Flip S-CHIP to a tax benefit

Using tax credits to extend healthcare for poor children could set a consensus for reform.

People's concern for children should never be used as a political football. But that's the case with a debate on a federal program called the State Children's Health Insurance Program, or S-CHIP. Expansion of this 1997 law has become a campaign "wedge" issue. Better that it be a window of opportunity for a consensus on reform of healthcare.

S-CHIP was a bipartisan venture between President Clinton and a Republican Congress, aimed at meeting the medical needs of children whose parents earned too much to qualify for Medicaid but whose income is less than twice the poverty line, or $41,300 for a family of four.

This government-managed system wasn't set up, however, to become a model for families with higher and higher incomes. Yet that's the effect of the bill passed by Congress – and vetoed by President Bush. In fact, the original program has failed to reach many of the intended poor, or an estimated 500,000 to 1.5 million children who are eligible. That's because states (which run the program with federal money) often fall short in reaching poor families or persuading them to enroll.

And the proposed funding of S-CHIP's expansion for five years creates its own problem.

The bill would pay for an additional $35 billion in spending by raising the federal excise tax on cigarettes by 61 cents. This, in effect, pays for the healthcare of poor children by taking money from smokers, who tend to be the poorest and least educated Americans. Such a tax is a weak reed to sustain the finances of a program – what if smoking further declines? – and simply perverse in its logic.

Extending S-CHIP to families who earn three or more times the poverty-line income would reach many who already have employer-provided insurance. This could cause many employers to drop coverage and thus erode the private system that has become the cornerstone of healthcare proposals of most presidential candidates, including Hillary Clinton.

Congress can both reach children whose parents earn more than twice the poverty level and preserve employer-based insurance. To do so, it can make money available directly to poor families, enabling them to pay for healthcare providers of their choice for their children, or pay their share of employer-based insurance.

The money can come as a tax credit for poor, working families or outright cash for families who don't earn enough to pay taxes. Such a step was recommended earlier this year by a wide coalition of groups ranging from the US Chamber of Commerce to the American Medical Association. The credit would be indexed to rising healthcare costs and based on different costs by region.

Such an idea should become the basis for a compromise between Mr. Bush and Congress, assuming his veto is upheld in the House, as expected. It could form the kernel for a wider consensus on ways to meet the needs of an estimated 46 million people who currently don't have health insurance while keeping the market-based healthcare system.

The issue of healthcare need not be a third rail in American politics, used to burn. Renewal of S-CHIP the right way can play to people's hopes, not their fears.