An SCHIP Off the Old HillaryCare
Friday, September 7, 2007
By: Elizabeth Wright

Government Waste Watch, Summer 2007

It’s getting hot in Washington and so are the political battles. One of the most contentious conflicts is the reauthorization of the State Children’s Health Insurance Program (SCHIP).

Created in 1997 by the Balanced Budget Act, SCHIP had a budget of $40 billion over 10 years to help states provide health insurance to children in low-income families who earn too much to qualify for Medicaid.

Initially, SCHIP was open to children in families with incomes at or below 200 percent of the federal poverty level, which is about $40,000 for a family of four in 2007. However, several states received Medicaid waivers in order to expand eligibility to children in families with income at or above 200 percent of poverty and states have also found ways to expand eligibility to new populations, such as pregnant women and other adults. These expansions have, of course, also ballooned the cost of SCHIP.

SCHIP is on the verge of being reauthorized and, in prototypical Washington terms, that tends to augur significant growth. Legislation was introduced by several members of Congress, such as Sen. Hillary Clinton (D-N.Y.), Rep. John Dingell (D-Mich.), Sen. John Rockefeller (D-W.Va.), and Sen. Olympia Snowe (R-Maine) that would expand SCHIP eligibility to children in families with incomes at 300 or even 400 percent above the federal poverty line which amounts to opening the program to families making annual incomes of $61,950 and $82,600 respectively.

On July 19, 2007, the Senate Finance Committee reported out S. 1893, with a $35 billion SCHIP increase, bringing the new five-year price tag to $60 billion. The Senate bill expands eligibility to families with incomes at 300 percent above the federal poverty line, extends coverage to an estimated 10 million children, up from the current 6 million, phases out some adult coverage, and relaxes proof-of-citizenship standards. To pay for SCHIP’s growth, the Senate Finance Committee included an increase in the tobacco excise taxes from .39 to $1.00 per pack, an increase of 61 cents or a 156 percent. Cigar taxes would increase from .05 to $9.95 per cigar, or 20,000 percent. The Senate passed S. 1893 on August 2 by a vote of 68 to 31.

Meanwhile, the House Energy and Commerce Committee was unable to vote on its version due to objections from Republican members on the committee, who were furious at being excluded from the drafting phase of the 465-page bill and for being given less than twenty four hours to review it. Republican members used parliamentary tactics to stop any action on the bill.

On August 1, using a discharge petition, H.R. 3162 bypassed the committee and was brought directly to the floor, where it passed by a vote of 225-204. The House version spends $75 billion over five years and essentially turns SCHIP into an open-ended entitlement program, since it calls for permanent reauthorization and provides no income restrictions. The House bill pays for SCHIP expansion through a smaller cigarette tax increase, boosting the tax to .84 cents per pack, and then siphons another $50 billion over five years from the popular Medicare Advantage program to pay for the rest of the expanded program.

Ironically, cigarette taxes target those SCHIP is supposed to help: the working poor, who are statistically more likely to smoke. Excessively high excise taxes lead many consumers to circumvent the tax by purchasing products out-of-state, online, or through illegal sales. Cigarette excise taxes also reduce the number of smokers. The Heritage Foundation found that the government will need 9 million new smokers in the next five years to generate the kind of revenue it needs to pay for SCHIP, 22.4 million by 2017. Since that is considered highly unlikely, taxpayers would end up footing the bill for SCHIP in other ways.

The two bills are now in a conference committee. If Congress ends up expanding SCHIP eligibility to 400 percent of the federal poverty line or higher, more than 71 percent of all children in the United States would be eligible for coverage under a government-run health insurance program, either Medicaid or SCHIP. That will crowd out private insurance, increasing costs to everyone else.

Proposals to expand SCHIP are nothing more than a step toward government-controlled universal healthcare. Sen. Clinton, who unsuccessfully attempted to establish nationalized healthcare under her husband’s administration said as much when unveiling her SCHIP legislation, “It is clear to me that this is the kind of congressional action that is a step toward universal coverage for everyone.”

Government-run or single-payer health insurance lead to exorbitant tax increases, high unemployment, stagnant economies, and lowquality healthcare. One way to address the real issue of uninsured children is to convert SCHIP from a defined benefit program to a defined contribution program, in which eligible families could receive government funds to purchase private health insurance.

President Bush has stated he supports reauthorization of SCHIP, but that he will veto both the Senate and House versions unless the final bill meets his benchmark of a $5 billion expansion of the program over five years, which is a 20 percent increase. Taxpayers can expect an SCHIP showdown this fall.