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Sausage Grinders, Brinkmanship and the Coverage of Children

by Emily Friedman

First published in Hospitals & Health Networks OnLine, December 4, 2007

The debate over the reauthorization, funding and scope of the State Children's Health Insurance Program has been a classic example of contemporary policy-making, which has become a kind of high-stakes game of "chicken."

There's a popular saying in the health policy community, often attributed (apparently without any evidence) to the 19th-century German leader Otto von Bismarck: "People who enjoy eating sausage and obeying the law should not watch either being made." This old saw has rarely been illustrated more starkly than by the knockdown, drag-out fight over the reauthorization of the State Children's Health Insurance Program (SCHIP) in the past few months.

A Bit of Background

SCHIP was passed by Congress in 1997 with strong bipartisan support, including that of the unusual but long-lasting partnership of Sens. Orrin Hatch (R-Utah) and Ted Kennedy (D-Mass.). It was, as most of these things are, a political compromise. The then-president, Bill Clinton, was a Democrat; both houses of Congress were controlled by Republicans. The states and the federal government each wanted some measure of control and shared funding. Conservatives wanted a limited effort; liberals wanted a more expansive one.

What emerged was a program through which federal funds, in the form of block grants, are provided to states for coverage of low-income children under the age of 19 whose family income is too high for them to qualify for Medicaid but not high enough for them to afford private health insurance; for most states, the income limit is 200 percent of the federal poverty level. The states have to pony up some of the money but can limit how much they are willing to spend. States can enroll children in a separate SCHIP program, or Medicaid, or use a blended approach. Legal immigrants who have been in the United States less than five years are not eligible, and undocumented immigrants are never eligible. Neither are children of state employees, a provision designed to prevent states from avoiding their responsibility as employers.

The law also gave the federal government the ability, through a waiver process, to allow states to enroll the parents of some eligible children, pregnant women and some childless adults.

States were also required to screen applicants to ensure that they are eligible, and to put in place safeguards so that families do not drop private insurance in favor of government coverage. Known as "crowd-out," this was a concern of many in Congress.

Most important was the provision that gave SCHIP a 10-year life span; if it was not reauthorized by Congress before Oct. 1, 2007, it would go out of existence, meaning that all federal funding would cease.

A Significant Success

Despite its complexities (although, compared with Medicaid, SCHIP is slam-dunk simple), the program has been a major success. The number of uninsured low-income children has declined markedly in the past 10 years; as of mid-2007, more than 6 million children were enrolled. In addition, many children and families who were thought to be eligible for the program proved to qualify for Medicaid, so enrollment in that program increased as well.

Also, many states took advantage of the waivers to include parents, pregnant women and childless adults, which further decreased their uninsured populations.

However, it is estimated that of the 9 million children who remain uninsured, most are eligible for SCHIP or Medicaid. Although the program does provide funds for outreach, it has proven to be a more difficult undertaking than had been expected.

Studies have found that SCHIP beneficiaries gain better access to care and that the quality of their care is equal to that of children with private coverage. Furthermore, the program has received high marks from both children and families.

As for "crowd-out," a 2005 federally funded study found that although perhaps 20 percent of those enrolled in SCHIP likely had access to private insurance at the time of enrollment, this was half what the federal government had expected. Furthermore, three-quarters of children in SCHIP receive coverage through private managed care plans, so displacement by the public sector does not seem to have been nearly as extensive as had been feared. Indeed, of 224 managed care plans participating in SCHIP, only 18 are public.

However, a Congressional Budget Office (CBO) report, issued in May of this year, estimated that between 25 percent and 50 percent of children joining SCHIP already had, or had access to, private insurance coverage. So the "crowd-out" issue remained a bone of contention as the reauthorization debate started.

A Few Little Disagreements

Given the program's accomplishments, one would think that reauthorization would be a given. One would be wrong.

