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The Cost of Healthy Kids

July 29, 2007 - by Donny Shaw

It’s the last week before Congress goes on vacation for a month. But before they leave Washington, lawmakers in both chambers hope to pass a bill to reauthorize and expand a program that provides health care for poor children. The State Children’s Health Insurance Program (S-CHIP), and its expansion are popular among Democrats and many Republicans (not the President though; he plans on vetoing the reauthorization bill), but when it comes to finding a way to pay for it, almost no one can agree.

The House and Senate’s S-CHIP bills differ in a couple of key areas. FIrst, the House bill would increase funding by $50 billion over five years, while the Senate bill would only provide an increase of $35 billion. Second, both bills propose increasing taxes on cigarettes in order to pay for the increased S-CHIP funding, but in different amounts. The Senate version would raise the tobacco taxes by 61 cents per pack. The House has settled on a carefully negotiated 45 cent increase. Lastly, the House bill has a payment plan that’s not found in any form in the Senate bill: it would scale back government payments that private insurers get through Medicare Advantage to equal the payments made to Medicare.

I’ll get back to these funding proposals later. First, here’s President Bush speaking in Nashville on July 19th about why he opposes expanding S-CHIP:

>The problem, as I see it, is this: that the people — some in Washington want to expand the eligibility for those available for S-CHIP, in some instances up to $80,000 per family — which really means, if you think about it, that there will be an incentive for people to switch from private health insurance to government health insurance. I view this as the beginning salvo of the encroachment of the federal government on the health care system. The federal government has got a huge role in health care — as I say, Medicare, Veterans Affairs, Medicaid, poor children. But I am deeply worried about further expansion will really lead to the undermining of the private health care system, which would take the greatest health care system in the world and convert it into a mediocre health care system.

While the President’s concerns with the S-CHIP bills are ideological — “the encroachment of the federal government on the health care system” — Congress’s interest in expanding the program comes from a perceived problem. The Congressional Budget Office (CBO) has estimated that there are currently between 5 and 6 million uninsured children who qualify for coverage under S-CHIP or Medicaid, but remain uninsured for lack of funding. The House’s proposal would provide enough money to cover 5 million more uninsured children, while the Senate’s bill would be able to cover an additional 3.2 million.

Ok, now back to the various and controversial payment methods. Blogger Ezra Klein provides about as succinct a description of the House’s Medicare Advantage reform plan as is possible:

>Back in 1982, Congress tried to unleash the magic of the free market by letting private insurers offer Medicare plans for seniors who wanted them. The insurers would be paid at the same rates as Medicare and, if they were indeed more efficient, could then offer more expansive benefits and out-compete the public program.
>They were not more efficient. But they’ve been very good at lobbying Republican Congresses. And so now, the government is paying these private plans about 120 percent of what Medicare gets per patient. In other words, the government is overpaying these plans in order to help them out-compete the public plan — which they’re still not doing. It’s an almost hilariously absurd state of affairs, were it not actually costing us all a lot of money.

The House’s bill would pay for part of its expansion of S-CHIP by bringing these private insurer payments back down to a level equal to what Medicare gets. The rest of the expansion would be paid for by the tobacco tax increase, a plan which is opposed by lawmakers who represent tobacco-producing states, Republican and Democrat alike. Majority Whip James Clyburn (D-SD), for example, is backing the plan despite deep reservations. Speaking to CongressDaily ($) last week about the tax he said, “That is regressive. So whatever you may feel about smoking, you look at the convenience stores, you look at those farmers, and you look at those people who do in fact smoke, and you put all that together and it is regressive.” Other tobacco-state Democrats who aren’t in leadership roles will likely vote against the bill because of the tax increase. These tobacco-state Democrats, together with some Blue Dog Democrats who simply oppose the increased spending, will determine whether or not the House bill passes.

The Association for Respiratory Care points out that, besides the economic impact on the tobacco industry (and lawmakers’ campaigns), a tobacco tax increase would itself be a boon for children’s health:

>Youth smoking drops by seven percent with every ten percent rise in the tax, and overall cigarette consumption declines by about four percent. The proposed 61 cent increase would effectively prevent nearly 1.9 million kids from picking up the habit and help around 1.2 million adults kick it for good.
>More than 900,000 smoking-related deaths would be prevented in the process, and long-term health care savings would amount to $43.9 billion.

We’ll be following the goings-on surrounding the S-CHIP reauthorization bills all week. In the meantime, health care advocacy group FamiliesUSA is urging you to call or email your senators and representatives.

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