Coverage Isn’t Out of Reach

This article originally appeared in the Raleigh News and Observer, October 4th, 2007.

RALEIGH – I’m not afraid to admit it: I’m middle class. I never knew I needed help paying for my child’s health insurance, but apparently I do. Other readers like me may also qualify soon for an expansion of children’s Medicaid. Since I may not have to insure my little one, should I get an iPod? A new car? That’s right: Congress’ expansion of SCHIP means that families at 300 percent of the poverty level could get government-run health care. A family of four in North Carolina making over $60,000 a year would be eligible.

Maybe we’re not going to buy a Lexus anytime soon, but can’t we afford to get our kids insurance? Indeed, shouldn’t that be a top priority for any parent — over cigarettes, Xboxes, iPods, movie tickets or clothes?

If I’m being honest, my family doesn’t need this expansion. And perhaps it should give us pause that families like mine would have access. But problems with expanding Medicaid don’t stop with forcing taxpayers to subsidize the erosion of personal financial responsibility.

CONSIDER THE LOW-WAGE TRAP. America is known as being a place in which — with hard work and determination — you can be upwardly mobile. That is to say, we want people to take that promotion, to work more hours if they want or to move into a better job. Higher pay is and should be commensurate with gained experience.

But Medicaid has the built-in incentive of keeping people where they are. Indeed, new programs such as N.C. Kids’ Care may actually reward people not to do better. Just as welfare did prior to 1996, state-run health care has the effect of punishing people for improving their lot.

"Suppose a single mother of two small children in New Mexico has an opportunity to increase her annual earnings from $25,000 to $29,000" writes health-care economist Michael Cannon. "According to the federal government, the additional taxes and the gradual loss of government aid would cause her income to go up by only $200. If she increased her earnings to $31,000, her income would actually go down by $2,700."

Proposals like SCHIP expansion actually create disincentives for families to climb the career ladder. Some people even hide their income so as not to lose the benefit — a perverse result.

What about "crowd-out?" When middle-class families start using "free" health care under Medicaid, that’s not just that fewer people use private insurance, but since SCHIP covers children, that means SCHIP is taking more young people out of the risk pool.

Of course, when younger, healthier people leave the insurance pool, older sicker people remain — which drives up premiums for everyone. A death spiral ensues. The more expensive it gets, the more people — like young "invincibles" — opt either to go without insurance or to get on Medicaid. So a program designed to help cover more people has the opposite effect.

USE THE CIGARETTE TEST TO TEST AFFORDABILITY. If you could quit smoking tomorrow, lower your premiums, and get your child health insurance, wouldn’t you? The average pack-a-day smoker in North Carolina pays $3.75 per day for her habit (most heavy smokers use two packs a day, but let’s be conservative). That adds up to a $112.50 per month cigarette bill. A glance at BCBSNC.com — Blue Cross and Blue Shield is nearly a health insurance monopoly in the state — offers the following plan covering a 7-year-old child in Cary: Blue Advantage B, with a $1,000 deductible, 80 percent coverage and $15 co-pay for office visits costs $118.29 per month. Families purchasing health savings accounts (HSAs) come out even better, but most will opt for the familiar.

Consider also that "32.9 percent of [U.S.] adults who are below the poverty level smoke" according to TobaccoFreeKids.org. This estimate may well be higher in N.C., a state that has cheaper cigarettes than many states. And let’s not forget that SCHIP is meant to help cover families up to 300 percent of the poverty level ($60,000-plus for family of four).

So that’s 33 percent of our lowest-income families who could afford insurance for a child if just one parent gave up smoking. Are there other things lower- income folks might trade off for a child’s health care?

States like North Carolina are already having trouble paying for the current Medicaid system. Since the program is "free" it encourages overconsumption, so adding more people will drive up costs even more. Therefore, we should be leery of the suggestion that a veto of SCHIP expansion is a refusal to cover children. For the middle class, that is the responsibility of parents, not politicians. Even parents like me.