Introduction

As state legislatures convened in 1998, they faced some immediate decisions concerning uninsured children. Given new opportunities and responsibilities under the Balanced Budget Act of 1997, most state legislatures will be partners in crafting their own state plan to meet the needs of children who remain without health insurance in their state.

The federal law created the State Children's Health Insurance Program (CHIP). Signed August 5, 1997, the act authorizes more than $20 billion over five years to assist states with covering uninsured low-income children. State legislatures and executive branch officials face the following key decisions:

• Whether or not to participate in the new program--as with Medicaid, the program is optional, with large financial incentives;
• If so, whether to expand their state Medicaid program or use another insurance plan option, or to combine the approaches; and
• How to implement a plan that improves access to appropriate services and improves the health status of children in their state.

This report outlines the major provisions of the new State Children's Health Insurance Program; highlights the two major approaches available to states (expand Medicaid or provide another insurance alternative); provides examples of non-Medicaid approaches to insuring more children; compares costs among some state programs; and briefly discusses state matching funds, children with special health care needs, access and service delivery issues, outreach to eligible families, coordination with other programs, preventing private insurance "crowd out," participation by state employees, and evaluation issues.

Background

Approximately 10 million American children do not have health insurance (see Appendix A). Of these, between 2 million and 3 million meet Medicaid eligibility criteria, but are not enrolled in the program. The majority of uninsured children live in "working poor" families.

Until now, federal assistance for insuring low-income children was available primarily through the Medicaid program. Federal Medicaid law requires participating states to provide coverage for certain ages and income levels and also allows coverage for additional children by age and income level under "optional" categories of children (see Appendix C). The majority of states have taken advantage of available federal money by expanding Medicaid beyond the mandated groups for at least some groups of children (see Appendix D).

Several states also already sponsor state-only insurance initiatives for children or participate in public/private partnerships such as the Blue Cross/Blue Shield Caring Program for Children. These initiatives have been funded with state general funds, earmarked taxes, foundation or federal grants, or through private donations. Under the new law, states may now receive federal assistance for these non-Medicaid programs, or new similar initiatives, as long as they meet specified criteria under the law.

Major Provisions of the State Children's Health Insurance Program

Subtitle J of the Balanced Budget Act of 1997 (P.L. 105-33) adds a new Title XXI (Title 21) to the Social Security Act, creating the State Children's Health Insurance Program. The program, referred to as CHIP or Title XXI, is designed to help states cover more uninsured children with some $20 billion in federal funds over five years. New federal money must be matched with state dollars according to a formula that is more generous than Medicaid's normal matching rate.

To participate in Title XXI, states must submit a "state plan" to the U.S. Department of Health and Human Services (DHHS), receive approval for the plan and contribute state matching funds to draw down the new federal funding. Appendix A lists federal allotments and the required state match amounts for each state. A state may submit an initial minimal plan to secure its federal funding, then build its program incrementally after taking time to plan a more comprehensive approach, if desired. In order to draw down their first year's allotment, states must have at least a minimal plan approved by Sept. 30, 1998. To ensure approval, states should submit a plan before July 1, 1998. The federal regional offices will review state plans prior to review at DHHS headquarters. States have up to three years (from Oct. 1, 1997) to spend the first year's funding once their plan is approved.

In year one, which began Oct. 1, 1997, states may begin drawing their share of the first year's $4.26 billion in federal funds once a state plan is approved by DHHS. States may use the first year funds anytime during the first three years of the program, but will forego the first year's allocation if they don't have an approved plan by Sept. 30, 1998. Federal oversight is shared between two DHHS agencies: the Health Care Financing Administration (HCFA), which administers Medicaid, and the Health Resources and Services Administration (HRSA), which administers many other federal health programs such as the Maternal and Child Health Services Block Grant (Title V), and primary care programs that support community health centers and other access initiatives.

In very general terms, the new Title XXI program does the following (see Appendix B for more details):

• Provides federal funding (with a state match) to cover uninsured children through age 18 in families with income up to 200 percent of federal poverty guidelines ($26,660 for a family of three in 1997) who don't qualify for Medicaid.
• Allows states some flexibility in choosing between expanding Medicaid or sponsoring other insurance coverage (or combining the approaches).
• Requires that certain service benefits be covered.
• Requires outreach for enrollment and coordination with other public and private programs.
• Specifies guidelines related to co-payments, reporting, evaluation and other issues.

The Balanced Budget Act also made several changes to Medicaid related to covering children, including allowing states to provide presumptive eligibility and continuous eligibility for children. Appendix B summarizes the major CHIP provisions of the act and Appendix C summarizes the major child health-related Medicaid provisions.

Medicaid, State Plan Option or Both?

