Memo To:
Interested Parties
From:
Dr. Lisa Dubay, Johns Hopkins and Center for Children & Families
Jocelyn Guyer, Center for Children and Families
Michael Odeh, Center for Children and Families
Subject:
Availability of Federal SCHIP Funding for an SCHIP Expansion to 250%
of the Federal Poverty Level in South Carolina
Date:
February 15, 2008
Overview
This memo provides an estimate of the cost of operating an SCHIP program in South
Carolina that covers children up to 250 percent of the federal poverty level (FPL) (instead
of up to 200 percent of the FPL, as is currently planned). It also assesses whether the
state’s federal SCHIP matching funds are adequate to cover the federal cost of such an
expansion. The analysis concludes that due to federal SCHIP funding surpluses that
South Carolina has built up over the years, the state has abundant federal matching funds
with which to operate an SCHIP program up to 250 percent of the FPL. Specifically, in
fiscal year 20091, South Carolina can expect to have some $168 million in federal SCHIP
matching funds available to it. In comparison, an upper-bound estimate of the cost of
operating an SCHIP program to 250 percent of the FPL is $138 million. In other words,
South Carolina can expect to have significantly more federal funding in fiscal year 2009
than it needs to operate a program to 250 percent of the FPL.
Currently, Congress has extended the SCHIP program through March of 2009 (although
it has provided funding for all of fiscal year 2009). The history of congressional action on
SCHIP strongly suggests that the program will successfully be extended beyond March of
2009, and with the level of funding that South Carolina and other states need to sustain
their SCHIP programs for children. In the decade-long history of SCHIP, Congress has
never failed to provide states with the federal matching funds that they need to continue
operating their SCHIP programs for children, including in states that have expanded
eligibility levels well beyond what South Carolina is considering.
1. Estimating the Cost of Expanding SCHIP to 250% FPL
To estimate the cost of operating an SCHIP program in South Carolina to 250 percent of
the FPL, this analysis considers the cost of updating the existing SCHIP program (i.e.,
coverage to 150 percent of the FPL) to reflect inflation and greater take up rates among
already-eligible children in the future. It also looks at the likely cost of the state’s
Unless otherwise specified, this memo uses “fiscal year” to refer to the federal fiscal year, which runs
from October 1st of a year to September 30th of the following year.
1
planned expansion to 200 percent of the FPL and of a further expansion to 250 percent of
the FPL. To do so, it examines the number and health insurance status of children in
South Carolina with family income between 150 percent and 250 percent of the FPL;
applies assumptions about the share of children in this income range that would likely
participate in coverage if an expansion were adopted; and multiplies the number of
children expected to secure coverage by the estimated per capita cost of serving such
children. In conducting the analysis, we relied on the following data sources and
assumptions, drawing on extant literature when available.
Distribution of Coverage Among Children
To determine the number and health insurance status of children between 150 percent and
250 percent of the FPL, the analysis relies on data from the Census Bureau’s 2005-2007
March Current Population Surveys (CPS), representing information on calendar years
2004-2006. Because of the small number of observations at the state level in any one
year of CPS data, the analysis pools data across three years to increase the reliability of
the estimates. The analysis follows the practice of the Congressional Budget Office in
assuming that CPS data on insurance status reflects people’s coverage at a “point in
time,” not their coverage over the course of the preceding 12 months. Since no detailed
information is available in the CPS on immigration status, the analysis does not take into
account that some children in this income range cannot qualify for SCHIP because of
their immigration status. This is one reason that the estimate, if anything, overstates the
cost of an expansion.
Appendix 1 presents the distribution of insurance coverage by income group using the
CPS. Unfortunately, cell sizes are small for the uninsured in the relevant income groups
and more confidence is placed in the estimates that pool the 150 to 250 percent of the
FPL group. In addition, there are a number of individuals with family incomes in the 150
percent of the FPL to 250 of the FPL range who report already having Medicaid or
SCHIP coverage even though eligibility for SCHIP currently ends at 150 percent of the
FPL (with limited exceptions for children with disabilities). We assume that the
significant number of already-covered children between 150 percent to 250 percent of the
FPL largely reflects measurement error due to 1) differences between how
Medicaid/SCHIP rules define a family (and, thus, the family’s income) versus the Census
Bureau’s rules; 2) individuals’ errors in the reporting of their income; and 3) individuals
reporting coverage that they no longer receive and for which they are no longer eligible.
For our primary analysis, we assume that the cost of these “already-covered” children are
embedded in the baseline costs of the current SCHIP program. However, we also
conduct a sensitivity analysis that assumes that one quarter of the cost of these “alreadycovered” children would reflect new enrollment in SCHIP under an expansion to 250
percent of the FPL.
