vate insurance but too affluent to qualify for
(2) using competitive federalism to make pri-
Medicaid. When Congress created SCHIP in
vate health insurance affordable for more
1996, more than 60 percent of eligible chil-
low-wage earners.
dren already had private health insurance.11
In 2005, about 55 percent of SCHIP-eligible
Medicaid & SCHIP
children had private health insurance.12
Depending on the state, SCHIP now provides
Medicaid and SCHIP provide necessary
health insurance to children in families earn-
medical services to millions of people. At the
ing up to 350 percent of the federal poverty
level (FPL) or more.13 For a family of four,
same time, these programs have significant
downsides. For example, there are indica-
that is the equivalent of nearly $72,000 per
year.14 New York wants to increase its SCHIP
tions that Medicaid and SCHIP err on the
eligibility cutoff to 400 percent of the FPL,15
side of providing too much assistance. That
is, they induce many people to become
or roughly $82,000 per year for a family of
four.16 Nationwide, an estimated 89 percent
dependent on government for medical care
and in some cases trap enrollees in depen-
of children in families earning between 300
dence. Medicaid and SCHIP weaken private
percent and 400 percent of the FPL already
Medicaid and
have private coverage.17 As a basis for com-
health care markets by crowding out private
SCHIP have
health insurance and driving up prices for
parison, median family income for all fami-
lies in 2005 was just over $56,000.18 That sug-
private purchasers. Expanding SCHIP or
grown beyond
Medicaid would exacerbate these problems.
gests that if all states raised their eligibility
their original
cutoff to New York's proposed level, well over
purposes and
Covering People Who Don't Need
half of all families could enroll their children
Charity
in a government health program. Finally,
well beyond what
SCHIP also enrolls some 670,000 adults.19
Medicaid and SCHIP have grown beyond
is necessary to
their original purposes and well beyond what
As a result of past Medicaid and SCHIP
is necessary to provide health insurance to
expansions, the share of children eligible for
provide health
needy Americans. Many Medicaid enrollees
those programs rose from less than one fifth
insurance to
in 1987 to nearly one half in 2002.20 That is,
are elderly nursing home residents who could
needy Americans.
have obtained private long-term care insur-
despite the fact that the share of children liv-
ance. Economists Jeffrey Brown of the
ing in poverty actually fell over the same peri-
od (see Figure 2).21 Medicaid and SCHIP eli-
University of Illinois and Amy Finkelstein of
the Massachusetts Institute of Technology
gibility criteria are broader than what would
estimate that Medicaid's loose eligibility
be necessary to cover only those who truly
rules discourage 66 percent to 90 percent of
need assistance.
seniors from purchasing such insurance.8
A Deeper Low-Wage Trap
Indeed, a cottage industry of Medicaid estate
A frequently overlooked downside of
planners exists to help middle-class seniors
Medicaid and SCHIP is that government pro-
spend Medicaid funds, rather than their own
resources, on their nursing home care.9 Other
grams targeting those below a given income
threshold create disincentives for beneficia-
Medicaid enrollees come from non-elderly
ries to increase their earnings. As a low-
families that could obtain health insurance
income family's earnings rise, the family pays
on their own. More than one out of every five
higher taxes and loses Medicaid, SCHIP, and
people eligible for Medicaid actually has pri-
vate health insurance,10 suggesting that
other government benefits. The combination
of higher taxes and lost subsidies means that
Medicaid's eligibility criteria are overly broad.
when a family increases its earnings by $100,
Likewise, SCHIP has grown well beyond
its total income rises by only a small fraction
its original purpose of providing health
of that amount. In many instances, a family
insurance to children unable to obtain pri-
3