Uncle Sam Pays for Middle-Class Health Care

On January 29, the U.S. Senate passed the reauthorization of the State Children’s Health Insurance Program (SCHIP), originally enacted in 1997 as an addition to Medicaid. It would have expired on March 31, potentially leaving over 7 million children without health insurance.

The bill passed 66 votes to 32, with several Republicans joining Democrats to pass the bill. The Republican leadership wanted to expand SCHIP spending by $5 billion over five years, an annual increase of 20 percent. In contrast, congressional Democrats succeeded in increasing SCHIP by $32 to $39 billion over five years, according to estimates by the Congressional Budget Office, almost tripling the program by 2013.

Democrats seek to move the government toward national health insurance that is not a low-income program but would be like national defense—available to everyone, and paid for by the taxpayers, as in Europe and Canada. This is a fundamental philosophical difference.

Since the House of Representatives passed a similar bill on January 14, the two bills will be reconciled in conference. The bills are funded by increasing tobacco taxes (assuming the smokers don’t quit in response to the higher tax). The legislation will then go to President Obama, who indicated that he will sign it, unlike President Bush, who vetoed a similar SCHIP increase as excessive.

Senate Finance Committee Chairman Max Baucus declared, “When President Obama signs this bill, the real victory will belong not to politicians, but to kids. The winners today are the kids who need health care.”


The losers, however, might be the taxpayers. The bills are costly because they would raise income eligibility well into the middle class. Last year, SCHIP covered about 7 million low-income children and Medicaid covered an additional 23 million. 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.

In addition, the bill allows states to receive federal reimbursement for adding more immigrant children and pregnant immigrant mothers, and drops the five-year waiting-period now required for legal immigrants to be eligible for the programs. This would enable immigrants to come to the United States and qualify for benefits on day one.

The bills would raise family income ceilings for states to qualify for Federal reimbursement. The present limit is 200 percent 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 raise the Medicaid limit to 300 percent, or $66,000. An exception for New York will include families at 400 percent, or $88,000.

According to the Senate Minority Leader, Kentucky’s Mitch McConnell, “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 will change government-provided health care from a low-income to a middle-income program—even as middle-income households pay lower taxes under the pending economic stimulus plan. The fiscal consequences of this new entitlement will be felt far into the future.

The SCHIP bill 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 increased nationalization of health-care financing, as they have seen increasing nationalization of the banks?

The answer to these questions will determine the shape of American health care for years to come.

This commentary was featured in Reuters.com on January 29, 2009.