A number of factors came into play as Congress began the discussion. For one thing, obviously, Democrats had regained control of both the House and Senate in 2006, setting up inevitable partisan conflict with President Bush. Also, the previous Congress had underfunded SCHIP even for current levels of enrollment, and several states were running out of money; many others expected to be in the same position within a year. As a result, states were freezing enrollment or threatening to do so. Although the 2006 Congress did appropriate some additional funds for the states in direst shape, this was not enough to avert the crisis.

Although there were dozens of issues over which there was disagreement, a few were especially contentious. The first was who should be covered. Should a program designed for low-income children also be used to provide coverage for their parents, pregnant women, childless adults and, for that matter, lower-middle-class children whose families might have access to private insurance?

On the one hand, it can be argued that a program that is designed for Purpose A should not end up also serving Purposes B, C and D.

On the other hand, many laws change over time. Take Medicaid: It was advertised as a program to cover low-income mothers and children, a "few million residual cases," in the words of one of its framers. Over the years, Medicaid ended up covering nursing home residents, AIDS patients and other groups, as well as providing disproportionate-share payments to hospitals. In public policy, over time, programs tend to morph.

A second focus of debate was the income eligibility level. Several states and most House Democrats supported raising it, citing the high cost of private insurance and the declining rate of employer coverage. Many Republicans, including the president, argued that the program should be limited to low-income children. Michigan Democratic Rep. John Dingell responded to the president's concerns by saying that if the administration insisted on resisting expansion, "That's a ground on which I will be very happy to fight."

Be careful what you wish for.

This disagreement ran head-on into the "crowd-out" issue, which had never gone away, but was certainly reinvigorated by the CBO report that found as many as 50 percent of SCHIP kids may have left private coverage to join the program.

President Bush made no bones about how he felt; in a speech in July, he explained, "The immediate goal is to make sure there are more people on private insurance plans. I mean, people have access to health care in America. After all, you just go to an emergency room." That widely reported statement did little to calm the increasingly troubled waters.

The third contentious factor was how to pay for the program, especially if it was going to be expanded. Because of a new congressional rule known as "pay-go," any new spending had to be budget-neutral, that is, either something else had to be cut or a new source of funding had to be found; deficit spending would not be allowed.

A fourth issue was that there was growing discomfort among the ranks of the Republicans. SCHIP was originally the product of a bipartisan compromise, and many prominent Republicans-Sen. Hatch, Maine Sens. Olympia Snowe and Susan Collins, California Gov. Arnold Schwarzenegger, former Arkansas governor and presidential candidate Mike Huckabee-were all very publicly in favor of not only funding the program adequately, but also of expanding it, although not on the grand scale the Democrats were contemplating. With an election coming up in 2008, quite a few Republicans were uneasy about being branded as enemies of kids' health.

Finally, many House Democrats (and some senators) were envisioning SCHIP as a vehicle for covering other groups, perhaps even as the means of achieving coverage for all the uninsured. This was not exactly a secret, and it did not sit well with the White House. As presidential adviser Allan B. Hubbard told The New York Times in early July, the Democrats' aspirations would lead to "a single-payer health care system with rationing and price controls."

And so, as the summer of 2007 rolled around, the stage was set.

A Battle Royal

The bill that emerged in the House contained almost everything the White House feared: expansion to children with household incomes up to 400 percent of the poverty level; an additional $50 billion over five years; and funding via a 61-cent increase in the federal excise tax on cigarettes.

The House bill contained other goodies, not the least of which were hundreds of millions of dollars for increased Medicare payments to some 40 lucky hospitals; a Chicago Tribune editorial described these provisions as "slimy." The bill also limited planned cuts in Medicare physician payments; provided for a tax on health insurance to pay for research on the cost-effectiveness of medical treatments; and reduced federal subsidies for private health plans that participate in Medicare. (This last was the product of several studies that strongly suggested these plans were overpaid by 10 percent or more.) None of these provisions had anything to do with children's health coverage.

President Bush promised a veto if the bill ever reached his desk, arguing that it was too expensive, the tobacco tax was inappropriate, too many middle-income children would be covered, and private insurance would give way to public coverage. Nevertheless, the House passed it 225-204 on Aug. 1. The margin was not enough to override a veto.

