America desperately needs a universal health insurance plan, but political realities suggest that Congress will move toward it incrementally. [IMGCAP(1)]

The demand for universal coverage, quality improvements and cost containment is mounting across the political spectrum, and every 2008 presidential candidate will have to have a plan.

The demand is fueled by the steadily increasing ranks of the uninsured, now numbering close to 47 million, continuously rising insurance costs that burden U.S. businesses in global competition and a quality crisis that kills tens of thousands of Americans yearly.

But ideological splits between Democrats favoring government-dominated health care and Republicans emphasizing consumer-driven cost-containment almost certainly will block enactment of any plan in the next two years.

Instead, Congress and the White House need to reauthorize and expand the State Children’s Health Insurance Program, and Democrats should give a fair hearing to President Bush’s proposal for a standard tax deduction for the purchase of health insurance.

After years of funding freezes, Bush’s new budget, out next week, is expected to include a modest increase in SCHIP funding — probably just enough to prevent 1.5 million children from losing coverage over the next five years because of rising health costs.

Bush budget officials would not tell me what their number will be, but health experts say it will cost about $14 billion over five years to keep 5 million children covered under the program.

That still leaves 9 million to 10 million children uninsured — 6 million to 7 million of whom are eligible for SCHIP but are not enrolled mainly because states don’t reach out to them.

To cover them would cost an additional $50 billion over five years. And to cover all children in families with incomes under $66,000 for a family of three — twice the federal poverty line — would cost $20 billion on top of that.

One top administration official told me that SCHIP is “a train roaring down the tracks that we expect a lot of cars to be attached to,” indicating Bush was not prepared to pay the cost.

But it’s worth noting that Bush not only agreed to — but sponsored — a Medicare prescription drug bill for seniors that will cost an estimated $400 billion over five years.

Administration officials argue that providing drugs to seniors is a major way of preventing disease and holding down costs. The same argument can be made for preventive care for children, for whom coverage is cheaper than for adults.

Moreover, as part of the 2004 Medicare Modernization Act, the administration won authority for other steps — such as pay-for-performance experiments and expansion of Medicare HMOs and health savings accounts — that contribute to quality improvement and long-run cost savings.

SCHIP reauthorization could be used as a vehicle for more reforms from the GOP side, even as Democrats try to expand the program to guarantee coverage for all children and even low-income parents.

A number of initiatives to cover all children have been proposed, including one by Sen. Hillary Rodham Clinton (D-N.Y.), Rep. John Dingell (D-Mich.) and a coalition of 16 disparate groups including the liberal Families USA, the conservative U.S. Chamber of Commerce and America’s Health Insurance Plans.

A restraint on Democrats’ ambitions will be their “pay-as-you-go” requirement that any new spending be offset by savings elsewhere, though last week a Blue Dog Democrat, Rep. Marion Berry (Ark.), and a moderate Republican, Rep. Heather Wilson (N.M.), appealed to the House Budget Committee to clear funding to cover children up to 200 percent of poverty.

Meanwhile, Bush’s proposal to grant a standard tax deduction of $7,500 per individual or $15,000 per family for the purchase of insurance was declared DOA by Dingell and Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means subcommittee on health.

It deserves resuscitation and revision — possibly to provide for a refundable tax credit to enable more low-income workers to afford health coverage. The main Democratic objection to Bush’s plan — an alleged “tax increase on the middle class” — could be ameliorated by phasing it in.

To pay for the tax deduction, Bush proposed forcing beneficiaries of “gold-plated” employer-provided plans to pay tax on the benefit, raising Democratic (and trade union) hackles. Democrats also contend the plan will disrupt the employer-based health insurance system that covers about 75 percent of workers.

But the employer-based system already is deteriorating, and even some Democrats — such as Sen. Barack Obama (Ill.) — have suggested that it needs to be replaced.

Advocates of universal coverage, such as Henry Simmons, president of the National Coalition on Health Care, argue that America can’t wait until after the 2008 elections to repair a broken system.

He said Bush’s plan covers too few of the uninsured — an estimated 5 million — and that incremental reform such as SCHIP expansion provides no cost-containment mechanism. He’s right, of course.

America needs to have everyone covered to bring down the average cost of insurance and keep everyone healthier. But how to deliver that service — through the government or the private insurance market, with price controls or consumer choice — is a subject for a presidential debate. For now, let’s cover the kids.