No. 16
March 8, 1999
Naomi Lopez*

There is no question that nearly all Californians think children should have access to quality health care. And while current efforts to expand government health care programs for children may be well intentioned, these programs have serious unintended consequences. Experience has shown that government health care programs can encourage families to drop their private health insurance and severely reduce health care choices.

Rather than addressing the question of "Who lacks health insurance and why?", California lawmakers are posing the emotionally-charged question, "Are you for or against children’s health?" Because sentiment rather than logic too often guides this debate, California lawmakers have been quick to support expanding California’s Healthy Families program, the middle-class entitlement counterpart to California’s Medi-Cal program which provides health care to the poor.

Today, California lawmakers are discussing a proposal to allow families with annual incomes up to almost three times the poverty level—over $45 thousand for a California family of four—and non-resident families to participate in California’s Healthy Families program. Before California lawmakers ratchet up the eligibility guidelines to include thousands more middle-class California families for this government-run health care entitlement program, the unintended consequences of such a move should be publicly debated before all California children are placed under a single government health care roof.

An Uninsured Crisis?

Although welfare advocates and the media portray a health-insurance crisis among poor and low-income California families, most uninsured children qualify for, but do not enroll in, existing government programs, or they live in households with moderate to high incomes. It is important for lawmakers to recognize that a lack of health insurance does not preclude children from receiving health-care services. For example, undocumented immigrants and legal immigrants are eligible for state-provided emergency health-care services. Moreover, even when a child derives health-care benefits from government programs such as Women, Infants, and Children (WIC), a state public-health initiative funded by federal block grants, or private charities, the child remains technically uninsured. In fact, one study estimates that nationwide, uninsured children receive about 70 percent of the outpatient services those similarly insured children do, and up to 85 percent of the inpatient care.

Healthy Families

Federal lawmakers included a new $48 billion State Children’s Health Insurance Program (SCHIP) as part of the Balanced Budget Act of 1997. The program allocates federal funds to states to cover uninsured children. Under the new program, California created the Healthy Families program that provides families not eligible for Medi-Cal with low cost health insurance. The program currently covers children under the age of 19 whose family income falls at or below two times the federal poverty level.

In his most recent budget proposal, Governor Gray Davis proposes to expand the Healthy Families program to children in families with incomes that fall at or below 250 percent of poverty, with an option for counties to cover children up to three times the poverty level. The proposed cost for this initiative will approach $200 million. The issue for lawmakers is whether such an approach will yield the desired results. Even before the ink on the Governor’s budget dried, some lawmakers were even already discussing expanding the program to include these children’s parents.

Unintended Consequences

While efforts to expand health care access and affordability may be well-intentioned, this current trend could have serious unintended consequences. By providing government-sponsored health insurance for California children, government health-care programs could encourage families to drop their private health insurance and could reduce health-care choices.

Eroding Private Health Insurance. One of the greatest dangers of expanding government-funded health programs for children is that such programs could reduce the number of privately insured children. Many parents who currently purchase private insurance coverage for their children will switch to subsidized government care. Indeed, there is empirical evidence proving that when government health care grows, private health insurance shrinks. Health economists from Harvard University and the Massachusetts Institute of Technology examined how Medicaid expansions have affected private coverage between 1987 and 1992 and found a sharp decline in private health insurance for children. In this way, the uninsured rate often remains steady, despite large-scale expansions in government programs.

Destroying Choice. Similar to the federal Medicare program—which forces seniors to drop their private health insurance—California’s health-care programs for children could ultimately force all California children to participate in government programs by destroying the private market for health insurance or by making it illegal to seek health-care services privately. That ban on choice has already happened to seniors and could easily spread to children as California’s Medi-Cal and Healthy Families programs continue to expand.

One Government Health Care Roof

Experience confirms that, like most government programs that are created with good intentions, government health-care programs do not increase access to affordable health care. In fact, quite the opposite occurs. For example, Medicare’s "Part A" program is a federal, mandatory hospital insurance program that covers the majority of the nation’s elderly. Medicare Part A originated in 1965 as a health-insurance plan that promised not to interfere with the right of seniors to purchase private health insurance. Today, however, seniors covered by Medicare are forced to drop their primary health insurance and are prevented from seeking medical care privately.

In fact, a recent judicial decision ruled that seniors participating in Medicare do not have a right to pay privately for their own Medicare-covered health services. Meanwhile, most seniors are unable to opt out of Medicare if they receive any Social Security benefit, even if there is a recognized religious or philosophical reason. Once an individual begins receiving a Social Security benefit—retirement, survivors, or disability—he may opt out of Medicare Part A only after repaying all benefits received from both Social Security and Medicare Part A.

The result has been that most seniors are forced into government-sponsored health care and have lost their legal right to pay for health-care services privately. The Medicare program offers the elderly health-care rationing, reduced health-care choice, and compromised quality of care. According to a recent government audit, the cost of fraud and abuse alone exceeds $54 million per day.

As tyrannical as it may seem to force seniors into government-sponsored health care, children’s health may already be traveling down a similar, dangerous path. Healthy Families is rapidly evolving into a middle-class entitlement that could soon replace private insurance for California children and their families. That raises disturbing questions about who might come next.

* Naomi Lopez is director of the Center for Enterprise and Opportunity at the Pacific Research Institute in San Francisco. This paper is based on “A New Vision for Health Care in California” which appeared in the 1999 California Legislators’ Guide (Pacific Research Institute: 1999).