The Bush administration and Congress moved a step closer today toward a major confrontation this month over the future shape of the State Children’s Health Insurance Plan.

Adding intensity to the confrontation, the 5-year authorization of the program expires Sept. 30, the end of the current government fiscal year.

In the latest developments, members of the Senate Finance Committee said they had reached an agreement on a framework for expansion of SCHIP that calls for spending $35 billion on the program over the next five years. The bill will be marked up on July 17th, Sen. Max Baucus, D-Mont., chairman of the panel, said.

At the same time, President Bush again renewed his call in a speech for replacement of the program with tax proposals he has made in the past.

In a fact sheet released while he toured health facilities in Cleveland, the White House said that, “Instead of encouraging people to drop private coverage for government programs, the President believes we should work to make basic private health insurance affordable for all Americans.”

The fact sheet added, that, “The best way to do this is by reforming the tax code to level the playing field so those who buy health insurance on their own get the same tax advantage as those who get health insurance through their jobs.”

But his budget for this year also calls for a modest expansion of the program, which currently costs $5 billion annually, by adding $5 billion to $7 billion over 5 years.

Under the bipartisan agreement in the Senate, the expansion would cost $35 billion over five years. The expansion would be funded with a 61-cent increase in the 39-cent federal cigarette tax, to an even $1 per pack.

This is far short of the $50 billion increase sought by Democratic congressional leaders and included in the congressional budget resolution passed earlier this year.

Democratic leaders in the House plan to vote on legislation implementing their plan the week of July 24th.

Besides the increase in the tobacco tax, the Democratic House leadership proposed to pay for their major increase in the program by cutting the Medicare Advantage program offered by private insurers.

In a “Dear Colleague” letter sent to Democrats June 28 before they left on recess, leaders of the House proposal also said they would use cuts in the MA program to reduce cuts in physician payments under Medicare called for under current law.

“Unfortunately, Medicare physicians have been sacrificed for the past several years to promote the Republican privatization agenda,” the letter said.

“While private plans in Medicare have received overpayments of 12% on average, fees to Medicare’s doctors have been frozen,” the letter said. “Next year, physicians in Medicare will receive a 10% reduction in fees and an estimated 5% reduction each year between 2009 and 2017 unless Congress acts.”

The “Dear Colleague” letter was signed by Reps. Charles Rangel, chairman of the Ways and Means Committee; John Dingell, chairman of the Energy Committee; Pete Stark, chairman of the Health Subcommittee of Ways and Means; and Frank Pallone, Jr., chairman of the Health Subcommittee of Energy and Commerce.

In his comments, Sen. Baucus said that, “In 1997, leaders of both parties in Congress came together to do the right thing, and created CHIP to help children whose families cannot afford private health coverage.”

He added that, “Congress must put kids first again in renewing SCHIP. Renewing and improving the Children’s Health Insurance Program will make sure that low-income kids get to see doctors when they need them and get the healthy start they deserve in life.”

Commenting on the coming battle, Mohit Ghose, a spokesman for America’s Health Insurance Plans, Washington, said, “AHIP and our member companies support the full funding of SCHIP in order to maintain an enhanced program that provides coverage for millions of children across the country.”

However, Ghose said, “We believe that is a false choice.

“We don’t think it is a fair tradeoff to take money away from 8 million seniors to support a massive expansion of the SCHIP,” he added in explaining why AHIP and its members have supported alternatives to funding an expansion of the program that includes the use of a new tobacco tax to fully fund the program.

“Use of such a tax is overwhelmingly supported across the country by Democrats, Republicans and independents,” Ghose said. “But we do not believe that seniors and MA[Medicare Advantage] plans should lose benefits and have to pay higher out of pocket costs in order to provide funding for SCHIP.”