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Swimming Lessons

Of all the reasons President Bush and his conservative allies have given for opposing an expansion of government-financed health insurance for children, the one that sounds most persuasive is that a lot of these kids--or, more precisely, their families--don't need the help.

The argument goes like this: It's fine to have the government help really poor children, who couldn't get health insurance without taxpayer assistance. But under the proposals now on the table, health benefits provided by the State Children's Health Insurance Program (S-CHIP) could be available to some children in families with incomes of up to four times the poverty line--or a little more than $80,000 a year for a family of four. And that, say the conservatives, is simply too much.

"This bill essentially extends a welfare benefit to middle-class households," the administration announced last month, after an S-CHIP expansion bill passed the Senate. Over at National Review's The Corner, David Freddosso put the issue a little less delicately. "Come on, people! We're talking about whether the government should pay for your two kids' health insurance plans when you make more than $51,000 a year (more than the new national median income). I know that health insurance is not cheap, but neither are your mortgage and car insurance. You're not going to ask the government to pay for those too, are you?"

Quotes like this make it sound like S-CHIP would become as much a middle-class accessory as minivans and cappuccinos. Not so. Many states already offer S-CHIP insurance to families with higher incomes, thanks to special waivers they received from the federal government. Yet the vast majority of children in S-CHIP, more than 90 percent, are still from families that make less than twice the poverty line, or around $41,000 for a family of four.

And it would remain that way under either the Senate S-CHIP bill or its counterpart in the House. Both bills would dedicate significant new sums of money to the program, $35 billion over five years in the Senate version and $47 billion in the House. And both would allow states to expand eligibility to families with incomes over twice the poverty line. But in both cases, it's assumed that most of the money will be spent on enrolling truly low-income children--for the most part, kids who are already eligible for S-CHIP (or Medicaid, the other federal health insurance program servicing the poor) but haven't yet signed up. This isn't coincidence: Some of the most important provisions in the two pieces of legislation are those calling for better recruitment and outreach.

Still, the proposed S-CHIP expansions would likely bring in some new children from wealthier families. (And possibly adults, too, but that's a topic for another time.) That's what has the right so angry--and ready for a fight. President Bush has already indicated he will veto anything that looks like the House or Senate bills. And, just last month, his administration issued a dictum to states, warning them that it will no longer grant permission to expand eligibility except in narrow circumstances.

But there are all sorts of reasons why a middle-class family looking for health insurance might have a genuine need for government assistance. If you can't get health benefits through your employer--and, in case you hadn't heard, employer-sponsored insurance has been in a pretty steady decline for two decades now--you have to buy it on your own. Yet if you look for non-group coverage, as it's known, you'll quickly find it's a lot more expensive than the group kind, because of higher administrative costs. And, if you do buy coverage, you'll likely find it less reliable and convenient. The non-group market is notoriously unstable, with small-time carriers constantly jumping in and out, plus it's famously prone to fraud. And, of course, it's in the non-group market where insurers try hardest--and have the most ability--to avoid enrolling people that pose serious medical risks. Simply put, if you have even a moderate pre-existing condition, chances are good you won't find affordable coverage--if, indeed, you can find coverage at all.

Another reason why some middle class Americans might need assistance getting health insurance becomes apparent when you consider exactly which states are most interested in enrolling these people. Right now, the state with the highest income eligibility for S-CHIP is New Jersey. There, children in families making up to 350 percent of the poverty line can enroll. New York has recently said it would like to make insurance available to even wealthier families--those at up to four times the poverty level. Other states interested in raising levels include California and Connecticut.

Notice a pattern here? These are the states with very high costs of living and very expensive health insurance. It might seem crazy that somebody making $80,000 a year would need help getting health insurance--until you consider that the cost of living in New York is crazy, too. As The New York Times noted in an editorial this past weekend, "Health officials in New York calculate that families in New York City or on Long Island, where two-thirds of the state's uninsured children live, would need incomes above 300 percent of the poverty level just to pay for life's other necessities, like housing, food, transportation, child care and taxes, leaving no money for health insurance."

Keep in mind one other fact, frequently overlooked (or, at least, not mentioned) in the conservative critiques of the proposed expansion: It's not like S-CHIP is free for these folks. Under both the existing law and the proposed renewal, states are allowed to charge premiums and co-payments for the insurance for all but the poorest beneficiaries. And most do, asking enrollees to contribute anywhere from $5 to $250 a month in premiums, plus cost-sharing payments for most services they receive. It's generally cheaper than medical care through comparable private insurance would be, but the government still asks these people to make some kind of contribution--and, in some cases, a substantial one--all the same.

And yet ... it's true that a few of the people who would end up getting coverage from S-CHIP would have otherwise purchased private insurance, either on their own or through an employer. In these cases, public money would effectively be taking the place of private money that might otherwise have gone towards buying health insurance. Or, to put it more simply, these people would be getting something of a sweetheart deal, courtesy of the taxpayers.

But if you want to expand health insurance, there is simply no way to avoid this effect, which is known in policy circles as "crowd-out." At any given income level--say $80,000 a year--some families have access to affordable health insurance, while others don't. Since it's very difficult to tell who falls into what category, the choice essentially boils down to including some people who don't need help or excluding some people who do. Probably the clearest explanation of this phenomenon I've heard came last week from Peter Orszag, director of the Congressional Budget Office, during a roundtable sponsored by the Alliance for Health Reform:

[T]hink of a lot of kids swimming around in a pool. The uninsured kids are swimming in the same pool as the insured kids, and you can think of providing insurance as throwing kickboards to the kids who are uninsured. It is inevitable that ... some of the kickboards are going to wind up in the hands of kids who were previously insured and some who were uninsured.

Inevitable--and, given the alternatives, acceptable. As I've noted before, crowd-out is even larger for the right's preferred method of helping the uninsured: Tax credits. If your goal is to help people without health insurance get covered, public programs like S-CHIP are pretty much the most cost-effective means we have.

Actually, that's not entirely true. There is one way to avoid crowd-out altogether--one solution in which taxpayer dollars would theoretically subsidize only those people who needed assistance, so that everybody would pay what they could for health insurance but not more. The government could simply require that all Americans buy into one common insurance program, adjusting each person's contribution by income, so that those Americans with more money helped cover the cost of health insurance for those with less.

Does this elegant solution have a name? Why, yes it does. It's called universal health care. I'm all for it. Most conservatives, alas, are not.