SCHIP is a federally funded, but state administered health insurance program for children that was created in 1997. Up to now, it has provided benefits for children in families with incomes up to 200 percent of the federal poverty level. According to the Congressional Budget Office, SCHIP has reduced the number of children living without health insurance. Between 1996 and 2005, the percentage of families with incomes between 100 and 200 percent of the federal poverty level who were uninsured fell from 22.6 to 16.9 percent.
The SCHIP expansion, as passed by Congress, would increase funding by $35 billion over five years. (President Bush’s FY08 budget proposed a $4.8 billion increase over five years.) It would also allow states to make families with incomes up to 300 percent of the federal poverty level eligible for benefits under the program. This increase would be funded by an increase in federal cigarette taxes – the increase in revenue being required under Congressional PAYGO rules, which require any increase in spending to be matched by an increase in revenue.
In a paper released about a month ago, The Concord Coalition pointed out a number of problems with the proposed SCHIP expansion. According to the Coalition, the SCHIP expansion complies with PAYGO rules, but only in a technical sense. In order to comply with PAYGO, appropriations for the expansion are to be dramatically reduced in FY 2012. However, a special appropriation to be made that year – one that will not be counted toward PAYGO compliance – will make up for the reduction in regular financing. In other words, when all costs are included, the SCHIP expansion will cost more than the new revenues being allocated.
Another longer-term fiscal issue with the SCHIP expansion is the revenue source being used to offset it. Cigarette taxes are a diminishing revenue source over the long term. Over a period longer than the five years provided for in the proposed expansion, cigarette tax rates would need to be periodically increased in order to match the increase in spending just to maintain services at stable levels. At a certain point, the ability of cigarette taxes to support SCHIP would diminish significantly. While using cigarette taxes to fund childrens’ health programs sounds great, it doesn’t work over the long-term.
The Concord Coalition also points out that the SCHIP expansion is not accompanied by any means of cost control. Given the size of increases in health care costs that affect all sectors of the economy, it is not reasonable to support an expanded program simply with a tax increase, as the congressional SCHIP expansion does.
Finally, the expansion of the program targets families that may have less need for the benefits. The need for such a program for families making less than 200 percent of federal poverty level is well-established – and in this sense, the program has been a success. The degree to which families making between 200 and 300 percent of federal poverty level do not have available health care coverage is not clear. According to the Concord Coalition, “some evidence exists that some parents who otherwise would have enrolled their children in private plans are switching coverage to SCHIP.”
Even if children whose families make between 200 and 300 percent of federal poverty level ought to receive benefits under SCHIP, the expanded program must be funded in a responsible and stable manner over the long term. Budget deficits and long-term obligations in Social Security and Medicare already challenge the long-term economic health of this country. The children being served now by SCHIP will potentially face in their middle age economic stagnation brought about by choices being made now.
Congress is certainly not the only party to blame for this. While President Bush is narrowly correct on the fiscal questions surrounding the SCHIP expansion, his tax cuts and his open-ended commitment to military operations in Iraq dwarf any fiscal effect produced by SCHIP. Without the tax cuts and our Iraq operations, it might be possible to consider a fiscally sound method of funding SCHIP at the levels proposed by Congressional Democrats.