The Senate had been working on its own bill, which was less expansive and lacked the add-ons in the House measure. It provided an additional $35 billion in funding and raised the income eligibility level. Like the House bill, it relied on an increase in the federal tobacco tax. President Bush said that if the eventual House-Senate compromise bill looked like this one, he would veto it, too. But the Senate passed it, 68-31, on Aug. 2. And unlike the House, the Senate had a veto-proof majority.

As reconciliation of the House and Senate bills was about to begin, the White House dropped a bombshell. The day the House passed its bill, Health & Human Services Secretary Mike Leavitt announced that not only would he not approve any new waivers allowing states to cover adults under SCHIP, but he also would not approve renewal of any existing waivers. Leavitt said this was because the Senate bill would allow states to keep adults on the program longer than the administration wished. Although this move had the support of some senators, including Iowa Republican Charles Grassley, who was trying to craft a compromise bill that the president would sign, it did not, to say the least, sit well with everyone.

Then the other shoe dropped. On Aug. 17, as most House and Senate members were on their summer break, the administration announced new rules for the 18 states that covered children in families with incomes exceeding 250 percent of poverty. The "guidelines," issued on a Friday night, required that these states certify that they had enrolled 95 percent of all eligible children with household incomes below 200 percent of poverty before they could sign up higher-income kids. Given the difficulties states had encountered in enrolling lower-income children, it was an impossible standard to meet.

In another move, the administration required that any higher-income child enrolled in SCHIP must have been uninsured for a year before enrollment.

Within a few days, 44 senators, including six Republicans, had signed a letter to the president asking that he rescind the new rules. He refused.

Eight governors sued the administration.

If positions were not hardened before this, they were set in stone now. And time was running out; the deadline for expiration of the program was Sept. 30.

On Sept. 16, after difficult negotiations, House and Senate leaders announced that they were close to agreement on a compromise bill. President Bush said he would veto it. Congress passed it, anyway, on Sept. 26. It was stripped of most of the House extras, but expanded the program's funding by $35 billion over five years, allowed the enrollment of pregnant women, provided incentives for states to use private plans for coverage, and kept the tobacco tax.

SCHIP was scheduled to go out of business in four days.

Dancing on the Brink

Even for a creative Congress, it's very difficult to reauthorize a program that doesn't exist anymore. Assuming that a veto was inevitable, on Sept. 29, the House and Senate passed a stopgap continuing resolution that funded SCHIP and a number of other government programs through Nov. 15 at current levels. This did nothing to resolve the SCHIP debate, of course, nor did it aid the states that were rapidly running out of money for the program.

To make matters even more intense, all this was hardly happening in a vacuum. Everyone had an opinion. Pressure on Congress and the administration came from every quarter. The AARP joined the American Medical Association in lobbying for SCHIP. Democratic and Republican governors alike did the same; 44 governors wrote to Congress and the administration on July 24, asking for reauthorization and sufficient funding.

The Cover the Uninsured Project used pro-SCHIP celebrity endorsements from Danny DeVito, Rhea Pearlman and others. Families USA demanded, "Tell the president and his allies in Congress to stop holding kids' health care hostage." True Majority circulated a petition to Congress. Consumer groups (for the bill) and tobacco companies (against the bill) initiated advocacy campaigns. Physicians held protest demonstrations across the country. In 45 states, newspapers ran editorials in favor of the bill. The Service Employees' International Union brought small children pulling little red wagons to protest at the White House. The American Hospital Association, Catholic Health Association and many other organizations asked the president not to veto the bill. Many advocates pointed out that $35 billion is equivalent to three months' expenditure on the wars in Iraq and Afghanistan.

Opposition was equally ardent. The Wall Street Journal editorialized that the bill represented "a permanent entitlement." (Just for the record: SCHIP, unlike Medicare, is not an entitlement program; states can limit enrollment.) Republican Oklahoma Sen. Tom Coburn asked the Senate to accept his amendment to the bill, which would have prohibited any Senate pet projects until all children under 18 were covered; it failed. Coburn did not support the Senate SCHIP bill.

