The Cato Institute’s Michael Cannon wrote a good treatment of the S-CHIP controversy back last fall. It’s still worth a read, particularly the passage where he applies some public-choice analysis to the politics of S-CHIP expansion: 

Support for S-CHIP (and Medicaid) expansion comes from an alliance of “bootleggers and Baptists.” Economists often explain support for government policies (e.g. restrictions on alcohol sales) in terms of those who truly believe in the merits of the policy (i.e. Baptists who oppose alcohol consumption) and those who benefit from the policy (i.e. the bootleggers who sell illicit alcohol).

The “Baptists” behind S-CHIP expansion are those who believe that the way to increase health care quality and access is for government to finance and control the delivery of care. An example would be left-wing advocacy groups such as Families USA. Expanding S-CHIP and Medicaid to enroll more Americans serves their goal of eventually enrolling all Americans in government health care programs. This incremental strategy is neither new nor secretive. In 1993, the Clinton administration’s Health Care Task Force explicitly considered what it called a “Kids First” strategy for health care reform that would have first enrolled all children, and eventually all adults, in a government-controlled health care system.

The “bootleggers” behind S-CHIP expansion include those who stand to gain financially from greater government subsidies for health insurance and health care. They include several lobbying groups: America’s Health Insurance plans, and the insurers it represents; the Pharmaceutical Research and Manufacturers of America and the drug manufacturers it represents; the American Medical Association and the physicians it represents; and the Federation of American Hospitals and the for-profit hospitals it represents. State officials who support S-CHIP expansion, such as California’s Governor Schwartzenegger and the rest of the National Governors Association, also belong in the bootleggers category because increasing federal S-CHIP spending benefits them politically: it enables them to provide new subsidies to voters at a fraction of the cost.

The bootleggers/Baptists explanation for perverse policy outcomes was actually developed by a friend of many at JLF, Clemson University economist Bruce Yandle. The only place I differ with Cannon here is the position of the private health plans ? they favor some expansions of government health care, yes, but they obviously don’t favor Medicaid expansion to all adults.