Title XXI allows states two primary choices: expand Medicaid; or create or expand their own insurance initiative to cover more children--sometimes called the "state plan option." States may also combine the two options--provide insurance coverage for some children and expand Medicaid for others. A state may also begin with one option and switch to a different option later, or modify its plan in other ways over time. A very limited amount of the new federal allocation (up to 10 percent) may be used for administration, outreach, and direct purchase of services, for example, through community health centers.

States also may be able to experiment with other approaches, such as subsidizing employers for family coverage. As of January 1998, HCFA and HRSA had not issued final regulations, and it is unclear whether or not some proposed approaches will receive approval, either through the plan approval process or through a waiver or variance.

Expanding Medicaid. Medicaid already serves as the nation's number one insurance plan for low-income children, covering nearly 40 percent of American births and more than 18 million children at any given time. Medicaid covers so many children because Congress mandated Medicaid coverage expansions for certain low-income children over the past several years. Also, states could cover additional children under Medicaid's optional expansion categories, with the federal government footing at least half of the bill.

The Title XXI legislation allows states to expand Medicaid to cover children in families with incomes up to 200 percent of federal poverty guidelines (or 50 percentage points higher than their existing eligibility ceiling if it already exceeds 150 percent of poverty). States will receive the enhanced match under Title XXI for their additional populations covered under a Medicaid expansion, effective Mar. 31, 1997, or later. (Note: The original legislation specified April 15, 1997, as the beginning date for receiving an enhanced match under a Medicaid expansion. A subsequent technical amendment changed the date to Mar. 31 to accommodate Tennessee's recent expansion.)

As of October 1997, 36 state Medicaid programs covered children ages 1 through 5 who live in families with incomes up to 133 percent of the poverty line, the federal minimum (see Appendix D). These states could raise their ceilings anywhere up to 200 percent of poverty under the new law. Five states--Connecticut, Maryland, New Hampshire, New Mexico and Wisconsin--covered the same age group with family income up to 185 percent of poverty, so would be allowed to increase their income ceiling to 235 percent of poverty. A few other states--Arkansas, Hawaii, Minnesota, Rhode Island, Tennessee, Vermont and Washington--covered even higher income categories for children and would be allowed to expand coverage up to another 50 percentage points higher, if desired.

As of Jan. 5, 1998, the following states plan (or lean toward) a Medicaid expansion as their primary Title XXI option (see Appendix D): District of Columbia, Hawaii, Idaho, Illinois, Maryland, Massachusetts, Missouri, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee and Vermont.

Proponents of expanding Medicaid as the preferred option offer the following advantages:

• State Medicaid programs already have administrative and provider systems in place that cover the entire state.
• Medicaid's comprehensive package of benefits can meet the needs of all children, including those with serious medical problems and disabilities.
• Expanding Medicaid can enhance the state's purchasing power with respect to managed care plans and other providers--a state may be able to negotiate better deals than it would with a separate new program.
• Expanding Medicaid reduces confusion that may result if two separate programs have different rules, administration and services. Different children in the same family could be eligible for different programs.
• The state plan application process is simpler for a Medicaid expansion.
• States may expand Medicaid in the short term to capture use of the new federal money quickly, then switch to a state plan later, if desired.
• If a state expands Medicaid and exceeds its allotment, it may still receive its regular federal match for services rendered. If it enacts an insurance program and exceeds its allotment, the state is fully responsible for the additional amount (unless it cuts back somehow).

Some of the most vocal supporters of the Medicaid expansion option are advocates for children with special health care needs. The mandated Medicaid benefits package for children under Early and Periodic Screening, Diagnosis and Treatment (EPSDT) includes many services needed by children with serious chronic health problems and diseases. Medicaid may well be the best option for such children, but state policymakers also have flexibility under Title XXI to address their needs through other options as well.

State plan option. Title XXI also allows states to receive federal assistance to provide insurance to low-income children outside the Medicaid program--a significant departure from congressional actions over the past decade that used Medicaid as the primary vehicle for covering more low-income children. The income standards are the same as the Medicaid expansion option--children in families with income up to 200 percent of the poverty level (or higher in states with Medicaid thresholds higher than 150 percent of poverty). However, if a child meets the state's Medicaid eligibility criteria, that child must be enrolled in Medicaid and not an alternative CHIP program.

As of Jan. 5, 1998, the following states plan (or lean toward) sponsoring a state insurance initiative as their primary Title XXI option (see Appendix D): Arizona, Colorado, Kentucky, Michigan, Nevada, New York, North Carolina, North Dakota, Pennsylvania, Utah, Virginia, Washington and Wyoming.

Proponents of the state plan option point to the following advantages:

• States have more flexibility to tailor their own programs and target specific populations or areas of the state--the program doesn't have to be statewide.
• Costs can be controlled better by carefully crafting the benefit package.
• A state can cover more children if it offers a less costly benefits package.
• A privately based insurance plan has less "welfare stigma" than Medicaid and can help promote self sufficiency better than a program considered as welfare.
• A state plan can more readily support the existing employer-based insurance system.
• States can modify their programs more easily than Medicaid because of fewer federal requirements.
• A state plan does not create a new entitlement, making it easier to control costs by scaling back eligibility or benefits when the budget is tight.
• A state plan can be designed to prevent or minimize "crowding out" private sector insurance coverage.

