Paying More to Help Fewer

COMMENTARY Health Care Reform

Paying More to Help Fewer

Jul 28, 2007 3 min read

Commentary By

Greg D'Angelo

Former Policy Analyst

Robert E. Moffit, Ph.D.

Senior Research Fellow, Center for Health and Welfare Policy

Among other proposals, the Senate is eying two plans to provide health coverage to those currently lacking insurance. Plan 1 would extend coverage to around 4 million Americans for billions of dollars. Plan 2 would extend coverage to 24 million for no more than we're spending now. Guess which approach Senate leaders are pushing?

If you picked Plan 1, congratulations! You know that Washington almost always favors the least effective and costliest option available.

Both houses of Congress are considering legislation to reauthorize the State Children's Health Insurance Program (SCHIP) -- a 10-year old program designed to subsidize health coverage for kids in low-income families that can't afford insurance but make too much to qualify for Medicaid.

The leading bill in the Senate, introduced by Finance Committee Chairman Max Baucus (D-Mont.), would loosen SCHIP eligibility requirements so the subsidies could flow to families earning three times the federal poverty line -- about $62,000 for a family of four. This represents a major federal expansion -- into solidly middle-class turf -- for a program originally a targeted safety net designed to serve lower-income families earning no more than twice the poverty line.

Under the proposed expansion, 1.1 million children will be newly enrolled in SCHIP. But the approach would make less of a dent in the uninsured population than you might expect. CBO notes that half of those added to the SCHIP rolls under the expansion in Baucus' bill won't be drawn from the ranks of the uninsured. Rather, many middle-class children will lose their existing private coverage.

Health and Human Services Secretary Michael Leavitt summed up the bill's effect like this: "Billions of dollars for health-insurance coverage would be shifted from the private sector to the public sector and from state government to the federal government with little actual gains in insurance coverage." In other words, the approach does far more to increase the government's role in controlling and financing health care than it does to expand health coverage.

And boosting the federal footprint in healthcare doesn't come cheap. Funding SCHIP, at its current level, would cost $25 billion over the next five years. The Baucus bill will add an additional $35 billion.

To pay that tab, the Senate bill proposes tax hikes and some, er, creative accounting. First, it would jack up federal tobacco taxes sharply -- to $1 per pack on cigarettes and up to 10 bucks per Havana on cigars.

A Heritage Foundation analysis shows that even these punitive taxes aren't enough to cover the costs. To get the higher "sin" taxes to generate the revenue needed to cover this new, middle-class entitlement, Congress would have to recruit at least 6.3 million new smokers within five years -- nearly three for every uninsured child added to the SCHIP rolls. Within 10 years, the program would need more than 22 million new smokers to stay in the black. The merits of a health initiative predicated upon a huge increase in smoking are dubious, at best.

Even if Americans started puffing away in the numbers needed, it still wouldn't raise the revenues required to keep an expanded SCHIP in the black for long. Enter the creative Senate accounting. To keep the cost estimate at "only" $60 billion over five years, Baucus' bill projects spending will plunge 80 percent in the fifth year -- from $16 billion to $3.3 billion. The only way this could happen is if states kick 80 percent of the kids out of SCHIP in year five -- a political impossibility. Still, on paper at least, the proposal "saves" nearly $12 billion that year.

Plan 2, however, takes a wholly different approach to expanding health coverage -- one that adds no additional costs and, therefore, requires no tax hikes or budgetary smoke and mirrors.

Introduced by Sens. Richard Burr (R-N.C.), Tom Coburn (R-Okla.), Bob Corker (R-Tenn.) and Mel Martinez (R-Fla.), this proposal forsakes the path toward federalized health care and embraces tax reforms that would make the market work and make private health coverage affordable for tens of millions of those currently uninsured.

Dubbed the "Every American Insured Health Act", Plan 2 would use tax policy to attack the problem of the uninsured. It would offer generous tax credits for individuals and families. This would enable Americans to own their own health insurance and take it with them from job to job. The Joint Committee on Taxation estimates that this budget-neutral approach would reduce the ranks of the uninsured by 24 million over 10 years -- six times what's expected under the five-year Baucus plan.

Do Senate leaders really expect Americans to pay more only to help fewer? You don't need a medical degree to realize that's a bad prescription. It's time for lawmakers to get a second opinion.

Robert E. Moffit, Ph.D. is the director of The Heritage Foundation's Center for Health Policy Studies, where Greg D'Angelo is a research assistant.

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