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Bush right to curb insurance 'crowd out'


Tarren Bragdon
Times Union
September 4, 2007

A Spitzer administration plan to add at least 60,000 kids to the state's government–subsidized Children's Health Insurance Program now hangs in limbo in the wake of new regulations issued recently by the Bush administration.

With approval from the state Legislature already received, the Spitzer initiative was to have taken effect last Saturday. Specifically, it would increase the eligibility limit for the state program known as SCHIP from 2 1/2 to four times the poverty level—effectively expanding a form of Medicaid eligibility to families of four earning up to $82,000, or even families of five earning almost $96,500.

But throwing a wrench in Gov. Eliot Spitzer's plan are new Bush guidelines that require children be without private insurance for at least a year before being provided SCHIP coverage.

The regulations are aimed largely at preventing what's known as "crowd out," which happens when families drop their private insurance in order to obtain free or low-cost government-subsidized coverage.

The Bush administration fears such high-income eligibility standards like the one proposed by Spitzer would provide families with the incentive to do just that, thus forcing taxpayers to bear an even bigger burden than the one they already shoulder. The Spitzer administration vehemently disagrees. In fact, in a recent interview with the Times Union, state Medicaid Director Deborah Bachrach said, "We don't have families dropping private coverage to come on public coverage. Does it happen sometimes? Yes. But it's not a significant problem."

Bachrach's comments not withstanding, common sense and evidence from the latest research suggests Bush is right.

The Congressional Budget Office reports that for every 100 families enrolling kids in SCHIP, 25 to 50 will have dropped private insurance plans for taxpayer-subsidized coverage. Meanwhile, a study published by the National Bureau of Economic Research determined that for upper-income families—like those targeted under the Spitzer plan—the parents of 75 in every 100 kids enrolling will have dropped their private coverage for government insurance.

While critics will most likely accuse Bush of heartlessly refusing to expand health coverage to the needy, there is legitimate reason for the administration's concern.

The steady upward creep of Medicaid eligibility limits—not just in New York but in many other states—doesn't simply increase the cost of government–subsidized programs. It also undermines private insurance markets.

Expanding programs like SCHIP trigger a vicious cycle by reducing the number of people with private insurance while driving up the cost of private health care as a result of the state paying below cost for services received by SCHIP participants.

With the nation's most costly Medicaid program reaching almost $48 billion annually, the last thing New York needs is more tax–subsidized health care. Instead, its focus should be on the real problem: destructive private insurance regulations that make affordable private insurance options inaccessible to parents whose employers do not provide dependent health coverage.

In New Haven, Conn., for instance, a parent looking for an individual insurance plan for her 10–year–old child can choose from 56 plans with monthly premiums ranging from $40 to $178, according to Ehealthinsurance.com. In pricey San Francisco, a parent can choose from 105 different plans ranging from $30 to $266 a month.

But in New York, where parents can buy nonsubsidized Child Health Plus for about $140 a month, they have no access at all to private, child–only individual insurance plans.

Even if an employer offers such coverage, parents in New York have a strong incentive to choose SCHIP. A family of four earning $51,000, for instance, pays only $30 a month for Child Health Plus for their two kids—less than 1 percent of their income and just over a tenth of the actual cost. Federal guidelines, however, allow for premiums up to 5 percent of family income—about $100 a month for the same family. A more reasonable Child Health Plus premium would help discourage people from dropping private coverage for the nearly free government plan.

Everyone wants children, particularly needy ones, to have health coverage. But inflating another costly government–subsidized program isn't the answer. In fact, Spitzer severely low–balled the expected cost of the state's SCHIP expansion, budgeting $11 million for the 2007–08 fiscal year and $41 million for the year after. But based on the CBO's estimate of the crowd–out effect, the expansion will actually cost the state anywhere from 33 percent to 100 percent more than Spitzer budgeted.

Before spending more tax dollars providing health care to families with incomes approaching six figures, as Spitzer has proposed, it's time New York made affordable private health insurance options available to hard–working parents everywhere.


Tarren Bragdon is a health policy analyst with The Empire Center for New York State Policy. His e-mail address is tbragdon@empirecenter.org.
 
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