Hillary Clinton. (Pete Marovich/Bloomberg)

The Children’s Health Insurance Program, better known as CHIP, is a somewhat obscure initiative created nearly 20 years ago to help children get health insurance. Last week, it became an unexpected star at the Democratic National Convention, where speakers name-dropped it repeatedly as an example of Hillary Clinton’s efforts to improve children’s lives.

In their remarks, Tim Kaine and Howard Dean and Bill Clinton and Barack Obama all gave Clinton credit for helping CHIP become reality. In her own speech, Clinton touted her work to “help create the Children's Health Insurance Program that covers 8 million kids in our country.”

On Twitter, people took note of the unusual wonkishness on display — this was “not a common nom[ination] speech topic,” pointed out MSNBC’s Ari Melber. But the topic was perfectly on-brand for Clinton, who has sought to portray herself as a nitty-gritty politician who “gets things done."

CHIP is an important item on Clinton’s brag list because it reframes her greatest disappointment as first lady. “Hillarycare,” her 1993 effort to secure universal health care for all Americans, was a high-profile failure. But out of the ashes of that fracas came this smaller victory: a plan for the government to help children without health insurance.

Although there are questions about Clinton’s contributions to CHIP, there is no doubt that the program itself has been seen as a tremendous, bipartisan success. Not only did it accomplish its goal of extending health insurance to millions of children, but it demonstrated a policy idea that would later play a key role in President Obama's Affordable Care Act.

Now, research says that Americans got an even better deal with CHIP than they thought. Gareth Olds, an economist at Harvard Business School, says that CHIP has had a fascinating side effect on the broader economy. By giving families peace of mind, by assuring they could afford health care for their children no matter what, CHIP encouraged more people to start their own businesses, Olds says.

This, along with other recent studies, motivates an argument we may soon hear more and more from the left — the claim that strong welfare policies not only alleviate poverty but boost economic growth.

“We often think about other types of government expenditures, like in defense or in education, as investments in future economic activity — and I think we should be thinking of the safety net similarly,” Olds says.

So perhaps there has never been a better time to revisit this old but reliable program that is enjoying its second turn in the limelight.

What CHIP did

In the 1990s, the poorest young children in America were already covered by another government program, Medicaid. But there was a problem with lower-middle-class children, whose families earned too much to qualify for Medicaid but not enough to afford health insurance. The goal of CHIP was to subsidize health care for children in these low-ish income households. The money would come from increasing the cigarette tax.

In an age of fanciful proposals to ban Muslims from the United States and build Mexican border walls, CHIP seems laughably small-bore. But it was a big deal at the time, a hefty expansion of the social safety net. Politically, it was an even bigger deal that this “seemingly quixotic idea,” as the New York Times called it, got through the divided Congress. CHIP was a paragon of bipartisan cooperation.

CHIP gets credit for helping to halve the rate of uninsured children over the past two decades. In 1997, when CHIP was passed, 14 percent of Americans younger than 18 did not have health insurance. By 2012, that number was 7 percent. Today, about 10 percent of children get some or all of their health insurance paid for through CHIP. About a third get their health care through either CHIP or Medicaid.

This chart, from George Washington University professor Sara Rosenbaum and the Urban Institute's Genevieve Kenney, shows how rate of uninsured children fell between 1996 and 2012, even as the rate of uninsured adults went up. (The rate of uninsured adults has also gone down recently thanks to the ACA.)


The ACA helped more Americans get health care by subsidizing people’s private health insurance costs, a strategy pioneered by CHIP. As a product of compromise, CHIP was designed in a curious manner. It demonstrated how the federal government could work together with states and private insurers to provide affordable health insurance — an unusual feat of cooperation for the time. This would pave the way for a similar arrangement in the Affordable Care Act a decade later.

“The true precursor to the Affordable Care Act’s subsidy system was CHIP — and it turned out to be very successful,“ Rosenbaum says.

CHIP is a widely lauded program, especially among the left, so it’s obvious why Hillary Clinton would want to share in the credit. But it’s hard to say how much she actually contributed to CHIP’s passage into law. The bill was largely drafted by Ted Kennedy, then a senator from Massachusetts who was later joined by Sen. Orrin Hatch of Utah, the Republican co-sponsor.

