SCHIP Reform A Move Toward Socialized Medicine

For the first time in history mandatory entitlement spending now represents 11 percent of the gross domestic product (GDP) and takes up two-thirds of all federal spending. This means that with retirement on the horizon for the baby boom generation the federal government will be hard pressed to meet entitlement obligations for Social Security Medicare and Medicaid.

Given that most people would expect Congress to cut wasteful spending and restructure entitlement programs in order to avoid the fiscal train wreck that is looming.

Unfortunately most people are not members of Congress.

Instead of trying to reduce entitlement spending the Democrats and liberal Republicans in the U.S. House and Senate are determined to substantially increase it by reauthorizing and expanding the State Child Health Insurance Program (SCHIP.)

As part of the Balanced Budget Act of 1997 SCHIP is a federal program intended to provide health insurance coverage for families whose income is too high to qualify for Medicaid but too low to afford private health insurance. The program was for families whose income was at 200 percent of the federal poverty level or what would now amount to about $40000 for a family of four.

SCHIP was never intended to become a new entitlement program yet current legislation to reauthorize and expand SCHIP will move the program toward entitlement status. Some bills being pushed would expand the program by establishing the threshold for eligibility at 300 percent of the federal poverty level. This means that a family of four earning almost $62000 per year would qualify for government healthcare. At this level nearly 50 percent of all Americans and almost 60 percent of children would qualify.

An eligibility threshold at 300 percent of the federal poverty level will more than double the cost of the program. According to some estimates this kind of increase will raise the costs to over $70 - 80 billion over five years. These reauthorization bills would also expand government control over decisions affecting children’s healthcare. Consequently these bills not only threaten to turn SCHIP into a much more expensive entitlement program but passage would likely result in the federal government meddling in decisions parents should make for their children as well as move our nation closer to a system of socialized medicine. 

The proponents of this massive expansion of government-provided health benefits plan to pay for it with major tax increases on tobacco products. The federal tax on a pack of cigarettes would increase by 61 cents going from 39 cents per pack to a dollar a pack and raise the current federal tax of a nickel on large cigars to a whopping 10 bucks per cigar!

As usual government revenue estimators assume that everyone will buy just as many cigarettes and cigars as before regardless of the taxes levied on them. They should know by now that price dictates behavior; people will find ways to get cheaper cigarettes or they will stop smoking altogether. Obviously quitting smoking is a good decision from an individual and a public health standpoint but not a good thing for members of Congress who need the money to fund the latest socialistic program.

Fewer smokers will mean fewer tax revenues to cover this new entitlement program. That can only mean one thing -- higher taxes for everyone else so middle-income families can have this government healthcare benefit. Even if everyone keeps smoking cigarettes and cigars at the same rate as they do now it will not be enough to pay for the expansion of SCHIP. A recent report from the Heritage Foundation estimates that in five years it will require over 9 million new smokers in order to pay for the program and over 22 million to pay for it in ten years.

Congress is not likely to try to entice new smokers or retain current ones by putting the Marlboro Man back on television or Joe Camel back in magazines for teenagers. That means the rest of us can expect to be burdened with a tax increase in the near future.

There is an alternative solution.

President Bush wants to restore SCHIP to its original purpose of providing insurance for families with children who are most in need.  According to another Heritage Foundation report President Bush’s proposal maximizes existing SCHIP funds to cover low-income children and at the same time reforms the federal tax code to provide tax credits to families which purchase private health insurance. The President’s proposal meets the needs of low-income families while also giving states a greater flexibility to use SCHIP funds more effectively.

A program which meets the needs of families caught in the income gap between making too much to qualify for Medicaid but too little to afford private health insurance makes sense. Expanding the welfare state by adding billions of dollars to an already enormous federal entitlement burden does not.

Gary Palmer is  president of the Alabama Policy Institute a non-partisan non-profit research and education organization dedicated to the preservation of free markets limited government and strong families which are indispensable to a prosperous society.