Quick: What Does Smoking Have to Do with Health Insurance?

“Smoke up, Johnny. ” A banner year in the House household.

Who would deny a doctor visit to an uninsured kid with asthma? Who could?

At issue is S-CHIP, the State Children’s Health Insurance Program, founded in legislation passed in 1997. The original intent of the $40 million dollar block grant issued to states was to boost the insured rate among families who didn’t qualify for Medicaid. Earnings caps were raised to an average of 200% of poverty levels and applied through a combination of state and federal (S-CHIP) programs, according to the Urban Insititute.

The program has been funded through an excise tax on tobacco, including a cigarette rate of 15 cents per pack.

In 2007, Congress tried desperately and unsuccessfully to introduce a bill that would not be knocked down by one of W’s rare vetoes. Mr President was unconvinced that the costs were low enough. But the popular and by many accounts effective stop-gap was threatened with closure.

Enter the 2009 bill, which is expected to pass shortly. Having passed the House handily, the Senate has OK’d a version of the resolution. Upgrades include coverage for pregnant legal immigrants and legal immigrant children, forgoing a five-year waiting period. This costs around $35 billion.

Who pays? Smokers again. This time it’s 61 cents per pack.

All this raises the question: what is the wisdom in funding based on a series of sin taxes on a dwindling segment of the population? The number of smokers is declining, shrinking the revenue if trends continue. Such a regressive tax also tends to  harm a demographic that can’t afford the burden. Many who use cigarettes have lower incomes than the median.

And it’s clear that such tax hikes either drive people to smoke less or turn to alternative sources for their tobacco. The Internet or interstate options come to mind. Gradually, the transport of cigarettes from states with lower prices to the higher-priced states will rise. And new boot-legging will increase. Collected taxes will decrease.

Also at stake: what is the rationale for using such a seemingly punitive measure?  It’s hard to argue that this bill should not pass. With such a positive outcome from 1997-2007, S-CHIP should be renewed. However, the revenue source is suspect. Taxing toilet paper at 3 cents a pack seems more fair and spreads the cost more painlessly.

Ultimately, the concept behind sin taxes is the real debate. Unpopular as it may be, there is certainly some logic to generating insurance funding through items such as cigarettes and alcohol. People who consistently use either will cost more in health care over the courses of their lives. This could be addressed with higher insurance premiums, though.

The newest candidate for the tax is any food product that causes obesity, certainly a growing demographic. New York State recently began considering a soda tax of 18% as sugar is unequivocally associated with obesity. The Institute of Medicine reports that such taxes already exist in Virginia, Tennessee, and Washington. New York City has required nutritional fact sheets to be displayed at many restaurants and cafes. Obviously, this suggests that trends in public consciousness will make this an area of opportunity for taxation in the coming years.

As laws evolve enacting excise tax funding statutes, we should be sure to engage public discussion to insure that they are equitable and sustainable. Who knows, we may end up with another Whiskey Rebellion.