Assumptions of Take-up and Crowd Out
To estimate the number of children in the newly eligible group who would enroll under
the SCHIP expansion, we assume that 15 percent of children with private non-group
2
coverage, 10 percent of children with CHAMPUS or employer-sponsored coverage, and
66 percent of the uninsured will enroll. In addition, we assume that outreach efforts
associated with an expansion to 250 percent of the FPL will also encourage additional
enrollment of children already eligible for SCHIP (i.e., those with income between
Medicaid eligibility levels and 150 percent of the FPL). To address this issue in our
estimates, we assume that the same shares of already eligible SCHIP children with
private non-group coverage, with CHAMPUS or employer-sponsored coverage, or who
are uninsured will enroll as those newly eligible. Including this “woodwork effect” in the
analysis is another reason that, if anything, it produces an upper-bound estimate of the
cost of operating a program to 250 percent of the FPL.
Per Capita Cost of Enrolling Children in SCHIP
To estimate the annual per capita cost of enrolling children in SCHIP, data on the per
child per month SCHIP program cost in fiscal year 2006 were obtained from the Centers
for Medicare and Medicaid Services (CMS) and adjusted for health inflation (as
measured by CMS’s projections of per capita growth in national health expenditures2) to
reflect FY 2009 dollars. Annual per child costs in FY 2009 are estimated to be $1,840.
With South Carolina’s SCHIP matching rate of 79 percent, this translates into a per capita
cost of $1,455 for the federal government and $386 for the state.
Estimating Baseline Costs of the SCHIP Program
Data on federal spending in South Carolina for FY 2004-2006 are used to estimate
baseline federal spending under SCHIP. Using the methodology for inflating costs
mentioned above, a three-year average of costs inflated to 2009 dollars was estimated.
Specifically, in FY 2009 we estimate that the baseline costs of the SCHIP program would
be $66.3 million if no expansion were implemented. We opted to average the cost of the
program over these three years because the state experienced a sharp drop off in
enrollment and spending in 2007 that may not be representative of the future of the
program. The reasons for the drop off are unclear, but it may be due to the impact of a
new federally-mandated requirement for applicants to document their citizenship status
using a paperwork-intensive set of procedures that can cause eligible children to miss out
on coverage. If the citizenship documentation requirement continues to depress
enrollment and cause spending to remain at or near the 2007 level, the cost of operating a
program to 250 percent of the FPL will be lower than presented here.
Cost Estimates for Expanding Coverage up to 250 percent of the FPL for FY 2009
Based on the methods and assumptions described above, we estimate that 19,623 children
in the 150 to 200 percent of the FPL group and 18,103 children in the 200 to 250 percent
of the FPL group would enroll in SCHIP if the state operated a program to 250 percent of
the FPL. In addition, we assume that an expansion to 250 percent of the FPL would
increase enrollment among already-eligible children by 11,824. In total, 49,550 children
2
See http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2006.pdf
3
would gain SCHIP coverage. The total, federal and state cost estimates can be found in
Table 1.
Table 1: Upper Bound Estimated Cost of Expanding SCHIP to 250% FPL, FY2009
Total Cost
($1,000s)
Number
Federal Cost
($1,000s)
State Cost
($1,000)
Increased Take-up
Among Already SCHIP
Eligible
11824
$21,756
$17,204
$4,564
150-199% FPL
19623
$36,107
$28,552
$7,575
200-249% FPL
18103
$33,310
$26,340
$6,988
TOTAL
49550
$91,173
$72,096
$19,126
Specifically, total costs associated with an expansion between 150 and 199 percent of the
FPL are $36.1 million, with federal costs of $28.5 million and state costs of $7.6 million.
Covering children with incomes from 200 to 249 percent of the FPL would cost $33.3
million in total, with $26.3 coming from the federal government and $7.0 million coming
from the state. In addition, we estimate the total costs of the “spillover effect” to be
$21.8 million with a federal share of $17.2 million and a state share of $4.6 million.
Expanding coverage for children with incomes between 150 and 250 percent of the FPL
would therefore cost $91.2 million in total with $72.1 million attributable to the federal
government and $19.1 million attributable to the state. When baseline SCHIP costs of
$66.3 million are considered (i.e., the cost of operating the current program to 150
percent of the FPL in fiscal year 2009), estimated SCHIP spending would be $138.4
million.
Note that $138.4 million should be considered an upper bound estimate for a number of
reasons, including: 1) it assumes that the cost of operating the state’s existing SCHIP
program to 150 percent of the FPL will largely revert to the higher levels in place before
2007; 2) it additionally assumes significant new take up among uninsured children
already eligible for SCHIP with income up to 150 percent of the FPL; 3) it does not
exclude undocumented children from the analysis for data reasons even though they
clearly will not be eligible for or allowed to enroll in SCHIP; 4) and it assumes that the
state is able to achieve fully-phased in enrollment levels of the first day of fiscal year
2009 when, in practice, enrollment can be expected to phase up over time.
