March 13, 2007
CLEARING UP CONFUSION ON THE COSTS OF COVERING UNINSURED CHILDREN ELIGIBLE FOR MEDICAID OR SCHIP
By Edwin Park, Robert Greenstein, and Matthew Broaddus
In recent days, several media
accounts have cited some Congressional offices from both parties as saying that
a Congressional Budget Office memo issued last month
shows that the cost of immediately covering all uninsured children who are
eligible for Medicaid or the State Children’s Health Insurance Program (SCHIP)
would be $32 billion over five years.
Since CBO places the net cost of fully averting the looming federal funding
“shortfalls” in state SCHIP programs (i.e. of enabling states to sustain their
current programs) at just under $8 billion over five years,
some Congressional staff have concluded that the total cost of closing the
shortfalls and covering all eligible, uninsured children is $40 billion over
The February CBO memo, however, did
not discuss the cost of covering all eligible uninsured children. Due to the
way that the memo presented its data, it is easy to see how a reader of the memo
could draw the conclusion that CBO was estimating the cost of covering all
eligible uninsured children at $32 billion over five years. But such a
conclusion is not valid, and the $32 billion figure understates the cost, as
this analysis — and a new CBO memo issued March 13 — indicate.
One news account last week referred
to there being differing interpretations of what the CBO memo means for the cost
of enrolling all eligible, uninsured children.
The issue, however, is not one of differing interpretations of the memo; rather
it is one of misinterpretation of the original CBO memo. In fact, because of
the misunderstanding of its original February memo by some Congressional
offices, CBO issued a second, clarifying memo on March 13.
This analysis explains the implications of the two CBO memos for the cost of
covering all eligible uninsured children.
The CBO Memos
February 20, CBO issued an informal memorandum to Congressional staff estimating
the costs of enrolling more eligible but unenrolled children in Medicaid and
SCHIP. The memo provided an estimate of the cost of immediately enrolling
one million additional children in each of the two programs. CBO
determined that the cost of enrolling one million additional children in
Medicaid would be $6 billion over five years (2008-2012), while the cost of
enrolling the same number of additional children in SCHIP would be $4 billion
over five years.
The February memo was simply intended to provide a helpful “rule of thumb” about
how much it might cost to cover the millions of uninsured children who are
eligible for Medicaid or SCHIP but are not enrolled. CBO indicated that the
figures in the table could be dialed up or down to approximate the cost of
covering any number of additional children in Medicaid and SCHIP. CBO was
careful to note that its estimates were “generic estimates,” were only
“approximate,” and “did not reflect any specific legislative proposal.”
Using the CBO figures to estimate
the cost of covering all eligible but unenrolled children, however, is not as
straightforward as readers of the original CBO memo might assume. One cannot
simply multiply the CBO estimates of the cost of covering one million children
by the commonly used estimates that four million uninsured children are eligible
for Medicaid and two million uninsured children are eligible for SCHIP (for a
total of about six million uninsured children who are eligible for Medicaid and
SCHIP). Doing so would produce an estimate of $32 billion over five years ($24
billion in Medicaid and $8 billion in SCHIP) as the cost of covering all
eligible, uninsured children, but such an estimate would not be valid for two
basic reasons, which are explained below.
The Need to Adjust the CBO Figures
to Reflect “Point-in-Time” Estimates
The number of eligible but uninsured children in
any given month (i.e., at a specific point in time) is substantially lower than
the number of children who are eligible but uninsured at some point over the
course of the year. CBO clearly indicated in its February memo that its
estimate of the cost of covering one million additional children figure is an
estimate of the cost of covering one million additional children at some point
during the year and is not an estimate of the cost of serving one million
additional children per month.
This distinction is
crucial. The average cost per child of serving a child at some point during the
year (i.e., for less than 12 months) is necessarily lower than the average cost
per child of serving a child throughout the year. CBO’s estimate that it would
cost $6 billion over five years to serve an additional one million children in
Medicaid is an estimate of the cost of adding substantially fewer than one
million children to Medicaid in any given month.
