The Future of Children, Princeton - Brookings: Providing research and analysis to promote effective policies and programs for children.

Our estimates show that expenditures on modified personal health care for children amounted to $49.8 billion in 1987, only 13.7% of expenditures on personal health care for the entire noninstitutionalized population in that year. Moreover, the data show that, although per capita expenditures on health care for children increased 20% more rapidly than per capita expenditures for adults, the share of MPHCE that went to children declined by almost one percentage point between 1977 and 1987 because of a fairly substantial increase in the adult population and a slight decline in the number of children. The proportion of health care expenditures going to children's health care is likely to continue to decline as the dynamics of demographic change cause children's share of total population to decline from 26% in 1989 to a projected 22% in 2010, while the share of the population accounted for by those at least 65 years old (the group with the highest per capita MPHCE) is projected to increase from 12.5% to 13.9% over the same period.²⁶ For those concerned about the problems of financing health care for children, the decline in the relative share of expenditures accounted for by children means that, compared to other age groups, children's health care will in the aggregate be more affordable. Therefore, efforts to expand access to health care for children by expanding third-party financing will be less likely to overwhelm the system than will similar efforts targeted to other groups.

Knowledge that expenditures on health care for children are relatively modest on average should not engender a false sense of complacency regarding the financial burden children's health care presents for some families. The data indicate that a small number of families face very high levels of expenditure for health care for their children each year. It is likely, but not documented in the data analyzed here, that for many, high levels of expenditure are the result of chronic conditions which may persist over many years creating a severe financial burden on families. (See the article by Perrin, Guyer, and Lawrence in this journal issue.)

The very skewed nature of the distribution of children's health care expenditures means that efforts to expand health insurance coverage for children by offering limited coverage for low intensity, ambulatory care for prevention and limited acute illness will, by itself, leave most families exposed to the catastrophic costs of serious illness. Moreover, the high concentration of expenditures creates incentives for traditional insurance companies and employers who self-insure to identify children who are likely to be heavy users of care in order to invoke procedures which may reduce the insurer's responsibility for their high health care expenditures. Although special government programs exist to underwrite the extraordinary medical care expenditures of some children with major illnesses, coverage is far from comprehensive and costs may mount rapidly for a family with a moderately ill child who is not enrolled in these special programs.²⁸ Effective reform of health care financing will require that true health insurance benefits be available for children when needed to help underwrite the costs of infrequent but expensive illnesses.

For those concerned with cost containment, special attention needs to be paid to the costs of pregnancy and newborn care. In 1987, expenditures on infants (less than 1 year old) accounted for more than 24% of children's MPHCE despite the fact that infants make up less than 6% of the population of children. Equally sobering is our estimate that obstetrical care, a crucial factor in the health of infants and young children, cost an additional $15.2 billion in 1987. Altogether, expenditures on pregnant women and infants consumed more than 40% of combined expenditures on obstetrical and child health care for the noninstitutionalized population in 1987. Moreover, expenditures in this area have grown extremely rapidly in recent years.

A comparison of our 1987 estimates with estimates for 1982 suggests that the costs of obstetrical care increased by 88% and of infant care by 95% over the 5-year period as the result of a combination of factors including a very substantial increase in physician charges for obstetrical services and a substantial increase in the resource intensity of hospital care for newborns with complications.²⁹ Additional research is needed to better understand the factors behind the dynamic increase in expenditures on both obstetric and infant care. Even before these inquiries are completed, however, aggressive implementation of known cost-effective strategies to deliver care to pregnant women and infants appears warranted.

Because of its budgetary implications, any expansion of health insurance coverage for children in the near term may be incremental. Our analysis suggests that expanded coverage for children 3 to 12 years old, whose per capita MPHCE ($426) is the lowest among all population groups, would probably have the smallest budgetary impact of any expansion in access to care. Even if a universal health insurance system had been made mandatory in 1987, health care expenditures would have expanded only modestly for the 8 million children 3 to 12 years of age who were uninsured at some time during that year. We estimate that health care expenditures for this age group would have totaled only $16.4 billion, or $1.1 billion more than actual expenditures.³⁰ Consequently, expanded insurance coverage for this age group has the potential to improve their access to health care with minimal budgetary impact. At the same time, it would relieve the families of such children from the uncertain financial burden and stress associated with expenditures for children's health care.

We wish to thank Victor Fuchs, Michael Grossman, Daniel Walden, Doris Lefkowitz, Richard Behrman, Deanna Gomby, Carol Larson, and Patricia Shiono for their helpful comments during various stages of this analysis. Comments received during a seminar at Stanford University School of Medicine are also gratefully acknowledged. Unpublished data necessary to estimate the costs of pregnancy and childbirth were provided by A.F. Minor of HIAA and S. Yu of NCHS. Don Hoban and Mikyung Park provided skillful statistical support. Holly Ernst helped with manuscript preparation. The usual caveats apply.