The other day, while arguing with someone who claimed that SCHIP benefitted families who make too much money, I realized something profound.

Thanks to tax policy, SCHIP costs the government less per child than private health insurance for high-tax bracket individuals.

(Adapted from a diary at Daily Kos)

SCHIP serves 6.6 million children for $5 billion a year. It sounds like a lot, but when you do the math, that’s only $758 per child per year.  (The actual total cost per child is slightly larger, because some families pay a small premium, while others pay nothing.) If you’ve done any shopping for individual health insurance, you’ll know that for a bargain, largely possible because the state can bargain very hard with the private companies who run it (in California, the most popular plan is Blue Cross), and because it’s a large risk pool of mostly healthy individuals.

Great.

But, we wouldn’t want to provide this subsidy to richer children. They’d leave private health insurance, sending the government’s burden up… right? Make the rich pay their own way!

Well, for the SCHIP money pool, maybe.

But here’s a fun fact. Health insurance is tax deductible if it is purchased by the employer or by a self-employed individual, which is the majority of American health insurance. If we say my daughter’s portion of my health insurance policy is $2400, and I’m in the 25% tax bracket + 15% for social security/payroll/self employment tax, then the Federal Government is picking up $960 of her annual premiums.

That’s right. My private health insurance costs the government more than if we were to enroll her in SCHIP. (Not to mention how much more it costs out of my pocket.)

If I made more money, and popped into the 35% bracket, the government would pay even more, and I’d pay less. (I guess that’s because if I made enough for the 35% bracket, money would be tight with the high price of yacht fuel.)

But thank goodness we’re not benefitting from that large state risk pool!