As CBO points out in
its followup memo, the commonly used estimates, based on Census data, that there
are about six million eligible but uninsured children is effectively an estimate
of the number of children who are eligible but uninsured in any given month.
The number of children who are eligible but uninsured at any point during the
year is substantially higher.
This means that one
cannot estimate the cost of serving all eligible insured children by simply
multiplying CBO’s estimate of the cost of serving an additional one million
children at some point during the year by the six million children who are
eligible but uninsured in any given month. Rather, as CBO explains in its
followup memo, one must multiply the cost of serving an additional million
children in any given month through Medicaid and SCHIP by the number of children
who are eligible but unenrolled in any given month.
CBO has provided the information to do this
calculation properly. Its memos indicate that the additional number of
children who would be served in an average month would be about 20 percent lower
in Medicaid — and about 40 percent lower in SCHIP — than the additional number
of children served at some point during the year. In other words, $6
billion over five years is the cost of covering an additional one million
children in Medicaid at some point during the year — or an additional 800,000
children each month. Thus, the cost per child of serving an additional
child each month would be $7,500 over five years ($6 billion divided by
800,000). Put another way, as CBO’s March 13 memo explicitly states, the
cost of enrolling an additional one million children in Medicaid each month is
$7.5 billion over five years.)
billion is the SCHIP cost of enrolling an additional one million children over
the course of the year — or an additional 600,000 children per month. The cost
per child in SCHIP of serving an additional child each month would be $6,667
over five years, and as CBO’s March 13 memo states, the cost of enrolling an
additional one million children in SCHIP each month would be $6.7 billion over
A related problem is that the commonly used
estimate of about six million eligible, uninsured children applies to 2005, the
most recent year for which Census data are available. This number is
expected to increase over the next five years due to population growth and the
continued erosion of employer-based coverage.
CBO did not provide
in either its February memo or its March 13 followup memo an estimate of the
average number of eligible but unenrolled children over the next five years.
Based on research analyzing Census data conducted by Lisa Dubay of John Hopkins
University and by researchers at the Urban Institute, we estimate that on an
average annual basis, there will be about 6.5 million eligible but uninsured
children over the five-year period (2008-2012). (Note: this figure takes into
account population growth but does not adjust for the erosion of employer-based
insurance, which would make the number higher; we do not have the data to make
such an adjustment.) Of these 6.5 million children, about 72 percent (4.7
million) would be eligible for Medicaid, and 28 percent (1.8 million) would be
eligible for SCHIP.
Taking these factors
into account, the cost of enrolling all of the eligible but unenrolled children
would be estimated as follows:
Medicaid Cost =
(Number of Medicaid-eligible but uninsured children in any given month) X (cost
per child of serving these children each month over five years).
Medicaid Cost = 4.7
million X $7,500 = $35.3 billion.
SCHIP Cost = (Number
of SCHIP-eligible but uninsured children in any given month) X (cost per child
of serving these children each month over five years).
SCHIP Cost = 1.8
million X $6,667 = $12.2 billion.
Total Cost = $47.5 billion/5 years (2008-2012)
As a result, appropriate use of the CBO memos yields $47.5 billion as the
five-year cost of immediately enrolling all of the uninsured children who are
eligible for Medicaid and SCHIP, $15.5 billion more than the mistaken $32
2. These figures also do not take
into account two additional types of costs that must be factored in.
Both the mistaken $32 billion figure and the
valid $47.5 billion figure just cited are too low, for another reason.
These figures do not include two additional types of costs that must be taken
First, these figures do not reflect the
additional costs of the policies necessary to increase enrollment in Medicaid
and SCHIP. (CBO stated this in both its original February memo and its March
memo.) Significant increases in enrollment almost certainly will require both
new enrollment tools for states and fiscal incentives to induce states to take
stronger action to reach more of the eligible but uninsured children. This is
true in SCHIP, as well. The additional cost of fiscal incentives undertaken to
reach more of the eligible but uninsured children must be included when
estimating the cost of covering all eligible, uninsured children. As CBO noted
in its March 13 memo, “our figures do not include any additional costs that
might be incurred in order to get those children enrolled.”
