State Children’s Health Insurance Program (SCHIP)

Published May 2, 2007

Congress created the State Children’s Health Insurance Program (SCHIP) in 1997 to provide a safety net for children whose parents could not afford private health insurance. The program is designed for families whose income is too great to qualify for Medicaid, but too little to purchase coverage on the open market. SCHIP has approximately 6 million enrollees nationwide, of whom just over 10 percent are adults.

Congress initially limited eligibility for SCHIP to children whose families earn an income less than twice the federal poverty level (FPL). But states have flexibility in implementing the program, and as of 2007 41 states had extended coverage to families with higher incomes. Seven of those states use SCHIP to cover families living at three times FPL.

Making SCHIP available to the children of families who can afford private insurance, as several states have, creates a “crowding-out” effect, whereby already-insured consumers abandon the private market for taxpayer-funded programs due to the lower out-of-pocket cost that results from massive government subsidies.

A National Bureau of Economic Research study in 2002 found that as much as half of new SCHIP enrollment was offset by declining private coverage. The crowding-out effect was further reflected in U.S. Censure Bureau figures reported in August 2008. Between 2006 and 2007, the percentage of Americans enrolled in private insurance plans fell by 0.4 percentage points, while the percentage enrolled in government programs like SCHIP rose by 0.8 points.

President George W. Bush enacted a rule in August 2008 that would have made it illegal for states to extend SCHIP eligibility to adults and to children in families with income more than 2.5 times the federal poverty line. However, the Bush administration said in September it would not enforce the rule, which had been highly criticized by affected states.

Congress is currently considering increased funding for SCHIP. But as it is currently designed and operated, SCHIP fuels over-spending by states and needless duplication of health insurance coverage already available in the private market. States should not be encouraged to go down this path by awarding them even more funding than in the past.

By crowding out private insurers, SCHIP threatens to destabilize the private insurance marketplace, contributing to rising health insurance premiums and larger state budget deficits. If the choice is between greater funding of an unreformed SCHIP and no SCHIP at all, policymakers should let SCHIP expire.

The following articles offer further information on SCHIP and the controversy surrounding its expansion.

Sink This SCHIP
SCHIP’s record shows Washington has no special wisdom that gives it the right to dictate how the states provide medical care to the needy.

States that Use SCHIP to Cover Adults Face Funding Shortfalls
A Government Accountability Office (GAO) report finds states that use SCHIP to cover adults are more prone to funding shortfalls than those that cover only children.

SCHIP Is for Children in Name Only
If Congress is really concerned about children and our health care system, they won’t approve another dime for this program until or unless it is reformed and monitored responsibly.

SCHIP Reauthorization Loses Focus
States already misuse funds allocated for SCHIP. Turning it into an even more expansive program would encourage them to inappropriately use and increase federal payments, as they have already done in Medicaid.

SCHIP Rules Get Mixed Reviews in States
Experts point out the SCHIP program was intended to cover only the poor, and that states’ health insurance regulatory environments are the main obstacle preventing families from being able to afford coverage without taxpayer assistance.

SCHIP Needs to Focus on Children
SCHIP reform should take the shape of renewed focus on poor children not receiving aid, rather than expansion of something fraught with misuse and misdirection.

The Hijacking of Children’s Health
Hijacking children’s health insurance hurts poor children, deceives voters, and robs taxpayers.

The Truth About SCHIP Shortfalls
SCHIP was not designed to be an entitlement program with an open-ended commitment from the federal government. The redistribution process and recent infusions of additional federal funding reward overreaching, fiscally irresponsible states that exceed SCHIP guidelines.

SCHIP: A Step Towards Socialism
Attempts to expand SCHIP would result in more than 2 million children with private coverage moving to the government’s rolls, according to the Congressional Budget Office.

Proof That SCHIP Could Destroy Health Care
Lawmakers should rally around an alternative that enables the working poor to own their own coverage and not depend on the inferior coverage that comes with programs such as SCHIP–and they should emphasize just how mediocre and, at times, even deadly government-controlled coverage can be.

For further information on the subject, you can visit The Heartland Institute‘s Web site at, where you will find articles on the issue available through PolicyBot, Heartland’s free research database.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Health Care News Managing Editor Jeff Emanuel at [email protected].