Uncovering Cover All Kids

This past summer, state legislative leaders sent Governor Rendell a letter promising legislation by October authorizing the Governor’s “Cover All Kids” initiative. They included over $2 million in the state budget to start up the program in January 2007.

A well-intentioned program, Cover All Kids appeals to our natural sentiment to help children. Testimony after testimony supporting Cover All Kids extol the importance and vulnerability of children—and imply that taxpayers should feel obligated to provide universal health care for children. Despite the rhetoric, Cover All Kids is a short-term “fix” which will cause long-term harm to health care access in Pennsylvania.

Cover All Kids expands the current Children’s Health Insurance Program (CHIP), a joint federal and state initiative that provides free health care coverage to low income children. Cover All Kids would increase coverage by recruiting those already eligible (nearly $1 million will be spent annually in outreach) and expanding eligibility to all children in Pennsylvania, regardless of income. Families with income from 200% to 350% of the federal poverty level ($40,000 to $70,000 for a family of four in 2006) will pay part of the “premium” for CHIP, with subsidies covering most of the cost. Families above that threshold can enroll by paying the full premium ($1,717 per child in 2006-07).

This proposal misses the mark. Pennsylvania residents need greater competition and choice in health care, not taxpayer-subsidized, government-controlled health insurance. Health care is expensive because of too much bureaucracy, not lack of it by government. By shifting the burden of costs to taxpayers, health care will likely become less, not more, affordable in the future.

Private health care coverage will suffer first as Cover All Kids begins to crowd out private insurance coverage. Employers will likely reduce or drop benefits, as they can push dependants into “free” government programs. Cover All Kids will not only cover the currently uninsured, but will create perverse incentives that drive up the cost of health care.

This has been the experience of Medicaid and CHIP—even when these programs were limited to low-income participants. Recent Census numbers confirm that while the proportion of individuals on Medicaid (including CHIP) rose from 8% to 13% from 1987 to 2005, the proportion on private plans fell from 76% to 68%—and the percent of uninsured increased rather than decreased.

Additionally, it is likely that health care insurers will reduce their offerings in Pennsylvania because their desire and ability to compete with taxpayer subsidized insurance schemes is neutered. Options for families will fall, and more will look to enroll in government programs. To be sure, Cover All Kids is the first step toward a universal, government monopoly of health coverage for all residents, not just children.

Furthermore, Cover All Kids will not reduce the cost of health care, but exacerbate it. While health care becomes “free” (or low cost) to users, as taxpayers foot the bill, demand and use of health care will increase, driving up the costs. Consider the inflationary effects Medicaid and Medicare have had on health care costs. As costs escalate, more individuals and businesses will drop coverage, and there will be further cry to expand government subsidies.

Cover All Kids does include some cost-sharing mechanisms—premiums, co-payments, and deductibles—for higher income participants, to avoid making the program “too attractive.” Yet state government cannot ensure this.

The costs of Cover All Kids for taxpayers could grow to enormous proportions. Initial projections estimate that the state’s costs will reach $54 million by 2011, assuming federal funding will increase when the CHIP program is reauthorized in 2007. These estimates also fail to account for increased usage, rising prices, and crowding out of private insurance. Despite its name, CHIP is not an insurance program—medical bills are not paid by insurance premiums, but by taxpayers. CHIP is a welfare program, and like other entitlement programs, costs will grow exponentially as dependants are added.

There is no doubt that health care reform is a pressing issue in Pennsylvania. But reform and cost reduction depends on expanding choices and competition, not government expansion and control of health care. Reformers should look to the private sector and consumer-driven reforms—tax credits and insurance pooling for individuals and small businesses, tort reform and insurance deregulation, expansion of Health Savings Accounts, and putting an honest “sticker price” on health care services. As the Hippocratic Oath declares, “Above all, do no harm.” Cover All Kids, while well-intentioned, is a poor prescription for health care in Pennsylvania.

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Nathan A. Benefield is a policy analyst with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.