Medicaid: Projected Cost of Expanding Coverage for Children

Published by the Government Accountability Office on 1997-07-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   Gqteral Accounting Offke
      Washington, D.C. 20648

      Health, Education   and Haman Services Division


      July 18, 1997

      The Honorable Thomas J. Bailey, Jr.
      Chairman, Committee on Commerce
      House of Representatives

      Subject: Medicaid: Proiected Cost of Exoanding Coverage for Children

      Dear Mr. Chairman:

      This letter responds to your January 3, 1997, request for an estimate of the cost
      of expanding Medicaid coverage to include all children who are under age 18
      and living in families with incomes below 300 percent of the federal poverty
      level (FPL). You also asked for information on the number of additional
      children who would be covered under an expanded program and Medicaid
      spending per child on a state-by-state basis.

      In summary, we estimated there are 32.3 million children under age 18 living in
      families with incomes below 300 percent of FPL and currently not enrolled in
      Medicaid. Using estimates of the proportion of potentially eligible children who
      would actually enroll based on studies of past program expansions, we
      cakzulated that between 6 million and 9.6 million additional children might
      enroll in the program if it was expanded, at an additional cost ranging from $6.8
      billion to $10.6 billion per year. The cost calculation was based on fiscal year
      1996 Medicaid spending as reported by the Health Care Financing
      Admin.&ration (HCFA). As agreed with your office, we are not reporting this
      information by state, because we are uncertain about the accuracy of state-level
      data. Instead, the cost calculations are based on national average costs by age
      First, to estimate the number of eligible children, we used data from the
      Current Population Surveys (CPS) to tabulate the number of children who were
      under 18, living at below 300 percent of FPL, and not enrolled in Medicaid.
      Because CPS counts are based on samples, we used a 3-year average, from 1994
      to 1996, to improve the reliability of the estimates. This approach yielded an
      estimate, of 32.3 million eligible children.

                               GAOIHEHS-97-170R         Medicaid Coverage for Children
Studies of program expansions during the late 1980s and early 1990s concluded
that children without private health insurance enrolled in Medicaid at rates
ranging from 70 to 90 percent of those eligible.’ Prior studies concluded that
children with private insurance enrobed at much lower rates: About haif
continued their insurance but also enrolled in Medicaid, and up to 15 percent
switched from private insurance to Medicaid.2 We excluded from our estimates
the eligible children who continued their private insurance because Medicaid is
the payer of last resort. We assumed the costs for children jointly enrolled
were small enough to be ignored. Moreover, HCFA does not collect the cost
data necessary to include these children in our analysis.

Since previous research provides a range of enrollment rate estimates, we made
enrollment calculations under three possible scenarios. The &st scenario
assumed that the uninsured would enroll at a rate of 70 percent and that the
insured would not enroil in Medicaid. The second scenario assumed the
uninsured would enroil at a go-percent rate and that the insured would not

‘See Lisa Dubay and Genevieve Kenney, Revisiting the Issues: The Effects of
Medicaid Expansions on Insurance Coverage of Children (Washington, D.C.:
The Urban Institute, Oct. 1995), p. 9. The authors estimated that 70 percent of
the uninsured enrolled in the program during past expansions of eligibility. See
also David M. Cutler and Jonathan Gruber, “Does Public Insurance Crowd Out
Private Insurance?” Quarterlv Journal of Economics (May 1996), p. 407. These
authors estimated that 90 percent would enroll.
%e following two studies estimated that none of the privately insured dropped
their insurance and enrolled in Medicaid: Esel Y. Yazici, “Medicaid Expansions
and the Crowding Out of Private Insurance,” presented at the 18th Annual
Research Conference of the Association for Public Policy Analysis and
Management, Pittsburgh, Penn., Nov. 2, 1996, p. 21, and Lara Shore-Sheppard,
“The Effect of Expanding Medicaid Eligibility on the Distribution of Children’s
Health Insurance Coverage,” prepared for the CorneIUPrinceton conference on
“Reforming Social Insurance Programs,” Sept. 1996, p. 18. David M. Cutler and
Jonathan Gruber, “Peer Review: Medicaid and Private Insurance: Evidence and
Implications,” Health Affzirs (Jan./Feb. 1997), p. 198, found that 15 percent of
the insured dropped their insurance and eNO&d. Finally, Dubay and Kenney,
Revisiting the Issues: The Effects of Medicaid Fxnansions on Insurance
Coverage of Children, estimated that about half the children covered by private
insurance kept their private insurance and also enrolled in Medicaid when they
became eligible.