The most vocal proponents of the state plan option prefer private sector insurance initiatives to expanding government programs such as Medicaid. They believe that states should support the country's employer-based system of health insurance, either by subsidizing premiums for low-income families or allowing families to choose which insurance to purchase through vouchers or tax credits.

None of the arguments pro and con about a particular approach is set in stone--discussion and careful planning can overcome many obstacles. For example, even though state Medicaid programs already have administrative and provider systems in place, it doesn't mean those same systems can't be used for a new non-Medicaid program. Wisconsin's proposed BadgerCare program would be very similar to Medicaid and be administered by the Medicaid agency, but would not technically be a Medicaid expansion, meet all Medicaid requirements or create an entitlement. On the other side, Medicaid coverage for children doesn't necessarily have to cost more than a state-run benefits plan. Although average Medicaid expenditures per child cost more than coverage under most existing state-only plans, that's largely because very high cost children in Medicaid drive up the average costs. Most existing state-run programs do not cover many of the services needed by children with intense medical needs. Instead, states tend to shift those children to their Medicaid program precisely because of its generous benefit package and federal matching funds.

Combined approach. States may find advantages to using both options--expanding Medicaid for certain children and using a state plan option for others. For example, some states that prefer the state plan option for most uninsured children, plan to accelerate the required phase-in of Medicaid coverage for teens through age 18 in families with income up to the poverty level, or even higher. As another example, a state may want to tailor its own plan for the vast majority of children whose medical needs are fairly routine, with an emphasis on preventive care and treatment for more short-term illnesses and injuries. Then, for children with special health care needs and chronic health conditions that require more intensive and frequent services, a state may want to consider using Medicaid or supplementing a more basic benefits package in another way. As of Jan. 5, 1998, the following states plan (or lean toward) a combination approach of some kind: Alaska, Alabama, California, Connecticut, Florida, Georgia, Iowa, Louisiana, Montana, New Jersey, Oregon and Rhode Island.

What option best suits a state is up to the individual state with its needs, resources and political preferences. A state may start with one approach and then modify it or switch approaches completely over time.

State Insurance Plan Parameters

While requirements under the Medicaid expansion option are clear (states must follow existing Medicaid rules for benefits coverage, co-payments, population coverage and other requirements), parameters under the "state plan" option are not so clear-cut. HCFA has yet to clarify just what is permissible under the Title XXI law for non-Medicaid options. States desire maximum flexibility in tailoring their plans to meet their own needs. A variety of ideas and proposals have surfaced, ranging from a comprehensive state-run plan for children to allowing families to choose their own coverage through vouchers.

The most popular approach for a non-Medicaid insurance plan seems to be creating a pool of insurers that offer specified coverage, with families choosing among them for their children. States may choose participating insurers based on a competitive bid process, or allow any plan that meets requirements to participate, or some other selection method. A state executive department can administer the plan or the state may contract with an insurance company or other entity to do so. Some states are considering whether to enroll CHIP-eligible children in their existing state employee benefit plan. Other policymakers desire to subsidize existing employer-based insurance, enabling families to purchase dependent coverage under CHIP. A few states propose to cover entire families.

Some existing or proposed plans or ideas include the following:

• Florida, New York and Pennsylvania already sponsor child health insurance plans, with benefit packages that received automatic approval under the Title XXI legislation.

Caring Programs for Children based on the Pennsylvania program now operate in 23 states. Most provide limited benefit packages that emphasize preventive care. Under HCFA's interpretation of the law, children covered under an existing state-operated Caring Program would qualify for participation in CHIP if they meet eligibility requirements. Also, states may be able to use such a program as its foundation for the state plan option, with modifications to meet new Title XXI requirements. However, children covered under Caring Programs that are not operated by the state (subject to HCFA's interpretation) may not qualify for Title XXI coverage.

