Proposed SCHIP Expansion Relies on Shaky Finances
July 2007
Congress is currently debating re-authorization of the ten-year-old State Children’s Health Insurance Program (SCHIP). A straight re-authorization for a further five years would cost the treasury $25 billion, but some advocates in Congress want to expand the program’s expense to $50 billion, and one proposal is as high as $70 billion.
Crowding out private coverage
Most Americans support a safety net program to help needy kids. But SCHIP is not just for the poor. Some states cover middle-income families making up to $62,000 a year, or three times the poverty level. One proposal would raise that to $83,000. And it’s not just for children. Fourteen states include adults in the program. Wisconsin, for example, spends 75% of its children’s health money on adults. Some advocates want to count people up to 25 years old as “children” under the program.
A bigger SCHIP program would crowd out private insurance. The Department of Health and Human Services estimates that an expanded SCHIP would cause 1.6 million people with private insurance to drop their coverage and enter the government program. After all, why buy something when Congress will let you get it from taxpayers for free?
Currently, most children already have health coverage through a private family plan, usually provided by their parents’ employer. The entitlement expansion would push many people into a one-size-fits-all federal program.
Top-down government programs undermine consumer choice and the ability to shop for affordable coverage. A public program that aggressively seizes market share risks putting private insurers out of business. Lawmakers should target assistance to those who need it, not set up tax-subsidized programs that compete for business against their fellow citizens.
Government policies drive up the cost of health coverage for children
Instead of shrinking the private market, lawmakers should review their own policies that make it harder for families with children to gain access to affordable health coverage. Such as:
Over the years, lawmakers have piled up inflexible rules that make health coverage more expensive, then they propose costly entitlement programs, like SCHIP, in an effort to solve a problem they helped create.
Unreliable funding source
Some in Congress are irresponsibly proposing to fund a massive expansion of SCHIP by increasing the tobacco tax.
At the same time, the government is working to reduce tobacco use, meaning lower tobacco tax revenues in the future. In fact, smoking in the U.S. is declining by about 2% a year. The weakness of seeking higher collections from a declining tax base is compounded by state lawmakers’ habit of doing the same.
Basing an entitlement expansion on an unreliable funding source will have two primary effects:
an increase in black market sales and cigarette smuggling as consumers seek to evade the tax, and;
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a likely shortfall in funding for a promised entitlement.
Shifting major programs onto shaky financial ground leads to government that is overextended and unable to meet its commitments, resulting in a pervading sense of financial crisis and recurring calls for tax increases.
The proposed SCHIP expansion is the biggest effort to push Americans into government health care since the failure of HillaryCare in 1994. Yet, the market is providing innovative products, like Health Savings Accounts, that are expanding affordable coverage. More than a quarter of people who have purchased an HSA were previously uninsured.
Pushing through a costly expansion of SCHIP will stifle consumer choice and private initiative. It will move U.S. health care in the direction of a mandatory, centralized government-managed system, something Americans rejected years ago.