Every American should have access to basic, affordable health insurance. The State Children’s Health Insurance Program (SCHIP) is an essential tool for making that possible and should be reauthorized.

Under the Bush administration, 2 million more children have been enrolled in SCHIP, and the president’s budget provides $5 billion in new spending over the next five years to make sure no child loses coverage under current eligibility rules.

Some propose expanding SCHIP to millions of middle-income Americans, most of whom already have private insurance.
That’s the wrong way to go. What’s needed is a bolder, broader plan to make basic, affordable, private health insurance accessible to all Americans.

Part of that plan should be continuing SCHIP in its intended role.  

SCHIP was meant for children in families earning less than twice the federal poverty level. For a family of four, that would be an annual income of $41,300 or less.

Today, 37 percent of American children fall into that category, but 45 percent of American children are enrolled in either Medicaid or SCHIP. A program intended for low-income children has been extended to more and more middle-income children and adults.

Ten states now cover children from families with incomes of up to three times the poverty level. In those states, SCHIP will provide health insurance for children in a family of four earning up to $61,950.

New Jersey has extended eligibility to $72,275 for a family of four. New York wants to raise the limit to $82,600 — four times the federal poverty level.

Some in Congress have proposed the $82,600 limit for the whole country. This would make 71 percent of American children eligible for public assistance.

Proponents say we need to up eligibility to cover the uninsured, and some unapologetically say SCHIP is an increment toward universal government coverage.

Fourteen states are already using SCHIP funds to cover adults. This year, 13 percent of SCHIP funds will go to adults other than expectant mothers. One-third of covered adults are not even parents.

Some states even spend SCHIP funds mostly on adults. Wisconsin covers almost twice as many adults as children — and spends 75 percent of its SCHIP funds on them.

This might make sense if SCHIP funds were actually reducing the number of uninsured. But the further SCHIP moves away from its initial target, the more it “crowds out” private insurance.

The Congressional Budget Office estimates that as much as 50 percent of Americans newly enrolled in SCHIP were formerly insured by private plans. A recent study published by the independent National Bureau of Economic Research put the crowd-out rate as high as 60 percent.

This is not what SCHIP was meant to do. More than 10 million low-income children still have private insurance. Our goal should not be taking that insurance away.

There is a better way. To make healthcare more efficient and affordable for all, we need a broader approach to organizing the healthcare marketplace.

The states have already taken the lead in crafting basic affordable health plans for state residents, but they need the federal government to provide incentives to smart reform and clear away obstacles to state solutions.

First, we must reauthorize SCHIP but redirect it toward its original target — low-income, uninsured children.

Second, we must eliminate the tax discrimination against those who buy health insurance on their own and not through their employers. Right now, only insurance provided by employers gets a tax break. This makes no sense.

Third, we should create incentives for states to create risk-pooling and connector mechanisms that make it possible to provide basic affordable insurance to all.

Fourth, we should help states subsidize private insurance for low-income citizens through Affordable Choice Grants.

Fifth, we should authorize the states to create interstate compacts for risk-pooling among the hard-to-insure and for portability of insurance from one state to another.

These five steps would ensure that all Americans have access to basic health insurance they can afford.

The elderly, the disabled, and the poor would still have Medicare, Medicaid, and SCHIP. Low-income Americans would have their choice of private insurance subsidized by state governments.

And all Americans would enjoy equal tax treatment for their choices of private insurance in a competitive marketplace.
Competition is the key. In the end, every attempt to extend access must face the cost question.

Only the free choices of American consumers and the competition of an organized marketplace can keep costs in check, and only by keeping costs in check can we as a nation provide access for all.


Leavitt is secretary of the Department of Health and Human Services.