President Bush vetoed the reconciled House-Senate bill on Oct. 3. He subsequently called for a compromise, suggesting he would accept some expansion and funding beyond what he had originally wanted.

The House attempted an override on Oct. 18, but failed by 13 votes. Back to the drawing board.

Reaction was predictable. Families USA was especially aggressive, telling its members and supporters, "With one stroke of his pen, President Bush lashed out today at the youngest among us." AHA President Rich Umbdenstock lamented, "America's hospitals are deeply disappointed." Senate Finance Committee chairman Max Baucus (D-Mont.) said, "In the coming days, we will do what the president has not done: We will stand up for American children in need."

On the other hand, presidential adviser Allan Hubbard wrote in USA Today, "The vetoed bill would waste billions of dollars encouraging families with private health insurance to drop it and substitute government-provided insurance."

Back at the drawing board, the House crafted a new bill with more concessions to the White House and Republican members. But some Republicans still complained, leading Democratic Illinois Rep. Rahm Emanuel to quip, "They won't take 'yes' for an answer." The House passed the bill, 265-142, on Oct. 25-again, not enough to override.

Senate Majority Leader Harry Reid (D-Nev.) sought to delay a vote on the Senate version to allow more time for Democrats to come to agreement with House and Senate Republicans on a bill that could garner enough votes to override a veto. Republican Senators refused, disappointing Illinois House Republican Judy Biggert, who said, "We were so close to a compromise."

The Senate passed its bill Nov. 1 with enough votes to override, but that hardly mattered.

President Bush promptly announced that he would not sign any bill that increased the federal tobacco tax to pay for the program.

The process of reconciling the House and Senate bills began. But no compromise bill emerged, and thus no bill was sent to the White House, which is hardly shocking, given that it faced a certain veto.

It was all grand political theater. It accomplished nothing.

And Your Point Is…?

One of the problems with my chronic desire to write about current health policy issues is that sometimes policy-makers are not considerate of my deadlines. As I write this, the House and Senate are negotiating over yet another compromise bill that they hope might actually become law, either through presidential signature or veto override. However, the Republicans have set the bar very high: States must enroll 90 percent of kids with household incomes under 200 percent of poverty before enrolling anyone else, and proof of citizenship requirements must be tight. Many Republican lawmakers also oppose enrollment of adults.

On the other side of the aisle, eight Democratic senators announced in early November that they would not support any bill that prohibited states from covering parents of eligible children. Democratic House member Carolyn Kilpatrick of Michigan expressed disappointment that the Congressional Black Caucus, which she chairs, had not been asked to participate in the negotiations and expressed deep concern about some of the changes being discussed. Some Democratic members of the Congressional Hispanic Caucus were resisting proposed tight requirements for documentation of citizenship. Some lawmakers belonging to those caucuses were joined by members of the Congressional Asian Pacific American Caucus in saying that the Democrats had conceded too much to the Republicans and they would not support any bill that eventually emerged.

Not surprisingly, on Nov. 13, Sen. Grassley, the de facto chief of the negotiation process, announced that there would be no agreement on a bill before Congress went on a two-week recess on Nov. 16.

Congress passed another continuing resolution, funding SCHIP through mid-December.

The less cynical among us, at this point, might well ask: How could this happen? The program has been a success; 6 million children depend on it; just about everybody likes it. Why can't we just reauthorize it and move on to other pressing priorities?

Welcome to the sausage grinder. Here are a few of the factors that have caused this mess:

Ideology. Politicians are usually pragmatic to a fault, but in this case, there are real ideological divides. The majority of members of Congress want to expand the program, including coverage of pregnant women; want to allow middle-income children to enroll even if they ditch private insurance to do so; and prefer a tobacco tax. The administration, which has little to lose at this point because of its lame-duck status, is not about to stand for any of that.