• California submitted its state CHIP plan to DHHS in November, which proposes both an insurance purchasing pool and insurance purchasing credit under a new Healthy Families Program. The insurance pool would allow eligible families who do not have access to affordable and comprehensive employer-sponsored coverage for dependents to select a health plan for their children from several available under the pool. The purchasing credit would assist families who have access to such employer coverage by subsidizing the costs of that existing coverage. The program's governing board may limit participation in the purchasing credit program to employers who provide employee health benefits through public or private purchasing cooperatives. For employer plans that do not cover certain services required by the state, such as dental care or prescription drugs, eligible children could receive those supplemental services under the purchasing pool. California also plans to accelerate Medicaid coverage for teens through age 18 in families with income below the poverty level.
• Connecticut's CHIP proposal, adopted by the legislature in late October, includes both an insurance plan and a Medicaid expansion. The insurance plan, called HUSKY (Healthcare for Uninsured Kids and Youth) would cover children in families up to 300 percent of poverty in a plan based on the state's employee health benefit package. The Medicaid portion would accelerate Medicaid coverage for teens and include those in families with income up to 185 percent of poverty, the eligibility level for the state's other Medicaid-covered children.
• Colorado's CHIP proposal, submitted in October, proposes to build on its Children's Basic Health Plan, which subsidizes insurance coverage for children in families with incomes up to 185 percent of poverty. The benefits are based on the "standard plan" defined in Colorado's small group insurance reform law and services are provided by HMOs willing to contract with Medicaid (or by other network providers in rural areas without HMOs).
• Other ideas would more directly subsidize existing private coverage, such as paying premiums under employer plans (as proposed as part of California's plan and under study in Kentucky, New Jersey, Rhode Island, Utah, Wyoming and perhaps other states); issuing vouchers for purchasing insurance; using tax credits; or allowing funds to be deposited into medical savings accounts. These ideas have not yet been tested under HCFA's approval process. The Balanced Budget Act contains several requirements that may present obstacles to such proposals. For example, insurance benefits must meet specified requirements and include specific services. With hundreds of health insurance plans operating in most states, it would be difficult for state administrators to certify whether or not that many plans meet the "benchmark" specifications and to monitor compliance and quality. On the other hand, perhaps a state could subsidize the most prevalent employer-based plans that meet specifications and provide another option for other families. The California proposal addresses some of those issues, as mentioned previously. Until HCFA issues specific guidelines or state plans are reviewed, it is unclear just what will meet with approval.
• Title XXI allows states to request a waiver for purchase of family coverage under a group health plan that includes coverage of targeted low-income children, if the state can prove that such purchase is cost effective and family coverage will not substitute for insurance coverage that would be provided for the children otherwise.

Program Costs

Cost comparisons between Medicaid and state-run plans and among different state-run programs are difficult to make because programs differ so much in the benefits they offer, the negotiated rates with providers, the populations they serve, the prevailing health care costs in a region and the way they report costs (e.g., with or without administrative costs). Nonetheless, policymakers can benefit from comparison shopping and negotiations with insurers and providers as they craft their programs. In 1995, Medicaid paid an annual national average of $121 per month per child ($1,451 annually) for services provided. Some of the children had very expensive health care needs, while others needed very little care. These numbers reflect mostly fee-for-service expenditures for children who actually received services, and not the average cost among all children covered by Medicaid. A recent Urban Institute analysis estimates that the average national cost of acute care services under Medicaid is $75 per month ($900 annually) for children ages 1 through 18.

Costs vary among states, especially as states move more Medicaid-eligible children into managed care plans. For example, under its Medicaid waiver, Tennessee even differentiates its premiums by age, paying $127.64 per month in 1997 for infants to age 1, and $39.35 per month for children ages 1 through 13.

As for private sector insurance coverage, a recent survey by the Council on Affordable Health Insurance reveals a range of $58 to $66 per month, with regional variations (or $696 to $792 annually) for typical costs of children's insurance (with a $500 deductible and an 80/20 coinsurance provision up to $5,000).

The Washington Basic Health Plan, with its two-tiered benefits structure, provides some insight into comparing Medicaid with other plans. Its regular insurance package costs about $41 per month per child ($492 per year), while its Medicaid-level benefits package, which also includes dental services and no cost-sharing, costs $60 per month ($720 per year).

Among states that sponsor a separate children's health insurance initiative, the Alpha Center reports cost estimates in 1997 as follows for a few representative states:

• Florida's Healthy Kids Program--$51 per month ($612 annually).
• New York's Child Health Plus program--$84 per month average ($1,008 annual average), with regional variations, which includes the program's recent expansion to include inpatient care.
• Pennsylvania's Child Health Insurance Program--$53 per month ($636 annually).
• Montana's Caring Program--$30 per month ($360 annually), covering only preventive and primary care services.

 Other State Planning Issues

In addition to choosing the most appropriate option for their own state, legislators face a number of other issues, including finding the required state match; addressing the needs of children with chronic illnesses or disabilities; addressing access and service delivery needs; conducting outreach; coordinating with other public and private sector programs; preventing private insurance "crowd out"; covering the children of state employees; and evaluation.

State match. As impressive as the federal allotments are, they also mean states must come up with matching funds. States may not use other federal program funds or participant co-payments or premiums as matching funds. Existing Medicaid restrictions apply to using provider taxes, such as requiring any provider tax to be broad-based and applied uniformly to classes of providers. Some state program funds may count toward the match, such as existing child health insurance program funds and indigent care funds. Some existing child health insurance programs use general funds, cigarette taxes, insurance premium taxes, county taxes, and business and charity donations. A number of states plan to use state-allocated Medicaid funds recouped through managed care savings or a reduction in caseloads experienced through welfare reform or healthier state economies.

