CBO: Oh, yeah...and funding CHIP for TEN years will SAVE $6 billion!

2019 OPEN ENROLLMENT ENDS (most states)

Time: D H M S

Last week the Congressional Budget Office reported that funding the CHIP program for 5 years, which they had previously estimated would increase the federal deficit by about $8 billion over the next decade, would instead only increase it by about 1/10th as much: Roughly $800 million, a rounding error when it comes to the federal budget. The reason for this isn't that funding CHIP had suddenly become less expensive, it was instead, ironically, because due to the GOP repealing the ACA's individual mandate starting in 2019, NOT funding CHIP has suddenly become more expensive.

The short version is that if you kick millions of kids off of CHIP (which costs around $14 billion/year to fund and is fairly efficient), a chunk of them will instead be shifted by their parents over to heavily-subsidized private ACA exchange policies instead. While this would be good for the ACA enrollment numbers (and presumably would actually improve the ACA exchange risk pool somewhat), it would actually cost nearly as much in additional ACA tax credits as it would to just fund CHIP in the first place.

I did a little back-of-the-envelope math and initially concluded that it should actually cost less to put kids on CHIP than on high-subsidy ACA policies, based on a rough estimate of $2,300/child for CHIP ($192/month) vs. what I estimated to be somewhat more than that for ACA subsidies (perhaps $250/month or so, or $3,000/year). However, there's a lot of variables involved and the CBO said funding CHIP would still cost slightly more than not doing so, so I hedged my wording on this point:

I don't know exactly how much the average CHIP-eligible income level enrollee is eligible for under a subsidized ACA plan, but as an example, the Kaiser Family Foundation subsidy estimator says that a family of (adults both age 30) with two young children earning 142% FPL likely qualifies for around $1,323/month in subsidies, which would cover 93% of a Silver plan's cost.

The point is that every kid who’s shifted from CHIP to a subsidized ACA exchange plan would cost the federal government nearly the same as if they just funded CHIP in the first place...and I believe CHIP is a far more comprehensive program anyway, so it would cost the government around the same amount to provide worse coverage to the child.

Well, it turns out my initial instincts were correct after all:

Dear Congressman:

At your request, the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) have completed a preliminary estimate of the budgetary effects of extending funding for the Children’s Health Insurance Program (CHIP) for 10 years using specifications provided by your staff. Under those specifications, the provisions of S. 1827, the Keep Kids’ Insurance Dependable and Secure Act of 2017 (KIDS Act), would be extended. In particular, all of the provisions that would be in place in 2022, the final year of funding under that Act, would continue unchanged for the remainder of the 2023-2027 period. The agencies estimate that enacting such legislation would decrease the deficit by $6.0 billion over the 2018- 2027 period.

On January 5, 2018, CBO and JCT estimated that S. 1827 would increase the deficit by $0.8 billion over the next ten years after accounting for the enactment of Public Law 115-97, which repealed the penalties related to the individual health insurance mandate starting in 2019, and for administrative action.

Again: A 5-year extension (which is the bill on the table now) would mean a net cost of $800M over 10 years; a theoretical 10-year extension would mean a net savings of $6B.

Extending funding for CHIP for 10 years yields net savings to the federal government because the federal costs of the alternatives to providing coverage through CHIP (primarily Medicaid, subsidized coverage in the marketplaces, and employment-based insurance) are larger than the costs of providing coverage through CHIP during that period.

At first this doesn't seem to make sense--shouldn't funding CHIP for 10 years increase the deficit twice as much as 5 years ($1.6 billion, which would still be a bargain)? No, because...

The extension would increase the deficit in each year between 2018 and 2020 and reduce the deficit each year thereafter. The change from annual increases in the deficit to decreases over the 2021-2027 period primarily occurs because the federal matching rate for CHIP would decline relative to its level in prior years—from an average of 93 percent in 2019 to 81.5 percent in 2020 and 70 percent in 2021 and subsequent years—lowering the federal costs of coverage through CHIP as states become responsible for more of the progam’s costs.

This is something I didn't know--apparently the federal/state funding split for CHIP changes over time.

In any event, this makes it crystal clear: There is NO REASON WHATSOEVER for Congress to avoid properly funding CHIP immediately.