Most accounts says that Hillary Clinton mostly worked within the White House to secure the support of the administration. Bill Clinton was initially wary of the CHIP proposal because he thought it would upset his ongoing budget negotiations with the Republicans. “Hillary turned out to be instrumental in convincing the president to support a new a version of the bill,” wrote Stuart Altman and David Shactman in their history of this battle.

Last week in his speech at the Democratic National Convention, Bill Clinton described how Hillary Clinton helped CHIP get passed. “There are a lot of other things in that bill that she got done piece by piece, pushing that rock up the hill,” he said. If so, one of those obstacles may have been Bill Clinton’s own skepticism.

But my colleague Glenn Kessler, who awarded Clinton's claim of working to pass CHIP two Pinocchios for "significant omissions or exaggerations," concludes in his review: “The bill was a bipartisan effort, but [Hillary Clinton’s] role was limited to being a largely hidden cheerleader at the White House, rather than a public advocate who directly worked with lawmakers in both parties.”

What CHIP accidentally did

The CHIP legislation passed, in large part, because it’s hard to vote down a bill that helps children — particularly one that does so at the expense of Big Tobacco. Kennedy had picked a charismatic cause and an unsavory villain. In Congress, the issue was largely framed as a moral imperative.

“When it gets to the point that we are so ideologically constipated that we place the preservation of State tobacco revenues above the welfare of our American citizens, then we need to rethink our philosophy,” Hatch told his Republican colleagues in 1997.

Kennedy put it even more bluntly: “Why can’t we vote on whether the Senate stands with children or with Joe Camel and the Marlboro man?”

Although CHIP was designed to improve the lives of poor and lower-middle-class children, recent research from Olds suggests that the program also boosted entrepreneurship rates among their parents.

Using data from the Current Population Survey, Olds compared families who were just above and just below the income cutoff for their state’s CHIP program. Before CHIP started, these families were very similar; after CHIP, families who were eligible for the program were five percentage points more likely to have health insurance for their children. That represents a 40 percent decrease in the rate of uninsured children.

But the most interesting discovery was that these same families were also 15 percent more likely to be self-employed — 12 percent more likely to start a business and 36 percent more likely to own an incorporated business, which economists consider to be a sign of a quality venture.

Most of the families that started businesses already had health insurance through one or the other parent, so they didn’t have to take advantage of CHIP. Simply knowing that the program was out there gave these parents the security to quit their jobs and take up the risky mantle of entrepreneurship.

That is, essentially, the story of Olds’s own childhood growing up in Anchorage. His family had been on food stamps and Medicaid and even CHIP for a while, so they were familiar with how public assistance worked. After they got back on their feet, his parents decided to start a school to train dental assistants (as his step-dad was). Olds thinks they would not have taken the leap if there had not been that social safety net.

“They knew that if the business failed, we were going to have health insurance. We weren’t going to starve, and we weren’t going to have catastrophic medical debt,” he says.

Olds has also shown that the expansion of food stamps programs in the 2000s had a similar effect on business creation. Families who were suddenly eligible for assistance became 20 percent more likely to own a business. Yet most of the new entrepreneurs did not actually sign up for the program — suggesting, again, that public assistance was functioning as a insurance policy, giving them courage to start their own ventures.

The data, he writes, “strongly suggest the presence of a large population of would-be entrepreneurs held back by uninsured risk.”

Olds is quick to point out that his papers are among several recent efforts to suss out the connection between welfare state policies and economic growth. In France, for instance, a law that allowed new entrepreneurs to still qualify for unemployment benefits caused the business start-up rate to increase by 25 percent, and it boosted overall productivity. Economists say the policy increased gross domestic product by 350 million euros a year, at a cost of 100 million euros paid out each year in unemployment checks.

For a few decades now, the United States has been suffering from a troubling decline in the rate of entrepreneurship. Economists can’t agree on what’s causing it, but here, perhaps, is a potential solution. If the problem is that people aren’t willing to take a risk on their dreams anymore, we could encourage would-be entrepreneurs by protecting them from destitution.

In Silicon Valley, famously, failure is even celebrated. Venture capitalists happily give money to people who have run their past start-ups into the ground. This emboldens entrepreneurs to think big.

Research suggests the social safety net performs a similar role, nudging people toward creating their own businesses instead of working for someone else. “It changes people’s attitudes towards risk,” Olds says. “We usually think of that as a bad thing — as moral hazard — but in this case some risk-taking can be good for the economy.”