Children with special health care needs. An estimated 8.3 percent of uninsured children have disabilities or chronic health conditions that require more medical and ancillary services than their relatively healthy peers. These are children with asthma, diabetes, sickle cell anemia, cerebral palsy, mental illness, mental retardation, cancer, and other conditions and diseases or combinations thereof. All children with disabilities or chronic conditions don't require long-term intensive services--their needs range from relatively mild to severe. Some require fairly routine maintenance, some need episodic care and some require frequent visits and long-term treatment. Although the number of children with special health care needs is small, they consume an estimated 25 percent to 50 percent of all child health expenditures. State policymakers have some options under Title XXI about how best to cover children in their states who have special health care needs.

Under Title XXI, a state may not exclude children from coverage based on a preexisting medical condition. A state may specifically target children with a disability under the state plan option, but cannot restrict eligibility. State plans also may not permit exclusions for treating preexisting conditions, unless the state contracts with an existing group plan that has such exclusions. In that case, the plan may apply the exclusion to newly enrolled children under CHIP, but must meet other federal law requirements related to covering preexisting conditions.

Over time, Medicaid has become the "payer of last resort" for hundreds of thousands of children who qualify based on disability criteria under the Supplemental Security Income (SSI) program. Others qualify under Medicaid waiver programs designed to assist families to care for their children who have serious health conditions at home instead of in hospitals or other institutional settings at greater cost. Most existing state insurance programs target relatively healthy children and rely on Medicaid to cover children who have high-cost medical needs.

Because of Medicaid's status as the payer of last resort for a small, but expensive, population of children, it costs more per child, on average, than other state programs. It doesn't take many children with $100,000 medical costs to drive up a program's average cost per child. Another reason for greater costs is that Medicaid's benefits package is more comprehensive than most commercial insurance plans. It covers specialty care--such as inpatient hospital and psychiatric services, private duty nursing and residential care or home-based intensive services for people with severe disabilities and medical problems. It also covers ancillary services that benefit certain children, including speech therapy, physical and occupational therapy, transportation and durable medical equipment, such as wheel chairs.

For the vast majority of relatively healthy children, Medicaid may be as inexpensive as the average state-run program. Even though Medicaid has a comprehensive benefit package, it doesn't mean that covered children use services they don't need. Under the new Title XXI options, a state that expands Medicaid will meet the health needs of most children. Or, a state that chooses the state plan option could craft a plan with more limited benefits for the majority of relatively healthy children and then address those with greater health care needs in other ways. For example, a state could cover targeted children with special needs under Medicaid. Or it could supplement a state insurance plan for the few children who need extra services by purchasing them separately using the 10 percent of Title XXI money allowed for direct purchase of services, administration and outreach. In addition, state policymakers should be aware that at least 30 percent of funds under the Maternal and Child Health Services Block Grant (Title V) are earmarked for services to children with special health care needs. State Title V programs may be able to provide supplemental services for children who may need additional benefits not covered under a state plan option.

Title XXI requires states to involve the public in designing and implementing the plan and to ensure ongoing public involvement. To meet the special needs of children with chronic health care problems, policymakers may especially benefit from involving both representative parents of such children and health care providers who specialize in their care.

Access and service delivery. Simply giving a child a health insurance card doesn't ensure access to care. States need to consider where children can go and who will provide the services. Existing Medicaid providers are one option for states to consider in expanding coverage for children, whether under a Medicaid expansion or under a state plan option. If states subsidize employer coverage or create a pool of insurance plans, presumably those provider networks would be in place, but policymakers may want to make sure that the capacity exists to serve additional children. Special access and service delivery considerations exist for children in areas without many health care providers and for children with special health care needs, as described earlier.

Title XXI specifically allows states to purchase a limited amount of services directly from community-based health centers or disproportionate share hospitals. Up to 10 percent of federal funds may be used for administration, outreach and direct purchase of services. States may also seek a waiver to use additional funds to purchase services directly through community providers in cases where it is cost-effective, such as some inner-city neighborhoods or rural areas of the state that lack other service providers. All but four states sponsor school-based health centers, which may serve as a viable option for Title XXI services in certain areas.

While the federal Health Care Financing Administration specializes in financing issues and Medicaid, the federal Health Resources and Services Administration specializes in access issues. HRSA sponsors a number of initiatives in states that can help with access issues under Title XXI, including the Title V Maternal and Child Health Services Block Grant program, community health centers, and the National Health Service Corps, which places providers in underserved communities.

