Oh SCHIP! States may cut Health Insurance Funding for Low-Income Kids

State governments are likely to begin cutting funding from a very successful public healthcare program called the State Children’s Health Insurance Program, or SCHIP.

Although Democrats, Republicans, and parents agree that SCHIP is valuable, states are experiencing enormous budget deficits and are forced to cut programs that they would prefer to develop further.

At issue is healthcare and taxes. The interplay between the two issues is clear when one takes a good look at funding for SCHIP.

What is SCHIP?

The State Children’s Health Insurance Program got its start in 1997, when Congress passed the Balanced Budget Act. Title XXI of that law establishes a federal/state partnership, modeled after Medicaid, in which the federal government provides state governments with $3 for every $1 they spend on health insurance for low-income children.

Families who benefit from SCHIP cannot afford private health insurance yet earn too much money to be eligible for Medicaid. Like Medicaid, SCHIP programs’ coverage and eligibility requirements vary from state to state.

When the program first began, few parents signed up. Most families that were eligible had never heard of SCHIP, and those that did often shied away from the long and bureaucratic application process.

In response, some states tried to better advertise the program and to streamline applications. According to an Urban Institute study, these efforts greatly increased awareness of and enrollment in the program. Since SCHIP’s birth in the late 1990’s, almost 2 million more children have insurance coverage. It’s estimated that another 4 million children are eligible for the program but their parents don’t know about it or haven’t signed up.

SCHIP at risk

Many states are considering slashing SCHIP funding, and some states are planning to cut SCHIP altogether.

The reason? State budget deficits that are forcing state legislatures to make some difficult choices. Missouri, for example, is facing a $323 million budget gap. In May 2004, the Missouri house voted to eliminate SCHIP, but the program was spared in a last minute compromise.

The arguments in the Missouri legislature mirror those across the country. Since the program serves families well above the poverty line, some feel that the program is too generous during a time of financial hardship. Others say that the program saves money in the long run, since it provides children with checkups and immunizations that they may not otherwise receive. Often, children without health insurance receive care in the emergency room, where it is most costly.

As employers drop health coverage and more workers become uninsured, more people (including children) go to the emergency room for care. When more people are treated in expensive emergency rooms, the cost of healthcare goes up for everyone and private health insurance premiums rise. As premiums rise, more employers drop coverage. It’s a vicious cycle that only slows when more people gain health coverage.

Why states cannot afford SCHIP

In large part, federal policies have reduced state revenues and increased state costs, causing states to cut spending and increase taxes in hopes of balancing their budgets.

For many states, federal and state tax codes are linked, so the 2001, 2002, and 2003 federal tax cuts caused states to lose revenue. In response, some states have separated themselves, or, “decoupled" from the federal government. Those that haven’t are losing an approximated $9 billion total, according to the Center on Budget and Policy Priorities.

The federal government has also required states to carry out policy initiatives, such as No Child Left Behind, without funding them adequately, leaving states in the lurch. In addition, states are spending billions to provide prescription drugs to low-income elderly and disabled beneficiaries who are eligible for both Medicare and Medicaid.

In short, states have a lot of obligations, but don’t have the tax revenue to cover them all.

Possible solutions

The Bush administration has proposed combining Medicaid and SCHIP funding in one large grant - called a block grant. The block grant would give states more freedom to design these programs, but since the grant would be a set dollar amount, states may struggle if more people enroll than expected or if costs rise beyond projections.

Bush has also proposed a refundable tax credit for health insurance. The intention is to help individual families to buy health insurance, but critics say the tax refund would not be large enough to offset the cost of insurance, which is always rising.

Democratic presidential nominee John Kerry proposes funneling more dollars into SCHIP and other federally-funded health insurance programs. Kerry is also a fan of tax credits for small business owners who expand health insurance coverage for employees. Critics fear that these proposals would result in tax increases.

WomenMatter strives to highlight the differences in party philosophies: The Republicans believe that the private sector and individuals should be responsible for healthcare and that privatizing all health insurance will ultimately drive costs down. Democrats feel that health insurance is an entitlement, so the government should provide healthcare to those who cannot afford it, and as the number of uninsured shrinks, healthcare costs will drop.

Which party philosophy most closely resembles your own?

How do you think we should solve this problem? What do you think of SCHIP?

To discuss this issue with other WomenMatter readers, join one of our online forums. For a deeper discussion about healthcare in the United States, click here. Or, Browse our healthcare updates and find a topic that is of importance to you.

You can also sign up for an e alert, and we’ll keep you posted. After you register to vote, use WomenMatter to inform yourself. Then, contact your representatives, because your voice matters.

WomenMatter is dedicated to empowering women to participate in the political process. To make a donation, click here.

Posted on: 8/11/2004