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SCHIP Wreck

Oregon voters send a message on HillaryCare.
Opinion Journal REVIEW & OUTLOOK, November 8, 2007 (Hat tip: Maureen)

Oregon voters passed judgment Tuesday on a plan that would have made their state children's health insurance program "universal." Sound familiar?

It should, because Oregon reproduced the current Schip fracas in D.C. on the state level--and the referendum took a major shellacking, with voters siding three to two against. Oregon's expansion was almost identical to the one backed by Congressional Democrats, so let's conduct a post-mortem, which may also be a portent.

Like Beltway Democrats, Governor Ted Kulongoski and his legislature wanted to broaden eligibility for Oregon's "Healthy Kids" Schip program to 300% of the federal poverty level. They would also allow all families to opt in, regardless of income, though higher earners wouldn't get subsidies. Again like Congress, Salem intended to pay for the expansion with cigarette taxes, which would increase to $2.02 from $1.18 a pack. That would be one of the highest state tobacco levies in the nation.

Democrats couldn't dredge up the three-fifths approval required for a tax increase in the legislature, so they kicked the expansion over to the ballot. And already, Measure 50's defeat is being blamed on $12 million in advertising by Big Tobacco. "What happened was, the tobacco industry bought the election," Governor Kulongoski declared yesterday.

We're surprised the Governor thinks voters in his left-leaning state are so easily gulled--especially in a contest between "healthy kids" and cigarettes. More persuasive is the notion that voters didn't want to pass a state tax increase to finance a health-care expansion that Congress might soon pass, along with buckets of federal dollars. But most likely, voters understood that a tax increase on cigarettes is still a tax increase, and a highly regressive one at that. Only about 20% of Oregonians smoke, and most of those are lower income.

They may also have figured that to the extent tobacco taxes reduce smoking, they will soon not yield enough revenue to pay for ever-growing health costs. An analysis by William Conerly, a member of Governor Kulongoski's own Council of Economic Advisors, found that a straight Schip expansion funded by a tobacco tax was unsustainable, with costs exceeding revenues by $115 million by 2017.

Counting "crowd out"--the migration to public from private insurance--Mr. Conerly predicted a $638 million deficit within the decade. Oregon tried a similar universal health experiment in the 1990s, only to see it raise havoc, and voters may not have been eager for a low-budget sequel.

There are political lessons here, in case anyone in Washington is paying attention. Voters are rightly concerned about health care and would like everyone to have insurance, but they realize that government programs are very expensive. Americans also don't seem to want to pay for health-care reforms directly through higher taxes. That accounts for the reliance by politicians on the easier sell of tobacco taxes, and it also explains why Congress has disguised the real cost of its Schip contraption with a $30 billion budget gimmick. (No thanks to GOP Senators Orrin Hatch and Chuck Grassley.)

As for state-level reforms beyond Schip, California may be the next overhyped reform to fail. The last, best hope for Arnold Schwarzenegger's foundering "universal" plan is to imitate Oregon by passing a legislative blueprint and then dumping funding responsibility onto the voters via a referendum. Tuesday's vote doesn't bode well for that prospect.

As for 2008, most of the national press corps has already assumed "universal" coverage will both carry Hillary Clinton to the White House and march easily into law. The message from the Oregon trail is--not so fast, especially if her Republican opponent advances a credible free-market alternative.

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