Eliminating individual mandate lowers cost of CHIP funding

The Congressional Budget Office (CBO) lowered its estimate of the deficit impact of legislation that would fund the Children’s Health Insurance Program (CHIP) for five years, finding that CHIP had become less expensive relative to the rising costs of providing alternative coverage through the federally-subsidized health insurance marketplaces (CBO Report, January 5, 2018).

Prior estimate

The CBO and the Joint Committee on Taxation previously reviewed S. 1827, the Keep Kids’ Insurance Dependable and Secure Act of 2017, in October, finding then that it would add $8.2bn to the deficit. The new estimate finds that the bill, which would also change the federal matching rate for the program and state eligibility requirements, would only increase the deficit by $0.8 billion over the next ten years.

Individual mandate

The change stems from Congress’s repeal of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) individual mandate. Without CHIP, parents would have to seek alternative coverage, including federally-subsidized coverage offered through health insurance marketplaces set up by the ACA. Without the individual mandate, the CBO expects lower enrollment and higher costs for the insurance marketplaces, which increases the federal cost of enrolling a child in coverage through the marketplaces. The rising marketplace costs make CHIP a more cost-effective alternative to funding children’s health costs, the CBO found.

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