Second, these cost estimates do not reflect additional costs due to “crowd
out.” If states undertake major efforts to reach all of the eligible, uninsured
children, some children who currently have private insurance that provides
limited benefits or carries higher charges may switch to public program
coverage. This effect is likely to be modest, because these children are
already eligible for Medicaid and SCHIP, but it is an added cost that must be
taken into account when estimating the cost of reaching all eligible, unenrolled
Approximate Five-Year Cost of Sustaining Current SCHIP Programs and Enrolling
All Eligible but Uninsured Children
Using the data in the CBO memo appropriately, the five-year cost of
immediately serving all eligible uninsured children would be about $47.5 billion
over five years plus the cost of fiscal incentives and the cost that would
result from some children switching from less comprehensive or more costly
private insurance to public coverage. The $8 billion cost of closing the SCHIP
shortfalls would need to be factored in, as well. The total cost would thus
easily exceed $55 billion over a five-year period (2008-2012). (If policymakers
include a bipartisan proposal to accord states the option of covering legal
immigrant children and pregnant women during their first five years in the
United States, a proposal that the Senate approved in 2003 and many health
policy analysts regard as having strong merit, the cost would rise by about $1.5
billion over five years, according to informal CBO estimates.)
One Other Factor
Would Moderate the Cost
A final caveat
applies. It is not reasonable simply to assume that all eligible, unenrolled
children can be reached from the first month of fiscal year 2008, even if an
optimal set of policies designed to reach eligible uninsured children is
enacted. The resulting increase in enrollment would occur over several years.
An estimate of the cost of serving all eligible uninsured children consequently
should assume that this goal is achieved gradually over several years rather
than immediately as the February CBO memo assumed for simplicity’s sake. In its
followup memo, CBO notes that how many additional more children would enroll in
Medicaid and SCHIP and how quickly they would do so would depend on the
specifics of each legislative proposal.
Budget Office, “Approximate Costs of Covering More Children in Medicaid and
SCHIP,” February 20, 2007.
example, John Reichard, “Cutting Care for Old People to Pay for Kids’
Coverage,” CQ HealthBeat, February 27, 2007; Fawn Johnson, “SCHIP Cost
Estimates by CBO Trigger Debate, Confusion,” Congress Daily AM, March 9,
2007 and John Reichard, “Pelosi: Budget Resolution to Include Added Funds
for SCHIP,” CQ HealthBeat, March 9, 2007.
Congressional Budget Office, “Fact Sheet for CBO’s March 2007 Baseline: State
Children’s Health Insurance Program,” February 23, 2007 (which estimates that
states would face a total SCHIP federal funding shortfall of $13.4 billion over
the next five year under the baseline funding level of $5 billion per year, but
that due to interactions with Medicaid, the net federal cost of closing the
shortfall is $7.9 billion over 5 years). See also Edwin Park, “CBO Estimates
That States Will Face Federal SCHIP Shortfalls of $13.4 Billion Over Next Five
Years,” Center on Budget and Policy Priorities, February 26, 2007.
Johnson, op cit.
Johnson, op cit.
Budget Office, “Clarifications to Our Estimates of the Costs of Covering
More Children in Medicaid and SCHIP,” March 13, 2007.
The estimates of
the number of eligible but unenrolled children are based on the Census
Bureau’s Current Population Survey. Analysts believe the CPS effectively
measures the number of uninsured individuals at a point in time. See, for
example, Congressional Budget Office, “How Many People Lack Health Insurance
and for How Long?,” May 2003.
other proposals to establish an explicit SCHIP option to cover pregnant
women and to improve the quality of children’s health care would result in
further modest increases in cost.