“SCHIP Is Not Eroding Private Health Coverage”

So claims Jared Bernstein of the left-leaning Economic Policy Institute. 

Bernstein is an ambitious fellow, picking this fight with the Bush administration.  And the Congressional Budget Office.  And the Robert Wood Johnson Foundation.  And that notorious right-winger Jonathan Gruber.

Summarizing data from the Urban Institute on the State Children’s Health Insurance Program, Bernstein shows a near-complete misunderstanding of the dynamics of crowd-out:

Most SCHIP enrollees (72%) were not covered by private coverage six months before enrollment in the public program.  Another 14% lost coverage within a six month period prior to SCHIP enrollment, due to a lost job, an employer dropping coverage, or change in family structure that led to the child’s coverage being dropped (as in a divorce, separation, or death of covered spouse). 

This leaves only 14% of SCHIP cases that substituted the public program for private coverage.  But the Urban Institute’s study points out that more than half of these cases (8%) cited an inability to afford private coverage as the reason for shifting over to SCHIP.  That is, the cost of the family premium through their job was prohibitively high.

Bernstein appears to be under the impression that crowd-out occurs only when someone enrolls in a public program on the very day that person dropped private coverage.  In fact, crowd-out also occurs:

  • When workers (or their employers) drop coverage in response to the worker becoming eligible for a public program – even if the worker doesn’t enroll until seven months later;
  • When eligibility for a public program encourages workers to leave a job with health benefits for a job that pays higher cash wages;
  • When workers’ eligibility for a public program encourages employers to drop health benefits entirely, or encourages employers to increase the “employee portion” of the premium so that eligible workers will decline that benefit.

Most importantly, crowd-out does not require (and empirical studies of crowd-out do not assume) that the same people who drop private insurance are enrolling in public programs.  If a Medicaid or SCHIP expansion increases the cost of private insurance, and that leads someone to drop their private coverage and go without, that too is crowd-out.