Politics & Policy

A Healthy Veto

Democrats say that we shouldn’t worry about the cost of their bill to expand the State Children’s Health Insurance Program. They say that we will spend less on S-CHIP all year than we spend on Iraq in one month. That’s true, in the short run. But the Iraq War will one day end. A new entitlement won’t. Instead, it will grow and grow.

Future fiscal crises are built into the design of S-CHIP. It is funded through cigarette taxes, and will be underfunded to the extent that those taxes succeed in discouraging smoking. But that’s the least of the program’s flaws. Under the Democrats’ bill, states will be able to expand benefits and stick the federal government with two-thirds of the tab. The Medicaid program shows us how these incentives will work. Benefits will expand. When times are good, governors and state legislators will be able to offer voters $3 in services for every $1 in state taxes. When times are bad, the politicians will suddenly discover that they have to cut services by $3 for every $1 in savings.

Rich blue states will spend the most, and thus get the most federal dollars. Half of all Medicaid spending goes to nine states. Republican congressmen who voted for the S-CHIP bill are voting to transfer money from red states to blue ones.

They’re also voting for high marginal tax rates on the poor. S-CHIP, in combination with other federal programs, creates a poverty trap: Many people will find that, if they get ahead, their benefits will fall and they’ll be left behind where they started.

Expanding S-CHIP will get coverage to some children who would not otherwise have had it. Although there is little evidence that this is a cost-effective way to improve children’s health, presumably some of these kids will be able to have better preventive care. Other kids, however, will lose their private insurance and end up with worse coverage.

Insurance is unaffordable in some of the states that most want to see S-CHIP expanded. But that’s the result of those states’ own regulations. New Jersey’s insurance prices are higher than Pennsylvania’s not because of act of God, but because of acts of the New Jersey legislature.

Congressional Republicans—and especially the Republicans on the Senate Finance Committee—should have tried to reduce the regulatory obstacles to buying affordable health insurance. They should have pushed to let consumers buy insurance from out of state, thus bypassing the types of regulations that New Jersey has enacted. Or they could have forced Democrats to end the tax penalty on individually purchased insurance if they wanted any S-CHIP expansion at all.

The leading Republican on the committee, Sen. Charles Grassley of Iowa, instead capitulated. He said that, while he supports free-market reforms, it is unrealistic to expect this Congress to approve them. It is a pathetic excuse: He should have told his Democratic colleagues that it is unrealistic to expect a Republican president to sign such a liberal bill.

President Bush should veto this bill proudly.


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