Trade-offs. When some senators were wavering about passing the Medicare Modernization Act in 2003, then-Majority Leader Bill Frist (R-Tenn.) engaged in a good many trade-offs, some not so savory, to get the thing passed. Some of the goodies in the House bill were undoubtedly the product of the same kind of horse-trading. It may be that at this point, the House leadership is unwilling to fork over enough to convince the few members needed to override the veto-or that most of the members still in favor of the veto cannot be so convinced.

Political advantage. Presidential adviser Allan Hubbard recently revealed to The New York Times, "I was told last January or February [2007] by Democrats that their game plan was to send the president a bill that was too big to swallow, and it would be a beautiful political issue for them." (If that's true, the Democratic leadership might want to advise its minions that it's unwise to tell your political enemies what you're up to.)

By the way, Hubbard resigned unexpectedly on Nov. 28.

That being as it may, if the stalemate continues long enough, the Democrats will be able to enter the 2008 election season with big targets painted on the backs of Republicans who refused to vote for the bill or to override the veto. And if you think that those Republicans will be able to fully defend themselves outside of the arena of their ideological fellow travelers, think again; the beauty of such a strategy is that the average American understands health policy about as well as he or she understands quantum mechanics, and some requirement that states must enroll 90 percent of kids with incomes under 200 percent of poverty before enrolling others is a detail about which most voters could care less.

Payback. During the 12 years (1995-2006) in which the Republicans controlled Congress, Democrats were frequently excluded from deliberations on important issues. They didn't forget that. Discussing the negotiations (such as they were) on the post-veto revised House bill, Republican Thelma Drake of Virginia said, "The Democrats were simply telling us what was in the bill. There was no dialogue." Tit for tat.

The art of compromise in Congress is a delicate thing. In the Senate, it still lives; indeed, one keen observer has described Sen. Grassley's efforts to find a compromise on SCHIP as "nothing short of heroic," even though the senator has his doubts about some aspects of the legislation. And the Kennedy-Hatch partnership, odd as it is (Hatch is very conservative, Kennedy very liberal), gave birth to SCHIP and continues to try to keep it alive.

But it seems that views in the House are far more partisan, as witnessed by the fact that the Senate would have overridden the veto; in the House, as of this writing, not a chance.

What Now?

I suspect-and it is only a suspicion, given all the unexpected twists and turns in this saga-that one of two scenarios will play out. The first is that SCHIP will limp along, at current funding levels, on continuing resolution after continuing resolution, into the election season because that would suit the purposes of many of the folks who are up for re-election, Democrat and Republican alike. The fact that tens of thousands of children will lose coverage as the policy-makers dance this tango seems to be lost on almost everyone.

As of Nov. 26, California officials were discussing whether to freeze enrollment-and whether to stop covering 56,000 families by Dec. 31 (and happy holidays to them). An estimated 600,000 California kids could lose coverage next year. Georgia has already run out of SCHIP money and is keeping the program afloat through a special grant from the Department of Health & Human Services. State officials are trying to determine which children are the most gravely ill, so that healthier children can be disenrolled first. Rhonda Meadows, Georgia's commissioner of health, asked, "How do you schedule someone for six weeks of chemotherapy if they only have four weeks left in the program?"

The second possibility is that the Democrats will cave to the Republicans and pass a bill that expands the program slightly, prohibits all parents and childless adults from enrollment, boots existing adult beneficiaries off, imposes extremely strict requirements for proof of citizenship, and sets an eligibility limit of 200 (or maybe 250) percent of poverty.

Either scenario provides a really nasty little issue for the 2008 primary and general elections.

And somewhere in Georgia, or California, or Texas, some child who knows nothing of politics will go blind from measles, or will become paralyzed because of undiagnosed meningitis, or will die of influenza. But we won't know her name, and besides, she's poor and Latina and her family doesn't contribute to political campaigns.

Enjoy your sausage tomorrow morning.

First published in Hospitals & Health Networks OnLine, December 4, 2007

© Emily Friedman 2007

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