California's plan calls for paying special attention to areas with significant numbers of uninsured children in low-income families. It requires the program's governing board to designate a "community provider plan" in each geographic area that has the highest percentage of traditional and safety net providers in its network. Families who enroll in such a plan will pay discounted premiums. California's legislation also authorizes up to five demonstration projects in rural areas that are likely to contain a significant level of uninsured children, including seasonal and migratory worker families. The projects would fund rural collaborative health care networks to address unique problems of access in those rural areas.

Outreach. Title XXI requires states to conduct outreach to families to encourage enrollment of eligible children. Florida markets its program through the schools (and also uses schools as the enrollment base) because "that's where the kids are." Other states use public service campaigns, fliers in public utility bills, radio and TV ads, toll-free hotlines, attractive brochures in different languages distributed through churches and other community-based organizations, celebrity events and posters in clinics and hospitals. South Carolina's plan calls for program applications to be available in schools, doctors' offices, neighborhood pharmacies and local hospitals. Arkansas distributes special crayons with its new "ArKids First" program logo and hot line number to advertise their program as "kid friendly."

Community-based providers and Title V Maternal and Child Health Programs also have a great deal of experience in providing outreach services. States can both use existing resources through these programs and build on their successful experiences. Any children found who qualify for Medicaid must be enrolled in Medicaid and not a state insurance alternative.

Coordination with other programs. New Title XXI program efforts must be coordinated with both private and public sector programs, notably Medicaid and the Maternal and Child Health Services Block Grant (Title V).

If a state chooses the state plan option, careful coordination with Medicaid will be necessary for several reasons, including: states must ensure that Medicaid-eligible children are referred to Medicaid and not a state option program; children in the same family may be eligible for different programs, which may confuse families and providers; children may move between Medicaid and a state plan option as family income varies; outreach and enrollment efforts could be combined; and Medicaid may be used to supplement state programs for certain children or services, especially those with special health care needs.

New York's Child Health Plus Program makes a special effort to coordinate with the state's Medicaid managed care program. The intent is to have children move between the programs with relative ease and also maintain relationships with their primary care providers. New York also uses a joint application process for Medicaid, Child Health Plus and WIC, the federal nutrition program for women and children. Florida's Healthy Kids Program coordinates with school lunch program enrollment--kids who qualify for subsidized lunch also qualify for the health program.

The Title V MCH Services Block Grant programs in each state have long track records of providing outreach, needs assessment, coordination, service delivery, evaluation, care coordination and also supplemental services for children with special health care needs. States can use, learn from and build upon these existing resources.

As for private sector coverage, state policymakers should work with businesses and employer groups to minimize "crowd out" and coordinate efforts to provide family coverage.

Preventing private insurance "crowd out." This phrase refers to replacing private sector insurance coverage with a public program. Under Title XXI, states must adopt procedures to ensure that their plans don't substitute for employer-sponsored coverage. Crowd out occurs either when individuals drop their employer coverage to participate in a public program, or when employers drop health coverage benefits for employees, assuming they can get government assistance. Title XXI law already disqualifies children who currently have insurance, which intends to reduce crowd out.

Under the state plan option, states can take steps to prevent (or at least discourage) crowd out, such as the following:

• Subsidize existing employer coverage. Although it is not yet clear how HCFA will allow states to subsidize employer coverage for eligible children under Title XXI, it appears that such subsidies may be possible under certain circumstances, including that the subsidy is cost-effective and that covered benefits meet the law's requirements.
• Impose a waiting period under a state program for children who recently had employer coverage. For example, MinnesotaCare excludes applicants who had health insurance coverage in the previous four months. California's CHIP plan proposes a three-month "look back" for children under a group plan, but no restriction for children who were previously insured under a non-group policy. California's legislation also allows extending the waiting period to six months if the three-month period is too short to deter crowd out. Florida's Healthy Kids Program initially had a six-month "look back" requirement, which was dropped in response to concerns that it was too punitive and defeated the purpose of making sure children received needed health care services. State policymakers may want to make exceptions in cases where a family loses coverage due to unemployment, death or disability, a job change or a substantial drop in family income.
• Impose a waiting period under a state program for children who had access to employer-subsidized insurance coverage, but were not enrolled. MinnesotaCare also excludes applicants if they had access to employer-subsidized coverage during the previous 18 months, when the employer pays at least 50 percent of the cost. While some favor such waiting periods, others argue that they defeat the purpose of the Title XXI program, which is to cover low-income uninsured children, for whatever reason they lack insurance.
• Charge a premium for the public program. Families will be less tempted to drop employer coverage if the public program costs are similar to their private employer's costs for dependent coverage. Title XXI allows premiums, co-payments and deductibles for families with incomes over 150 percent of poverty, up to 5 percent of a family's income (although no cost sharing is allowed for preventive services, including immunizations).
• Allow Title XXI eligibility to be a "qualifying event" for enrollment in an insurance plan that may have just an annual open enrollment period. This would allow for immediate enrollment of qualifying children who otherwise may have to wait months to enroll in an employer-sponsored plan. State lawmakers would not have authority over self-insured plans that are governed by federal ERISA law (the Employee Retirement Income and Security Act).

