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The Federal Government Should Not Make House Calls

by Darcy Ann Olsen

This article appeared on cato.org on May 28, 1997.

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It’s sugar coated, but buyer beware. The latest "bipartisan effort" on Capitol Hill is pure poison for the American health care system. Last month, long-time rivals Sen. Orrin Hatch (R-Utah) and Sen. Ted Kennedy (D-Mass.) co-sponsored the Child Health Insurance and Lower Deficit Act or CHILD. For purely political reasons, the act is supported by both Democrats and Republicans. After all, who would say he was against health insurance for children?

"Senator Hatch and I are introducing a bipartisan bill to give families the opportunity to obtain health insurance for their children at a price they can afford," said Kennedy. As Hatch put it, "Parents should not have to decide whether to buy health insurance for their children or put food on the table." That’s a fine sentiment, but CHILD will drive up the cost of children’s health insurance, worsening the very situation it is meant to improve.

Under CHILD, states could use federal funds to subsidize the purchase of health insurance for anyone under age 18, regardless of family income. The subsidy is not aimed at poor children who are already covered by Medicaid. As Kennedy said, "Coverage will be available to every child, including those in families not eligible for financial assistance." Does that have a familiar ring? It should. CHILD was part of the Clinton administration’s fallback strategy in case its original plan to nationalize health care failed.

Hatch and Kennedy propose increasing taxes on cigarettes and other tobacco products to finance the subsidy. One-third of the revenue would go toward balancing the government’s checkbook, and the other two-thirds would be divvied up among the states. Each state would be obliged to contribute 10 to 20 percent of the program’s cost, and each state legislature would determine how it would finance its portion of the program.

Putting aside the question of whether the federal government should raise taxes, the fact remains that mandates and subsidies inflate insurance premiums. The National Center for Policy Analysis reports that as many as 9.3 million Americans lack health insurance because of current government policies. CHILD’s slew of mandates and regulations will only compound that problem.

CHILD prohibits most participating parents from paying more than 20 percent of the cost of their children’s premiums. Those cost-sharing limits will cause medical service providers and health insurers to raise their fees -- after all, why not raise prices when the government will pay? And because rising fees will give employers an incentive to drop family indemnity policies, CHILD will gain an increasingly large share of the market. The catch is that CHILD requires insurers to provide policies that are the equivalent of Medicaid-- gold-plated insurance coverage that costs at least twice as much as the average private plan for children. With that kind of incentive, why buy private insurance?

Nationwide there are roughly 10 million uninsured children. Of those, the 3 million poorest are Medicaid eligible, and 1.5 million come from families earning $40,000 or more, who should hardly expect taxpayer subsidies. Half of the remaining 5.5 million are uninsured for no longer than six months. About 2.8 million children, or 4 percent, are chronically uninsured -- that is, they lack health insurance for two years or more. This is not to suggest that 2.8 million children are insignificant. Every child matters. But it is hardly a crisis when 96 percent of the nation’s children do not lack health insurance most of the time. Moreover, lack of health insurance does not necessarily preclude children from obtaining medical care. There are dozens of federal, state and local programs that promote children’s health, including Medicaid, the Maternal and Child Health Services Block Grant to the States, the Residents of Public Housing Primary Care Program, Childhood Immunization Grants and Emergency Medical Services for Children.

If Senators Hatch and Kennedy want to help working families afford children’s health insurance, they should raise wages by lowering taxes. Since 88 percent of uninsured children have working parents, lowering the federal income tax would significantly affect them. Congress also should change the tax treatment of health insurance. Currently, employer-provided health care is purchased with pre-tax dollars, while workers who purchase health insurance on their own must do so with after-tax dollars. That preferential tax treatment effectively doubles the cost of health insurance for people who must purchase their own.

CHILD is only 1 of 25 bills pending in Congress that promote government-run health care -- an idea that the American public overwhelmingly rejected just three years ago. Should Hatch and Kennedy impose on our children a plan that we deemed unacceptable for ourselves?