2                    GAOEJEHS-97-170R        Medicaid Coverage for Children
enroll. The last scenario assumed that the uninsured would enr0I.I at a 70-
percent rate and the insured at 15 percent?

To estimate the cost of this expansion of Medicaid eligibility, we obtained
information on fiscal year 1995 spending per child from HCFA. Spending per
child ranged from $875 for children aged 1 to 5 to $2,176 for children under age
1 . We calculated the cost increase for four age groups: under age 1, ages 1 to
5, ages 6 to 14, and ages 15 to 17.4 We multiplied fiscal year 1995 spending per
child by the estimated increase in enroIlment.6

The enrollment rate assumptions and the associated estimates of increased
enrollment and cost are summarized in table 1. Scenario 1 represents the
lowest cost estimate, $6.8 billion, based on enrollment rates of 70 percent for
the uninsured and 0 percent for the insured. Alternatively, scenario 3 yields the
highest cost estimate, $10.6 bibion, based on enrollment rates of 70 percent for
the uninsured and 15 percent for the insured.

?I’he estimate of a go-percent participation rate was derived from the
assumption that aU enroIIees came from the pool of uninsured children.
Therefore, the only scenario we developed that assumed a go-percent
participation rate also assumed none of the insured would enroll in the
4Because HCFA does not collect data on Medicaid spending for 15 to 17-year-
old children, we used a proxy for this age group: the spending per child for 15
to 20-year-old children
‘See table I.1 in the enclosure for CPS counts, table I.2 for expected enrollment
increases by age group, table I.3 for spending per child by age group, and table
I.4 for cost calculations by age group.

3                     GAOEJEHS-97-170R Medicaid Coverage for Children
          Table 1: Scenarios for Enrollment Rate and Estimated Increases in Enrollment
          and Costs Under Medicaid Exoansion. Fiscal Year 1995

    ?l?hepercentage increase was calculated using the number of Medicaid enrollees
     obtained from CPS.

          If you have any questions regarding this letter or if we can be of further
          assistance, please call me at (202) 512-7114 or Jerry Fastrup, Assistant Director, at
          (202) 512-7211.

           Sincerely yours,

           William J. Scanlon
           Director, Health Policy and Financing Issues


4                               GAOIHEHS-97-170R          Medicaid Coverage for Children
ENCLOSURE                                                                    ENCLOSURE

This enclosure provides detailed information on our calculations by age group. Table 1.1
shows the estimated numbers of eligible children by age group. Table I.2 shows the
estimated increased enrollment for the three scenarios by age group. Table I.3 shows the
cost per child. Table I.4 shows additional cost calculations by age group.

Table 1.1: Three-Year Average Estimates of Number of Children Who Would Be Eligible
Under Medicaid Exmnsion. bv Age GrouD

In millions

Source: CPS 1994-96.

Table I. 2: .Estimates of Increased Enrollment Under Three Enroknent Rate Scenarios. bv
Age Gram

                               GAOLKEHS-97-170R Medicaid Coverage for Children
ENCLOSURE                                                                        ENCLOSURE
Table 1.3: Medicaid Cost uer Enrollee. bv Age Grow, Fiscal Year 1995

                 Under 1        Aged 1 to 5   Aged 6 to 14 Aged 15 to 17 Aged 15 to 20
Cost per child         $2,176            $875            $881      $1,846       $1,170

Table 1.4: Additional Cost of Expanditx Medicaid Coverage. by Age &our,

Ir          1 Enrollment rates 1                    Additional cost (in millions)                1
_ cenario

  _ _~~-~~-
            ~~ _-~ - ~~ IUninsured Under atfe 1 bed

                       0         7c
                                                     1 to 5ked
                                          3720 - $1,395 -
                                                                 6 to 14 ked 15 to 171
                                                                    $2,601 -
                                                                                  $2,055 $6,771
2                      0         90         926       1,793          3,344         w43     8,706
3                     151        70       1.089       2.285,         4.230         3,029 10,634"

“Because of rounding, dollar amounts do not equal total.


6                                  GAO/HEHS-97-170R      Medicaid Coverage for Children
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