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Bush Administration Opposes Cigarette Tax Increase To Fund Children's Health Insurance

Armen Hareyan's picture

HHS Secretary Mike Leavitt on Tuesday in a letter to Senate Finance Committee Chair Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) wrote that a proposal to increase the federal cigarette tax to fund an SCHIP health insurance expansion "would increase taxes on low-income taxpayers," the AP/Houston Chronicle reports (Freking, AP/Houston Chronicle, 7/17). Committee members on Friday finalized a bipartisan agreement on SCHIP reauthorization that would increase five-year funding for the program from $25 billion to $60 billion. SCHIP expires on Sept. 30.

The plan -- negotiated by Baucus, Grassley, and committee members Orrin Hatch (R-Utah) and Jay Rockefeller (D-W.Va.) -- would increase the federal cigarette tax from 39 cents to $1 per pack to fund an expansion of SCHIP. The group of senators said that the 6.6 million children currently enrolled in SCHIP would continue to receive benefits under the plan, and an additional 3.3 million uninsured children could be enrolled in the program.

States that provide SCHIP to children in families with incomes higher than 300% of the federal poverty level would receive lower Medicaid matching payments for those children. The plan also would prevent HHS from approving additional waivers that allow states to enroll adults in SCHIP and move childless adults currently enrolled in the program into Medicaid.

President Bush has proposed a $5 billion increase over five years for SCHIP, which would increase the program's total five-year funding to $30 billion (Kaiser Daily Health Policy Report, 7/17).

Leavitt's Letter

Leavitt in his letter said that SCHIP should be renewed but that the Finance Committee plan would shift billions of dollars in insurance costs from the private sector to the federal government (AP/Houston Chronicle, 7/17). According to Leavitt, the bill "is clearly an effort to move those who are insured in the private market to a public-paid-for-market" (Johnson, CongressDaily, 7/18).

He added, the cigarette tax increase is a "massive budget gimmick," and said the proposal states that funding from the tax would drop from $16 billion to $3.5 billion in 2013, which shows the expansion is unsustainable. Congressional aides, however, said the tobacco tax provides sufficient revenue for SCHIP spending for the five-year period covered by reauthorization of the program (AP/Houston Chronicle, 7/17).

Leavitt wrote, "The president believes the reauthorization of SCHIP as originally intended should be coupled with a better approach that includes federal tax policy that eliminates discrimination against those who buy insurance on their own and not through their employers."

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Grassley said, "I've got no problems with [Bush's health insurance tax policy proposal], but it ain't going to be done on this bill." Grassley added that a veto of the proposal would result in an SCHIP extension "with all the bad policy that this administration has perpetrated," such as state waivers to cover adults.

Baucus said the bill would prevent states from enrolling more adults in the program. However, Baucus in a letter responding to Leavitt wrote, "I hope that you would agree that we should not take precipitous actions to throw parents off the [SCHIP] rolls, if that would also mean that fewer children would be covered."

Hatch said a Bush veto of the proposal "would be a stupid thing to do, in my opinion." He said it is "a little disconcerting" that the Bush administration is criticizing the SCHIP expansion when HHS continually has provided waivers to states that allow adults to enroll in the program and then provides those states with stop-gap funds to address shortfalls. However, Hatch noted that the Senate measure would have to be reconciled with a House SCHIP bill. "Even if we do agree to this Senate bill, the House wants to spend a lot more," Hatch said (Johnson, CongressDaily, 7/18).

Markup Delayed

The Senate Finance Committee on Tuesday delayed until Wednesday afternoon consideration of the bill, allowing for more time to debate legislation involving the war in Iraq. Meanwhile, House Democrats said they hope to pass a $50 billion SCHIP expansion before a congressional recess in August. Rep. Henry Waxman (D-Calif.) said that he and his colleagues are discussing a bill that would cost between $50 billion and $100 billion over five years and that would be funded by a tobacco tax, cuts in payments to Medicare Advantage plans and potentially other sources (Reichard, CQ HealthBeat, 7/17).


Congress "wants to create a government-run health system on the backs of children with higher taxes," but a superior platform would be to "expand tax breaks for health savings accounts and better insurance choices that promote portability and encourage prevention and disease management," a Washington Times editorial states. The editorial concludes that "many in Congress would rather pay to have us join Michael Moore's medical mystery tour to Cuba than to continue to be part of the Reagan Revolution" (Washington Times, 7/18).

Reprinted with permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at kaisernetwork.org/email . The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.