House Votes to Expand SCHIP Program

Published March 1, 2009

The U.S. House of Representatives has voted 289-139 to renew and expand the State Children’s Health Insurance Program, a taxpayer-funded program providing federal dollars to states for health insurance for children in poor families not eligible for Medicaid.

House Resolution 2 reauthorized the expiring program, created in 1997 and known as SCHIP, for an additional four years and expanded eligibility to include approximately 4 million Americans whose age or family income level previously made them ineligible.

By 2008, 41 states already had raised the maximum income allowed for enrollment, and more than 10 percent of the 6 million enrollees nationwide were over the age of 18, according to the Department of Health and Human Services (HHS). SCHIP and Medicaid together now insure 45 percent of all children in America, according to HHS.

Funding in Doubt

“This coverage is critical [and] it is fully paid for,” said then-President-elect Barack Obama in a statement. Congressional estimates put the cost of the program’s expansion at $32.3 billion, but others say it will be higher and the expansion, funded by an increase of 61 cents per pack in the federal cigarette tax, is not “fully paid for.”

Supporters of the legislation are overlooking the problem created by using a tobacco tax increase as the sole funding source, said Rep. Dave Camp (R-MI), ranking Republican on the House Ways and Means Committee.

“The problem is that the percentage of Americans who smoke has been dropping for decades. Research and logic both show that raising the prices of cigarettes will lead to less smoking, and less smoking will lead to less and less money being collected by the federal government to pay for an expansion of SCHIP,” Camp said.

A study conducted by The Heritage Foundation concluded 22.4 million nonsmoking Americans will have to begin consuming tobacco products in order for the SCHIP expansion to maintain its funding level.

Hurting the Working Poor

Experts say the use of a tobacco tax to fund the SCHIP expansion will place a greater burden on those the program was designed to help.

According to the Centers for Disease Control and Prevention, undereducated and lower-income Americans are more likely to smoke than their better-paid, more highly educated peers. “Given such data,” said Camp, “it is hard to imagine a more regressive policy, disproportionately targeting such disadvantaged groups for higher taxes.”

“At a time when the last thing we need is an even weaker small business community,” said Grover Norquist, president of Americans for Tax Reform, “a tax increase on tobacco products will not only hurt consumers and scapegoat a segment of the American population for using a legal product, but will also hurt small businesses, many of which often lean on tobacco sales to stay in business.

“Furthermore,” said Norquist, “such a tax increase follows the absurd rationale of discouraging a behavior on the one hand while at the same time relying on its continuance as a revenue stream. Funding an expansion of SCHIP on an already-declining revenue stream is irresponsible and dangerous policy.”

State-Level Failures

Experts say legislators should have paid closer attention to recent state-level attempts to expand taxpayer-funded programs, which have been derailed by soaring costs and a “crowding-out” of private health insurers.

Grace-Marie Turner, president of the Galen Institute, cited “Hawaii’s hard-learned lesson in health care economics,” referring to the Aloha State’s Keiki Care program established in 2008 to provide coverage to children whose parents couldn’t afford private insurance but whose income was too great to qualify for other public programs.

“Hawaii officials learned that, if you offer people insurance for free, they’ll quickly drop other coverage to enroll. After seven months of operation, during which 85 percent of Keiki enrollees were former private policyholders, [Gov. Linda Lingle (R)] was forced to eliminate the program altogether,” Turner noted.

“People who were already able to afford health care began to stop paying for it so they could get it for free,” said Dr. Kenny Fink of Hawaii’s Department of Human Services in a release.

Unpopular Program

Congress attempted to expand SCHIP in 2007, but legislation was twice vetoed by then-President George W. Bush, who objected to relaxing the program’s eligibility requirements when nearly two-thirds of the nation’s uninsured children were already eligible to enroll.

In addition, according to the Centers for Medicare and Medicaid Services (CMS), 42 percent of that eligible uninsured population were actually enrolled in a state SCHIP or Medicaid program in 2007, but declined to renew their enrollmentā€”an indication that SCHIP and other taxpayer-funded programs were not as popular as their proponents claim.

Reform Efforts Rebuffed

In 2008 CMS, at Bush’s behest, issued a directive tightening SCHIP eligibility requirements, forcing states to limit the program to children whose family income was 2.5 times the federal poverty level or less. Families making $44,000 per year or more were to be removed from the SCHIP rolls and held out of the program until their state had enrolled 95 percent of its eligible uninsured in the program.

Bush rescinded the directive after pressure from state governments wishing to continue offering SCHIP benefits to people ineligible under federal guidelines.

At press time, the SCHIP resolution was still pending in the Senate. Congressional observers expect the House version of the measure ultimately to be signed into law by President Obama.

Jeff Emanuel ([email protected]) is research fellow for health care policy at The Heartland Institute and managing editor of Health Care News.

For more information …

House Resolution 2: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.2

“22 Million New Smokers Needed: Funding SCHIP With a Tobacco Tax,” The Heritage Foundation: http://www.heritage.org/Research/HealthCare/wm1548.cfm