S-CHIP Fiasco
by John Goodman
Issue 95 - November 7, 2007

If you're always on defense, eventually you lose. No matter how inept the other side, if they always have the ball, eventually they will cross your goal line.

This is common knowledge among sports fans everywhere. Yet the insight still has not sunk in with Republicans in Washington.

What should be done? Let's concede for the sake of argument that government (society as a whole) has a legitimate interest in kids' health insurance. Almost a decade ago, Gene Steuerle (Urban Institute) and I proposed a "least bad" solution to this problem. He didn't collaborate with me on this iteration, however, so give me all the blame for what follows.

The proposal is to combine three bad Republican ideas into one good idea - at least a strategically good idea. The bad ideas are (1) the $1,000 child credit, (2) S-CHIP and (3) the refundable tax credit - all brought to you courtesy of the GOP. Here is how to create a new Phoenix from the ashes of bad public policies:

1. The $1,000 child credit (currently in the tax code) should be conditional on proof of the child's insurance. No insurance, no credit. What could be more simple? Almost any credible insurance would count - employer plan, S-CHIP, Medicaid, Department of Defense, etc.

2. Make the credit refundable for families who earn too little to pay income taxes. Even if they have no tax liability, families would pay for their child's insurance premiums dollar-for-dollar with tax "refunds" up to $1,000. (To discourage waste, some portion of the amount could be deposited in a flexible Health Savings Account - one that could wrap around any insurance plan.)

3. Pay for the refundable tax credit with funds currently being spent on S-CHIP and Medicaid, and money that currently goes to hospitals for uncompensated children's health care.

Why is this proposal better? How is this plan better than the Democrat's S-CHIP expansion proposal before Congress? Let us count the ways:

1. In one fell swoop, the federal government makes up to $1,000 available for health insurance for every child in America - without spending any new money!!!

2. In one fell swoop, we wipe away the current arguments over who's poor versus who's middle class; who's deserving versus who's not deserving; etc.

3. This plan encourages people to drop government coverage in favor of private coverage - instead of the other way around! In fact, with any luck S-CHIP would wither on the vine. The children part of Medicaid would also probably wither on the vine. (This result alone makes the whole thing worthwhile.)

4. No longer would low-income children move in and out of eligibility for Medicaid, S-CHIP, employer coverage, etc., as their parents' incomes rise and fall. Instead they would have a continuing relationship with insurers (and therefore with providers), regardless of family income.

Finally, if all this works well for children (almost all of whom are healthy), maybe we could consider extending the idea to adults (some of whom are actually sick).

John Goodman is president of the National Center for Policy Analysis.