A Warning About SCHIP

It was made known today that the State of Hawaii has decided to discontinue its program to provide universal health care benefits to children. Apparently the program became too expensive as parents decided to drop their children from private insurance so they could become eligible for the state program.

Individuals will always act in their own best interest. There are two lessons about individual self-interest we can take from the dissolution of the Hawaiian effort to institute universal health coverage.

Lesson 1: For Hawai'i, this meant that parents would opt to provide health coverage for their kids with a less expensive option than they could get through their employer.

The most recent federal proposal for the expansion of SCHIP would have included children in household that earned as much as $80,000 per year. Many of these households would have been eligible for medical and dental benefits for their children under SCHIP even though they already were covered by private group policies through their employers. The lesson here is that people, especially in troubled financial times, will always seek out products and service that provide better value for the money. SCHIP is far cheaper than employer-based insurance, so we could expect more kids to be enrolled in SCHIP if the eligibility criteria was loosened, in lieu of private, employer-based group insurance.

Lesson 2: Having medical coverage for their children outside of employer group policies makes it easier for parents to change jobs.

Many families are stuck. They have or have had medical conditions that make it impossible for them to be covered for those conditions by an individual health insurance policy. When small employers go to seek out medical coverage for their employees, the policies have to be written based on the medical history of all the employees and potential dependents. Through this underwriting process, if there are significant pre-existing medical conditions, the entire group will be rated with a surcharge, making premiums higher.

If you are a parent with a child with a chronic medical condition, and you are in a job that provides health insurance, the prospect of switching jobs, especially to a small business, includes the risk that your premium will go up, and the possibility that your child will not be covered for the chronic condition. A single payer source eliminates that risk.

Like the advent of 401(k)/403(b) retirement plans, health care insurance needs to become portable so that we have a freer flow of human resources in the marketplace.