Health Care Costs and Financing

Study strengthens argument against implementing rollbacks in the State Children's Health Insurance Program

Reduced Federal allocations for the State Children's Health Insurance Program (SCHIP) and high SCHIP enrollment has led a number of States to begin reversing the expansion in public coverage for children. However, a new study argues that rollbacks in SCHIP will not save that much money. The net cost of SCHIP—both to States and to the Federal Government—is substantially less than the average spending per enrollee would suggest, according to Thomas M. Selden, Ph.D., and Julie L. Hudson, Ph.D., economists at the Center for Financing, Access, and Cost Trends, Agency for Healthcare Research and Quality.

The researchers conducted a variety of simulations, all reaching the same basic conclusion: budgetary data greatly overstate the true net costs of SCHIP, thereby overstating the potential savings from SCHIP rollbacks that might reduce enrollment. Net State savings may be only one-half to one-third what one might surmise based on State SCHIP spending per enrollee, assert the authors.

They calculated the annual SCHIP expenditure per child ever enrolled was $878 in their analysis of the 2000 Medical Expenditure Panel Survey. However, that figure can be misleading, because it ignores the public expenditures that would have occurred had these children not been enrolled in SCHIP. For instance, absent SCHIP more children would have qualified for Medicaid medically needy coverage, offsetting $275 of SCHIP costs. Similarly, in the absence of SCHIP, more children would have been covered by private insurance, which is itself subsidized through the tax code. This results in a $54 offset to net SCHIP cost.

But in the absence of SCHIP, they estimated that increased private employment-related coverage would lead to $54 in increased tax subsidies, offsetting about 6 percent of SCHIP's costs. The frequency of medically needy coverage in the absence of SCHIP would be 2 percent (an offset of $275 per former SCHIP enrollee and $324 per uninsured children who do not shift to private coverage). They also calculated that 6 percent of SCHIP enrollees would have generated uncompensated care in that program's absence. This translates into average uncompensated care of about $104 per SCHIP enrollee. They assumed that half of this amount ($52) would be funded by public sources within the State.

Combining these estimates, the net Federal and State cost of SCHIP falls from $878 to $498 (a reduction of 43 percent). From the State perspective, the net cost of SCHIP drops from $282 to $97—a two-thirds reduction. From the Federal perspective, the net cost of SCHIP is $401 versus $596, a one-third reduction.

More details are in "How much can really be saved by rolling back SCHIP?" by Drs. Selden and Hudson, in the Spring 2005 Inquiry 42, pp. 16-28. Reprints (AHRQ Publication No. 05-R063) are available from the AHRQ Publications Clearinghouse.

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