Expanding SCHIP: Good for Kids or Just a Bad Idea?

    The proposed reauthorization and expansion of the Democrat’s State Children’s Health Insurance Program (SCHIP) by the Senate and House of Representatives has many people up in arms. How could people be angry about the reauthorization and expansion of free children’s health insurance? They’d have to be cold-hearted child haters, right? Many characters play a part in this tale but every story has a beginning and this one starts a decade ago with the birth of SCHIP.
SCHIP originally came out of the Balanced Budget Act of 1997 for the purpose of insuring children whose families earned too much to qualify for Medicaid but not enough to afford private insurance. In SCHIP’s definition of “not enough”, children from families earning at or less than 200 percent of the federal poverty level, roughly $40 thousand a year qualified.

The first problem came with the fact that, in the original budget, some states had more than they needed. Since the program allowed for adults with small children, pregnant adults and in some cases even childless adults to get in with special waivers SCHIP was soon not strictly just for kids. In some states like Arizona, Michigan, Minnesota, and Wisconsin this went on to such an extent that over half of these states’ SCHIP recipients are adults. According to reporter Robert Robb of The Arizona Republic 56 percent of the recipients of KidsCare, the Arizona SCHIP program, are actually adults.

The excess also helped to allow states to extend the annual earnings limit from 200 percent of the federal poverty level to up to 300 percent in some cases. That’s $60 thousand a year, well into the middle class. So, not only is SCHIP not just for kids anymore but also not just for poor or even nearly poor. The next problem comes from where Senators and House Representatives want to seek funding.

According to the American Wholesale Marketers Association (AWMA), the Senate has just recently passed a vote by 17 to 4 that is supposed to provide $60 billion for the expansion of SCHIP. Just where do they plan to get this money? The proposed expansion is to be funded almost entirely by a 61-cent Federal Excise Tax (FET) increase on cigarettes and other tobacco products. It does sound good at a glance. Aside from the fact that it’s making one small (only 20 percent of adults) and predominately poor portion of the populace shoulder the entire burden of insuring the middle class but why not tax those filthy smokers for their dirty habit?

Senator Kent Conrad of North Dakota fully backs it saying that it “is both a reasonable way to fund SCHIP expansion and to discourage smoking.”

That statement brings up the biggest problem with expanding SCHIP. In order to fully pay the bill 22.4 million people would have to start smoking in the next decade, 9 million of that in the next five years. Funding the SCHIP expansion and discouraging smoking just don’t go together. But there are ways to make the tax work. Part of the reasoning behind expanding SCHIP is the supposed nine million uninsured children in this country. Smoke up.

In all seriousness though, how can the Senate and House of Representatives expect to fund a program of this magnitude with a receding source of revenue like cigarette taxes? By www.nocigtax.com’s estimates cigarette sales are currently declining at a rate of two to three percent a year and another tax hike is expected to increase that trend by as much as six percent.

In one report by FOX news’s Karen Kerrigan, Small Business and Entrepreneurship Counsel Chief Economist Raymond J. Keating is quoted saying, “Eventually the taxman will have to expand his sites beyond the original targets. As spending keeps growing and smoking rates continue to decline, tobacco tax revenues simply will not keep pace, and other taxes will have to be tapped.”

Even further than just not adding up to the necessary funding for SCHIP, some say that the FET increase will cost state governments. According to www.nocigtax.com, “A federal tobacco tax hike of up to 61 cents (per pack) could take an estimated $1 billion in net tax and Master Settlement Agreement (MSA) funds away from state governments each year.” This amounts to $3.94 million in North Dakota. How could Senator Conrad support a bill that would cost us that much? My guess is instead of reading what he was signing he simply caved to shallow propaganda tactics. But I’m not the only one who isn’t impressed.

According to an AWMA update, “The White House has already made clear its opposition to these bills indicating the reauthorization levels for the SCHIP program are too expansive and expressing concern over the tobacco tax provision. The President has indicated he may consider vetoing such an expansion if it is ultimately approved by Congress.”

But what about those poor 9 million uninsured children? Some say that there might not even be that many.

According to a Kaiser commission on SCHIP and Medicaid, “Many researchers recognize that the census data under-estimates the number of individuals covered by Medicaid. Peer-reviewed literature suggests that after adjusting for the Medicaid under-count, there were about 8 million children without insurance at a point in time during 2004. Of the 8 million uninsured children, about two-thirds are estimated to be eligible but not enrolled in Medicaid and SCHIP.”

That leaves only a manageable 2.68 million uninsured children in the United States to whom health insurance isn’t already available and expanding SCHIP is not the only solution out there. Vice President of the Heritage Foundation Rebecca Hagelin suggests just a few viable solutions in her article “SCHIP: A better diagnosis.” She brought up options such as federal vouchers for children’s health insurance or allowing parents to purchase insurance across state lines. The later option would actually increase competition between insurance companies and like banks when insurance companies compete you win.

The current SCHIP situation may look pretty gloomy but this story isn’t over yet. Contact Senator Conrad and tell him what you think of his unwavering support the FET increase and SCHIP expansion. SCHIP has been getting a lot of bad press lately and letting your voice be heard could have a huge impact on whether or not the situation is remedied before it is too late. You can still make a difference!