The Liberty Papers

With the expiration of SCHIP looming on September 30th, the congress plans to extend and expand the program by adding another $35 billion over the next 5 years despite President Bush’s threat to veto the bill. The House passed the bill 265-159 with the support of 45 Republicans. The Senate also is expected to pass the bill with the help of Republicans and other Republicans are being targeted in an effort to override the veto. Fortunately, it appears that there are not enough votes to override the veto, but it’s going to be close.

With projected shortfall of $43 trillion in current entitlement spending, how is it that these Republicans think they can support this monstrosity without receiving the wrath of its base? I have a few theories but I think many believe they can support the program because of the perception that most taxpayers will not be funding the program. On paper, the only people who will be funding SCHIP will be smokers in the form of a $.61 sales tax. Smokers deserve to be punished anyway for their disgusting habit and surely those who crafted the bill arrived at this figure based on how much the SCHIP program is supposed to cost?

The New York Sun found some interesting research on whether or not the tax increase on cigarettes would be enough to fund the program:

We’ve written before on how corrupt is the government’s interest in the cigarette business. It turns out that the government needs to keep people smoking; the Heritage Foundation estimates the government would need to sign up some 22 million more Americans to take up smoking by 2017 to fund this increase in SCHIP. To add to the irony, most smokers are low-income Americans, meaning that the poor essentially will be funding the health insurance of the middle class. Mr. Bush would be right to veto it while working to increase access to private insurance through tax breaks and deregulation.

So if the Heritage Foundation is correct, where will the remaining revenues come from? This sin tax is merely a ruse to get people who otherwise would not support a tax increase to support a tax on others. It’s the old game of pitting one group of Americans against another to achieve political aims. What far too many people fail to realize is that we will all bear these costs; even if the states spent the funds only on health insurance for children (historically these revenues curiously end up funding projects that have nothing to do with the stated purpose of the tax).

Besides this shortfall, insurance for those who choose not to join the government health program will pay higher healthcare costs. Michael F. Cannon of the CATO Institute writes:

Inevitably, many families simply substitute SCHIP for private coverage. Economists Jonathan Gruber of MIT and Kosali Simon of Cornell University find that, in effect, when government expands eligibility for SCHIP and Medicaid, six out of every 10 people added to the rolls already have private coverage. Only four in 10 were previously uninsured.

In other words, SCHIP and Medicaid cover four previously uninsured Americans for the price of 10. That’s a bad deal even by government standards. Yet Republicans want to renew it, and Democrats think it’s an absolute bargain. They want to enroll more than 70 percent of all children.

It gets worse. SCHIP discourages these families from climbing the economic ladder. If a single mother of two earning minimum wage in New Mexico increases her annual earnings by $30,000, her net income does not change: She pays an additional $4,000 in taxes and loses $26,000 in SCHIP and other government benefits. Why should families expend that extra effort if it will leave them no better off financially? Expanding SCHIP would pull even more families into that low-wage trap.

It seems to me that Republicans are supporting this bill because they don’t want to be perceived as “against poor children” (But its not like they will get credit for it anyway come election time). Would it really be that difficult to come up with a free market alternative that would do a better job than a government program ever could? Cannon believes there is such a solution:

Each state forbids its residents to purchase coverage from out of state. That allows each state to enact costly health-insurance regulations without fear of competition from states with more consumer-friendly regulation. The Congressional Budget Office has estimated that these regulations increase health premiums by as much as 15 percent.

Congress could make coverage more affordable simply by letting consumers and employers purchase out-of-state coverage. Tearing down those trade barriers would force states to provide the protections consumers demand and eliminate unnecessary regulations. States that don’t provide consumer-friendly regulations would lose premium tax revenue to other states.

Sweeping away those trade barriers would make coverage more affordable without increasing government spending, trapping families in low-wage jobs or increasing prices for private purchasers.

Imagine that: instead of increasing government involvement in healthcare, getting government out of the way would do a better job. For a moment there I thought I would be obligated to take up smoking again…for the good of the children.