President Bush stated Wednesday that he opposed expanding the State Children's Health Insurance Program (SCHIP) and would rather Congress enact his proposal to create a standard deduction from federal taxes for health insurance, whether it's employer-provided or purchased in the individual health insurance market. The President's proposal, which he first announced during his State of the Union address in January, has little chance of being enacted. It is widely opposed by many in Congress because it could undermine employer-based health insurance without guaranteeing that an adequate alternative would take its place.

President's Proposal would Shift Risk onto Individuals and Families

The stated purpose of the proposal is to "even the playing field" between those with employer-provided coverage (which is currently subsidized through the tax code) and those who purchase coverage in the individual health insurance market (which is mostly not subsidized under the tax code). Unfortunately, rather than evening the playing field, the President's plan would make the tax code more biased towards individually purchased health care and maybe even high-deductible health care. There would no longer be any incentive for employers to provide health care, so many could "cash out" the health care benefits they currently offer and employees would have to turn to the individual health insurance market, where plans offered are much more expensive and less generous. Since the amount of the new deduction would be indexed to regular cost inflation but not to health care inflation (which is steeper) more and more people over time would find that their coverage costs more than the new deduction.

Little Effort at Practical Solutions in the White House

The President's words seemed geared towards satisfying certain ideological interests rather than finding practical solutions. He cast the issue as a choice between government intrusion in people's lives and the freedom of individuals to make choices in the market. As the Center on Budget and Policy Priorities has pointed out, most SCHIP and Medicaid recipients already choose between different private health plans that have contracted with their state and that have agreed to meet certain standards.

The President also invoked the fear that public health insurance "crowds out" private health insurance. The preeminent health economist whose work is often used to make such claims, Jonathan Gruber, has said that the public programs like SCHIP result in an increase in coverage among children who would otherwise go without health insurance and this far outweighs any "crowding out" of private insurance.

As reported in last week's Digest, one proposal being considered by Congress would pay for an SCHIP expansion with increased federal tobacco taxes.

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