Sensitivity Analysis
We also conducted a sensitivity analysis that assumed that a quarter of the individuals in
the 150 to 250 percent of FPL range who currently report Medicaid or SCHIP coverage
but do not appear to be eligible would be new SCHIP enrollees. These estimates put
federal costs at $156 million in fiscal year 2009 for a program that covers children to 250
percent of the FPL.
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2. Available Federal Funding
Fiscal Year 2008
After it became clear that Congress would not conduct a full reauthorization of SCHIP in
2007, it, instead, extended the existing SCHIP program through the first half of fiscal
year 2009 (i.e., through March of 2009) and added significant new funding for the
program to sustain it through that point. As a result of this recent congressional action,
CMS reports that South Carolina will have $193.5 million in federal SCHIP funds
available to it in fiscal year 2008, including $122.5 million in unspent funds from its
fiscal year 2006 and 2007 allotments and $71 million in a new allotment for fiscal year
2008. (Note that states have three years in which to spend their annual SCHIP allotments
before unspent funds are sent to other states. South Carolina, for example, can use its
fiscal year 2006 allotment in fiscal year 2006, 2007, and 2008.)
Fiscal Year 2009
In fiscal year 2009, South Carolina will receive an additional allotment and can also draw
on unspent funds from earlier years. To estimate the unspent funds or “surplus” from
earlier years available for FY 2009, we must first make assumptions about spending in
FY 2008. We assume that the expansion up to 250 percent of the FPL is in place for six
months in FY 2008 at fully implemented levels of enrollment; which is an optimistic
assessment. Under this scenario, we would expect FY 2008 spending to have been $96
million including $62.3 million in baseline costs and $33.7 million in expansion costs.3
If, as estimated above, South Carolina requires federal SCHIP matching funds of some
$96 million to operate an SCHIP program up to 250 percent of the FPL in fiscal year
2008, it will continue to have an enormous “surplus” of unspent funds from earlier years
when entering fiscal year 2009. Specifically, it can anticipating having a “surplus” of
unspent funds from earlier years of $97.5 million. In fiscal year 2009, South Carolina
also will receive an additional, estimated $71 million in federal SCHIP matching funds
from the federal government. Thus, in total, the state can expect to have some $168.5
million in federal SCHIP matching funds available for fiscal year 2009.
Although it is unlikely to be relevant to South Carolina given its large surplus of federal
SCHIP matching funds, Congress has set aside special “supplemental” SCHIP funding
for fiscal year 2008 and fiscal year 2009. This supplemental funding allows CMS to
distribute additional allotments to states whose need for funds would otherwise exceed
their available resources. If, for some reason, South Carolina were to find itself in need
of more resources, the supplemental allotments represent a potential “safety valve” for
the state.
Beyond Fiscal Year 2009
3
This is likely an overestimate of the costs of the new expansion as take-up among those made newly
eligible is unlikely to be immediate.
5
The future of SCHIP beyond March of 2009 will be determined by Congress later this
year, or, in early 2009. Given the remarkable success of the program and the fact that
Congress has stepped in each and every time that states have needed more resources to
sustain their SCHIP programs for children, it can be assumed that it will do so again.
There is close to zero chance that the program will not be extended beyond March of
2009, and it is highly likely that Congress will continue its pattern of providing states
with the level of federal matching dollars that are needed to allow them to continue
operating and strengthening their existing SCHIP programs for children.
Conclusion
This analysis suggests that South Carolina has more than enough SCHIP funding to
proceed with its expansion of coverage to 200 percent of the FPL this year, as well as
more than enough to expand coverage to 250 percent of the FPL in fiscal year 2009.
Specifically, for fiscal year 2009, South Carolina can expect to have some $168 million
in federal SCHIP matching funds available to it. In comparison, the analysis suggests
that, at most, some $138 million in federal SCHIP matching funds would be needed to
operate a program that covers children to 250 percent of the FPL. In other words, South
Carolina is estimated to have significantly more federal matching SCHIP funds than
would be required to cover children up to 250 percent of the FPL in fiscal year 2009.
For now, the SCHIP program is slated to expire in March of 2009. However, the history
of congressional action on SCHIP strongly suggests that the program will be extended
beyond the first half of 2009 and with the level of funding that South Carolina and other
states need to continue their SCHIP programs for children as in effect when
congressional action is taken.
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Appendix 1: Distribution of Insurance Coverage for South Carolina Children, 18 and Under , 2004-2006
Other Private
0-149% FPL
150-199% FPL
200-249% FPL
250+% FPL
Total
16,871
7,008
10,506
24,204
58,589
Medicare
3,912
834
1,404
0
6,150
CHAMPUS
657
6,253
4,453
7,554
18,917
Employersponsored
48,140
47,388
63,305
385,125
543,958
Medicaid/SCHIP
Source: Center for Children and Families analysis of March 2005-2007 Current Population Survey.
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235,619
49,723
24,676
32,157
342,175
Uninsured
43,258
20,012
14,775
27,773
105,818
Total
348,457
131,218
119,119
476,813
1,075,607