Crowd out is difficult to prevent under a Medicaid expansion because of its entitlement nature. Any child who meets eligibility criteria must be enrolled, without imposing a waiting period or other mechanism designed to prevent dropping employer coverage. However, Medicaid allows states to pay for private health insurance premiums for qualifying children when it is cost-effective.

State employees. Children of state employees who are eligible to participate in an employee benefit plan are excluded from the new CHIP program under the state plan option. The exclusion is of particular concern to states that do not contribute to state employee dependent coverage, even though such children may still qualify for Medicaid if they meet Medicaid eligibility criteria.

Evaluation. States must provide an annual report to DHHS that assesses the operation of the plan and the progress made in reducing the number of uninsured children during the year. In addition, by March 31, 2000, states must provide an evaluation that assesses a number of items, including the effectiveness of the state plan in increasing the number of children with health coverage; the effectiveness of other private and public programs; state activities to coordinate the plan with other public and private programs; trends in the state affecting the provision of health care to children; plans for improving the availability of health insurance and health care for children; and recommendations for improving the program. States already have similar evaluation and reporting mechanisms in place under other federal programs, including the MCH Title V programs. Coordination with these programs could help states meet the evaluation requirements.

 NCSL Contacts and Resources:

References:

Alpha Center. State Initiatives in Health Care Reform. Washington, D.C.: Alpha Center, May 1997.

Hearne, Jean. "Coordinating Children's Coverage Expansions With Employer-Sponsored Coverage." Washington, D.C.: Institute for Health Policy Solutions, December 10, 1997.

U.S. General Accounting Office. Health Insurance for Children: State and Private Programs Create New Strategies to Insure Children, GAO/HEHS-96-35. Washington, D.C.: U.S. General Accounting Office, January 1996.

Acknowledgment:

This report was made possible by project MCU-0860045 from the Maternal and Child Health Bureau (Title V, Social Security Act), Health Resources and Services Administration, U.S. Department of Health and Human Services.

Appendix B: Major Title XXI Provisions Under the Balanced Budget Act of 1997

State options. States may: a) expand Medicaid; b) obtain health insurance coverage through another mechanism such as a separate insurance program or other mechanism--sometimes referred to as the "state plan option"; c) combine the two first options; d) use up to 10 percent of federal funds for administration, outreach and direct purchase of services through community-based delivery systems, such as community health centers and public hospitals; or e) seek a waiver or variance for another option, such as purchasing family coverage under a group plan.

Eligibility. Title XXI defines eligibility for "targeted low-income children," meaning children who meet all of the following criteria:

• Uninsured--even those with existing minimal coverage may not qualify;
• Family income below 200 percent of federal poverty guidelines ($26,660 for a family of three in 1997), or 50 percentage points higher than a state's existing Medicaid eligibility ceiling when it exceeds 150 percent of poverty;
• Under age 19; and
• Not eligible for Medicaid under a state's rules in effect on April 15, 1997, or any other federal health insurance program--uninsured children who meet a state's Medicaid eligibility criteria must be enrolled in Medicaid and not an alternative state insurance program under CHIP.

Children of public agency employees eligible for a state employee benefit plan or children in institutions may not qualify for assistance under the state plan option, but may qualify for Medicaid if they meet the state's Medicaid eligibility criteria.

State plan. States must submit a plan to the U.S. Department of Health and Human Services (DHHS) that specifies objectives and performance goals; benefits; the service delivery method, such as managed care; cost-sharing requirements; data collection and reporting mechanisms; the program budget; utilization control systems; and the process used to involve the public. State plans must be reviewed within 90 days, or they become effective without approval. However, HCFA has implemented a "stop the clock" provision that puts the 90-day review period on hold when it refers questions or a request for additional information to a state. The department advises states to submit plans as soon as possible, and no later than July 1, 1998 to ensure approval by the end of the first fiscal year on Sept. 30. States may begin with a modest initial plan to cover more uninsured children and then build incrementally to a more comprehensive plan as they have more time to study their own situations and also learn from other states.

Payments to the states. Federal allotments require a state match, which is about 30 percent less than a state's normal Medicaid match. Of the total $23.9 billion authorized over five years, about $20 billion is available for state grants to implement new Title XXI initiatives; an estimated $3.9 billion will be needed for Medicaid changes (described in Appendix C); and $300 million is earmarked for diabetes grant programs.

CHIP coverage requirements. If a state chooses to expand Medicaid under Title XXI, Medicaid's usual benefit requirements must be met. If a state chooses the "state plan option," benefits under the state plan must be consistent with any of the following:

• a "benchmark" plan, which can be any of the following:

1. the Federal Employees Health Benefits Program (FEHBP), which is the standard Blue Cross/Blue Shield preferred provider option;
2. a state employee health benefits coverage plan; or
3. a health maintenance organization (HMO) plan that covers the largest number of commercial, non-Medicaid clients.

