SCHIP: The Creeping Nationalization of Health Care

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Although the economic stimulus package is getting most of the headlines this week, it’s not the only fiscal debate playing out in Congress.

Equally important for the American economy in the long run is the Senate debate over the reauthorization of the State Children’s Health Insurance Program (SCHIP), originally enacted in 1997 as an addition to Medicaid. It expires on March 31, potentially stranding over 7 million children without health insurance—which is why Congress will not let it lapse.

SCHIP is the first congressional skirmish in what will no doubt be a multiyear ideological war over the government’s role in health care. President Obama ran on a platform of setting up a new public health- care plan, while insisting that Americans would continue to have the choice of signing up for private plans. That is a legislative battle yet to come.

Republicans and Democrats both want to reauthorize SCHIP, but with a difference. Republicans want to expand it by $5 billion over five years, an annual increase of 20%. They want to treat this federal-state program as the government treats food stamps and housing vouchers—available to low-income Americans, who need them, but not to middle-income households.

In contrast, congressional Democrats propose to increase SCHIP by $32 to $39 billion over five years, according to estimates by the Congressional Budget Office, almost tripling the program by 2013. They seek to move the government, it seems, toward national health insurance that would be like national defense—available to everyone, and paid for by the taxpayers, as in Europe and Canada.

On January 14 the House of Representatives passed a bill to increase SCHIP spending, paid for by increasing tobacco taxes (assuming the smokers don’t quit in response to the higher tax). House Speaker Nancy Pelosi declared, “My colleagues, this is a day of triumph for American children.”

If the Senate follows suit, the legislation will go to President Obama, who indicated during the campaign that he would sign it, unlike President Bush, who vetoed a similar SCHIP increase as excessive.

The Democratic bills are more costly because they would insure more children by raising income eligibility well into the middle class. Last year, SCHIP covered about 7 million low-income children and Medicaid covered an additional 23 million. CBO estimates that the proposed bills would add another 6.5 million children to the SCHIP and Medicaid—and, according to Census Bureau data, 42 million children would be eligible.

The bills would raise family income ceilings for states to qualify for Federal reimbursement. The present limit is 200% of the poverty line, or $44,000 for a family of 4 (although individual states can and do fund higher levels without the Federal share). The new bills would potentially raise the limit to 300%, or $66,000. An exception for New York would include families at 400%, or $88,000.

According to the Senate Minority Leader, Kentucky’s Mitch McConnell, “This is more than double the median household income in many states, including Kentucky. It’s grossly unfair that a family in Kentucky making $40,000 must pay for the health insurance of a family making double that — especially if the Kentuckian can’t afford it for his own family.”

The median U.S. household income is $50,000. Sixty percent of American households earn less than $62,000. By raising government insurance eligibility to embrace three fifths of households, Congress would change SCHIP from a low-income to a middle-income program—even as middle-income households d pay lower taxes under the pending economic stimulus plan. That’s not fiscally responsible.

In addition to the higher eligibility limits, the bill adds more immigrant children, and drops the five-year waiting-period now required for legal immigrants to be eligible for the programs. Nor would the Democrats require states to show how they would reduce the “crowding out” of private insurance by expanded government coverage.

Senator McConnell’s alternative bill, Kids First, would increase SCHIP spending by $5 billion over 5 years, covering an additional 3 million children. Only in Congress is $5 billion regarded as an insignificant sum.

The SCHIP debate prefigures crucial health-care questions for Americans of all ages in the next few years: Who should be insured under federal plans, and who under private plans? Do the American people want creeping nationalization of health-care financing, as they have seen creeping nationalization of the banks?

In 1965 Congress created Medicare, to cover health care for the elderly regardless of income. Today, it is an enormous program, gradually eating up the Federal budget, with trillions of dollars in unfunded liabilities. Medicare reform is a top priority on President Obama’s to-do list. But it will do little good to solve Medicare's finances if Congress expands spending for children’s health care, increasingly heedless of income.

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