SCHIP and Income Limits -- A Fair Debate?

President Bush’s recent veto of the State Children’s Health Insurance Program (SCHIP) passed by Congress has raised considerable debate regarding the role of government in providing health care generally, and the income threshold at which a family is eligible specifically. I speculate that there is will be no simple method for establishing a bright line test on the income threshold issue, but I do believe that there is a common misconception of the value of an annual salary at set point x. There are a number of possible reasons for this disconnect between the way a salary is portrayed in daily discussions and what that salary will actually purchase for a family of four. The most obvious reason for the failure of the debate to focus on the actual purchasing power is that those in the debate, by and large, are not exactly in the $40K-$83K income bracket. A second potential disconnect lies in the aging population and the fact that older citizens tend to be more involved in the political discourse. These older folks also invariably remember when you could buy everything for a nickel, or at most a dollar… In all seriousness, even if these folks have some grasp of inflation and its role in the economy – they could be caught up in the absolute dollar changes as we progress into territory where 2.5% inflation per year is equal to seemingly significant amounts in absolute dollar amounts.

Here is a very generic listing of expenses that I think are reasonable for a family of four...
Housing:
$10,752 for house payment (150K house, 7%, w/ 10% down)
$4,500 for property taxes, insurance, maintenance, and improvements
Transportation:
$3,804 car payment ($20K new car, 60 mths, 7%, 20% down)
$540 one monthly bus pass
$1,600 maintenance, fees, registration, repairs, and insurance
$2,037 in gas (27 miles a gallon, 20K miles a year, $2.75/Gal)
Operations:
$1,000 Gas and Heat
$720 Phones – 2x Cells no home line
$500 Computer – Internet and maintenance
$300 Water and Sewage
$1,600 Clothing
$6,552 Food – 4,368 meals / year at $1.50 per meal
$1,500 Health durables, hair apts, general supplies
$1,600 Entertainment - gifts, toys, movies, dinner
$2,000 College Fund - $1K for each child
$800 School Supplies and fees
$2,000 Additional savings
$2,664 Student Loan payments – 10 yr, 6%, 20K

Total Expenses: $44,469
If you claim savings is not necessary: $40,469

Scenario Analysis:
200% poverty line: Salary: $40,000 – After FICA/Med and Tax Credit: $36,220
250% poverty line: Salary: $50,000 – After FICA/Med and Tax: $43,705
300% poverty line: Salary: $60,000 – After FICA/Med and Tax: $51,190

Income Statement:
$36,220 - $44,469 = ($8,249)
$43,705 - $44,469 = ($764)
$51,190 – $44,469 = $6,721

I don’t believe that this scenario analysis proves that a $60K salary is not enough to get by, but I do believe it may put into perspective just how quickly expenses pile up… Finding health insurance for a family of four in the private market for $560 a month is difficult, if not impossible. Don’t forget, this model family does not have resource consuming vices of alcohol, tobacco, or credit card fees. This analysis also fails to consider the potential for large unbudgeted expenses and features what I feel is a rather frugal lifestyle. Consider that adjusted for inflation a $30K salary in 1980 would be roughly equivalent to an $80K salary in 2006. I was not alive in 1980, so I can’t speak to what $30K was like then, but I speculate that it was not perceived to be as much as $80K is now. Also, it is important to note that health care costs, and thus health insurance, have risen at rates that far exceed inflation.