• the "actuarial equivalent" of a benchmark plan;
• an existing comprehensive state-based program in Florida, New York or Pennsylvania; or
• an alternative plan approved by the secretary of DHHS.

Benefits must include inpatient and outpatient hospital services, physicians' surgical and medical services, laboratory and x-ray services, and well-baby and well-child care, including immunizations. In addition, a state-designed plan must cover prescription drugs, mental health services, and vision and hearing services at a level equal to at least 75 percent of the actuarial value of a selected benchmark plan. States may include additional benefits, including many of the services that benefit children with special health care needs, such as medical equipment, home health nursing, physical and occupational therapy, dental services and many others.

Cost-sharing. States may not impose cost-sharing requirements on preventive services, including well-child care and immunizations. For other services, if a state chooses to expand Medicaid, normal Medicaid rules on cost-sharing apply. Under the state plan option, a state can impose nominal cost-sharing amounts based on family income at or below 150 percent of poverty. For families with higher incomes, states can impose cost-sharing (e.g., premiums and deductibles) on a sliding fee scale, not to exceed 5 percent of family income.

 Appendix C: Major Medicaid Requirements and Changes Relating to Child Health

Mandatory Medicaid Coverage for Children:

• Children under age 6 whose family income is up to 133 percent of federal poverty guidelines (about $17,729 for a family of three in 1997).
• Children born after Sept. 30, 1983, who are over age 5 and live in families with income up to the poverty level ($13,330 for a family of three in 1997). These children, the oldest of whom turned 14 Oct. 1, 1997, are to be phased in each year, through age 18.
• Children who receive adoption assistance or foster care.
• Children who qualify for federal Supplemental Security Income (SSI), based on disability.

Optional Medicaid Coverage for Children:

• Infants (to age 1) with family income up to 185 percent of poverty (about $24,660 for a family of three in 1997).
• 1902(r)(2) populations. A section of the Medicaid law allows states to use more liberal criteria to determine financial eligibility for Medicaid, subject to HCFA approval. Some states cover children with family income higher than the normal options by disregarding defined amounts of income and other resources.
• Waiver populations. Under statewide 1115 waivers, some states cover populations with higher incomes than the normal optional categories.
• Under Title XXI, states may cover children through age 18 in families with income up to 200 percent of poverty ($26,660 for a family of three), or up to 50 percentage points higher for states that have eligibility ceilings that already exceed 150 percent of poverty.

Balanced Budget Act Changes: In addition to allowing states to expand Medicaid under Title XXI (as described in Appendix B), the Balanced Budget Act of 1997 made numerous other Medicaid changes--only major provisions related to coverage of children are highlighted here. The law requires the following:

• States must cover any additional Medicaid-eligible children found through CHIP outreach efforts under Medicaid and not under the state plan option;
• States must cover children with disabilities who lost their Supplemental Security Income (SSI) under new welfare reform rules;
• States must maintain their Medicaid eligibility at levels that are not more restrictive than those applied as of June 1, 1997; and
• The secretary of the U.S. Department of Health and Human Services must conduct a study of EPSDT (Medicaid's benefit package for children), including the actuarial value of the covered benefits and requirement that EPSDT cover all "medically necessary" treatment.

In addition, the law allows three new options under Medicaid (beyond the State Children's Health Insurance Program options) that relate to children:

• One-year continuous eligibility for children, which means once a child is enrolled, he or she may continue enrollment for a full 12 months, even if the family's financial circumstances change. Advantages to this option include: less administrative work for the state for "revolving door" children--those who fall in and out of eligibility because their family income fluctuates; children are more likely to receive recommended preventive care, screenings and immunizations than if they qualify for just a few months at a time; and, under managed care plans, the state is more likely to get its money's worth after paying the premium, especially if it establishes performance standards that require plans to conduct outreach and meet preventive care goals.
• "Presumptive eligibility" for children, meaning providers may be reimbursed for services to children who appear to meet Medicaid requirements, pending application approval. Medicaid presumptive eligibility has been available for pregnant women for a number of years. The major advantages of presumptive eligibility are that providers can receive reimbursement for services to uninsured children who appear to meet Medicaid eligibility criteria and children are more likely to receive needed services under those circumstances.
• Mandatory enrollment into managed care, except for children with special health care needs and people who qualify for both Medicaid and Medicare (usually because of disability and low-income status). Previously, states had to apply for and receive a waiver before requiring Medicaid recipients to enroll in a managed care plan.

The Balanced Budget Act appropriated $3.9 billion to fund these new initiatives and the additional children that may be found through outreach efforts who already qualify for Medicaid but are not enrolled.