The Mistake of Tying Health Insurance to Cigarette Revenue: Colorado Will Have to Cut Off Insurance for Children and Poor Adults, Says Report

According to a Kaiser Daily Health Policy Report, the state of Colorado will need to cut off health insurance for many children and poor adults due to declines in cigarette consumption. In 2004, the state used a cigarette excise tax increase to fund an expansion of Medicaid and SCHIP to cover impoverished adults and children who lacked health insurance. While that may have sounded like a good idea at the time, it has now produced a situation where because of declining cigarette consumption and tax revenues, many children and poor adults will need to be cut out of the program in order for it to remain solvent.

According to the report: "A decline in smoking rates in Colorado has led to a decline in cigarette tax revenue that is used in part to fund state health insurance programs, the Denver Rocky Mountain News reports. In 2004, the state increased the cigarette tax by 64 cents per pack with the goal of using the revenue for health care and tobacco education. The tax generated $169.6 million in the first year, but revenue has fallen for two straight years and budget forecasts show the revenue is expected to decline to $135.5 million in fiscal year 2012 -- a 20% drop before accounting for inflation. The purchase of cigarettes across state lines, over the Internet and on the black market also is contributing to lower cigarette tax revenue. ... 46% of the cigarette tax revenue is used to expand enrollment in public health insurance programs, such as Medicaid and SCHIP. State Sen. Betty Boyd (D) said, "That's a problem if the funds aren't there, because you can't provide services if you don't have money. In the end, if we lose enough money, less kids will get services." ... Sen. John Morse (D-Colo.) said the state could reduce the income eligibility level to reduce costs but that would reverse years of expanding eligibility."

The Rest of the Story

Tying children's health insurance and insurance for the poor to a cigarette tax increase may have seemed like a good idea in 2004, but four years later it is apparent that this decision resulted in making health insurance for the poor dependent on sustained levels of cigarette consumption. As consumption has fallen, there is not enough money left to retain the program and it appears that the income eligibility level will need to be reduced in order to keep the program solvent. This means, of course, that poor people and children will need to be thrown out of the health insurance program.

Can you imagine having to explain to a child or a poor family who is thrown out of the program the reason for the problem: "You see, the reason you had to be thrown out of the program and why the state will not be able to provide health care for you is that not enough people in the state are smoking. Unfortunately, lots of people in our state have quit smoking or reduced the amount they smoke, so as a result, you no longer have health insurance coverage. Sorry about that."

Anti-smoking groups have been quick to support any proposed cigarette tax increase, but the Colorado story illustrates that a little more careful consideration of these proposals is warranted. The long-term problems created by funding critical state programs with cigarette tax revenues outweigh any short-term benefits.

Sales of my T-shirt are taking off in Colorado.