SCHIP Funding and Fiscal Irresponsibility

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$60 billion dollars in new deficit spending.

That’s the amount the Heritage Foundation, a public policy research institute based in Washington D.C., estimates the Senate bill to reauthorize the State Children’s Health Insurance Program (SCHIP) will have added to the U.S. budget deficit over the next decade [1-2]. Under the bill, funding will drop sharply in 2013 (see the graph below). Assuming a 6% annual spending increase will be required to maintain current enrollment from 2012-2017, the program will require $84.3 billion rather than the $25.6 billion included in the bill.

The House bill has an even greater cost. According to the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), the U.S. House of of Representatives SCHIP bill would add $72.9 billion dollars to the U.S. budget deficit for the 2008-2017 period [3].

Senate SCHIP fundingPreviously, I wrote about the funding debate lawmakers were having over the State Children’s Health Insurance Program (SCHIP). Legislation was approved by the U.S. House of Representatives last week with a bill, the Children’s Health and Medicare Protection Act of 2007, to expand SCHIP funding to $50 billion over the next five years and to more than double the number of children that will be covered. The bill had bipartisan governor backing as well as the backing of a number of well-known organizations, including the American Medical Association (AMA), the AARP, the March of Dimes, the Catholic Health Association and the American Academy of Pediatrics.

The U.S. Senate followed a day later, approving their own legislation for a $35 billion dollar expansion of the program. The vote majority is more than enough to overcome the veto threatened by the adminstration.

According to the Center on Budget and Policy Priorities, the House bill differs from the Senate bill in that [4]:

” … it does not limit the existing SCHIP coverage of low-income parents of children who are enrolled in SCHIP or Medicaid, and thus does not lead to some children losing coverage as a consequence. (Various studies have found that jointly covering children and their parents results in a larger share of the eligible children signing up and receiving health care services. In response to a question posed last week during the Senate Finance Committee’s consideration of the SCHIP legislation, [Congressional Budget Office] CBO director Peter Orszag explained that ‘restricting eligibility to parents does have an effect on take up among children … for every 3 or 4 parents you lose, you might lose 1 or 2 kids, for example.’)”

SCHIP does more than insure low-income children – in many cases it provides insurance for their parents too. Why? Because parents are more likely to sign their children up for SCHIP if they can be covered as well. Indeed, today the program covers more than 600,000 adults and, in three states, actually covers more adults than children [5].

SCHIP was originally designed to provide health coverage for uninsured children in low-income families that earn no more than twice the federal poverty limit (approximately $34,000 a year for a family of three). The program provides federal matching funds to states with a cap on total federal expenditures of $40 billion over 10 years. The legislation Congress has passed will expand SCHIP eligibility to families that earn up to four times the federal poverty limit. This means a family of four earning $80,000 a year would be eligible for the program.

Both the Senate and House bill propose to fund an expanded SCHIP program with increased federal tobacco taxes, citing studies that have found that increasing cigarette prices reduces cigarette smoking among both adults and adolescents [6-7].

Does it make any sense to fund a healthcare program that will most assuredly have increasing costs every year from an income source with decreasing revenues?

That is, unless we can increase the tax base by getting 22 million more people to smoke.

SCHIP WatchFunding a healthcare program with a tobacco tax will not work. Those people using tobacco products will likely depend upon the healthcare system for one reason or another, including cancers, respiratory diseases and/or cardiovascular diseases. Eventually, we all pay for smoking-related illnesses with increased medical costs and health insurance premiums.

The Heritage Foundation cites several of these points with regard to the proposed SCHIP funding [8]:

While a tobacco tax is a politically popular funding source, it has several significant shortcomings:

  • A tobacco tax disproportionately burdens low-income Americans, lacks long-term stability, and ultimately results in significant shifting of health care costs onto others.
  • With the number of smokers already declining, a tobacco tax would further reduce the number of smokers, thereby eroding the funding source.
  • To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017.

Rather than making SCHIP dependent on increasing the number of smokers, Congress should refrain from narrow government program expansions and work on a broader strategy for improving access to affordable, private health insurance for all Americans – including children.

I’ve written in the past about Healthcare Costs and the Looming U.S. Budget Crisis. The U.S. is headed for the most significant budget crisis in history unless it reforms healthcare spending. Government Accountability Office (GAO) projections show that by as early as 2024, Social Security, Medicare, Medicaid and net interest will consume all federal revenues; by 2037 the federal government deficit will reach 20.5% of gross domestic product (GDP), exceeding the size of today’s federal budget [9].

What does that mean to you?

The nation’s top accountant, U.S. Comptroller General David Walker, warns that if nothing changes, by 2040 the federal government won’t have money left to pay for anything other than interest and some entitlement benefits. No money – zero, zilch, nada – for anything else, including national defense and homeland security.

Now ask yourself, with this clear and present financial disaster before us, why has Congress passed bills that will further increase the U.S. budget deficit?

Don’t misunderstand me. I think SCHIP is important and should be expanded to cover more children from low-income families, as long as we can find a way to responsibly fund the program.


  1. Senate SCHIP Bill Makes a Mockery of PAYGO Budget Rules. The Heritage Foundation. 2007 July 30.
  2. CBO Estimate of the Effects on Direct Spending and Revenues of the Children’s Health Insurance Program Reauthorization Act of 2007. Congressional Budget Office. 2007 July 26.
  3. CBO Estimate of the Effects on Direct Spending and Revenues of H.R. 3162, the Children’s Health and Medicare Protection Act of 2007. Congressional Budget Office. 2007 July 30.
  4. CBO Estimates Show House Bill Would Provide Health Insurance to 5 Million Uninsured Children. Center on Budget and Policy Priorities. 2007 July 25.
  5. 2008 Budget Fact Sheet – SCHIP. U.S. Office of Management and Budget.
  6. John A. Tauras, Patrick M. O’Malley, Lloyd D. Johnston. Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis. The National Bureau of Economic Research Working Paper, No. 8331. 2001 June.
  7. Centers for Disease Control and Prevention (CDC). Response to increases in cigarette prices by race/ethnicity, income, and age groups–United States, 1976-1993. MMWR Morb Mortal Wkly Rep. 1998 Jul 31;47(29):605-9.
    View abstract
  8. 22 Million New Smokers Needed: Funding SCHIP Expansion with a Tobacco Tax. The Heritage Foundation. 2007 July 11.
  9. Robert Bixby. A Fiscal Wake-Up Call, The Concord Coalition Fiscal Wake-Up Tour.
About the Author

Walter Jessen is a senior writer for Highlight HEALTH Media.