I think it is a reasonable bi-partisan bill to continue to provide (and expand) basic heath care to children of working poor and uninsured but not eligible for medicaid. It would potentially expand the number of covered children from 6+million to 9+ million.
The original CHIPs program enacted in 1996 was funded through the federal cigarette tax and by all accounts worked well and gave states the flexibility to run the program.
Increasing the cigarette tax (the first federal increase in 10 years) and a higher cigar tax seems like a reasonable trade-off to me to provide basic health care to millions of poor children (which ultimately saves money in the health care system).
I dont like regressive taxes that adversely affect the lowest income groups' ability to meet their basic needs. Cigarettes are not a basic need and in this case, a regressive taxes is not all bad. At the very least, it would likely help prevent more young people (from most income levels) from starting to smoke but would not significantly result in lower revenue (based on the experiences of many states that have raised state cigarette taxes).
And the added tax on most cigars would not be any more signficant than the tax on cigarettes...but anyone willing to pay $9 for a cigar can afford another couple bucks.
Fact sheet on CHIPS (pdf)