’s consider just how much (or how little) they really do.

Most SCHIP beneficiaries in Minnesota — nearly 35,000 — are parents whose incomes fall between 100 percent and 200 percent of federal poverty guidelines. In most states, SCHIP was instituted to provide taxpayer-subsidized coverage to groups of people who previously had not qualified for such benefits. But Minnesota parents like those cited above had been eligible under Medicaid prior to SCHIP, and they will revert back to Medicaid if SCHIP funding ever runs out. Consequently, SCHIP could disappear from Minnesota without causing barely a hiccup for them.

SCHIP did broaden taxpayer-funded coverage to two new groups in Minnesota: About 5,000 currently unborn children who must exit SCHIP once they are born, and another group of about 100 infants up to 2 years old. No one has proposed fundamentally ending this coverage. The new rules do not reduce funding, and any new restrictions would only affect people in SCHIP with incomes higher than 250 percent of federal poverty guidelines. Thus, only a minuscule portion of Minnesota’s SCHIP beneficiaries stand to be affected.

SCHIP might not be a big deal in Minnesota, but the new rules do aim to fix at least two serious problems in states that do depend on it.

First, contrary to the editorial’s assertion, SCHIP does, in fact, “crowd out” private coverage. That is, it encourages people to abandon private coverage in favor of taxpayer-funded coverage. Ignoring a recent Congressional Budget Office report that estimated a 25 to 50 percent crowd-out rate due to SCHIP — a report that drew from the entire breadth of academic literature on the subject — the editorial drew its own conclusion based on the simple facts that two million Americans lost private coverage last year, while there was no offsetting increase in the number of people who took up taxpayer-funded coverage. But if identifying crowd-out were so uncomplicated a calculation, why would so many Ph.D.s bother studying the issue?

Second, SCHIP, as previously configured and administered, failed to reach many eligible children who truly need help. Most states have not successfully reached their most vulnerable target populations through it. The new rules force states to achieve success with serving kids under 200 percent of federal poverty guidelines before expanding to populations above 250 percent of the guidelines. That’s the reality of what the Bush administration’s new rules would require. I would think most Minnesotans would agree with them.