EXPLORING A NEW OPTION: Section 1115 Waivers Under SCHIP

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Section 1115 Demonstration Waivers Under the State Children's Health Insurance Program

By Gabriela Alcalde, M.P.H.

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II. Section 1115 Research and Demonstration Projects: What are they?

IV. SCHIP 1115 Waiver Activity

California
Minnesota
New Jersey
New Mexico
Ohio
Rhode Island
Wisconsin

Appendix A: The Medicaid Experience with 1115 Waivers

Appendix B: Resources for Section 1115 Demonstration Project Information

Notes

Acknowledgments

As the State Children's Health Insurance Program (SCHIP) evolves and grows, a new option has become available to the states. SCHIP was designed with state flexibility in mind, and recently released Health Care Financing Administration (HCFA) guidelines on Section 1115 demonstration projects also known as research and demonstration waivers further enhance that flexibility. Research and demonstration projects, authorized by Section 1115 of the Social Security Act, were enacted by Congress in 1962. This authority allows the secretary of Health and Human Services to waive certain provisions in the legislation of some "grant-in-aid" programs such as Medicaid- and now SCHIP-to authorize a pilot or demonstration project aimed at promoting the objectives of the program. It also allows the secretary to provide matching funds where such funds normally are not available.

The Section 1115 waiver guidance was released by HCFA on July 31, 2000. The guidance describes factors to be considered in granting states permission to implement state-devised approaches that ordinarily are not permitted under SCHIP law in order to meet programmatic goals and objectives and also receive an enhanced match rate. HCFA will examine the overall state approach instead of basing its decision solely on the criteria provided in the guidance. These demonstration projects can be used to research an issue of interest to HCFA, to test a program or to otherwise fulfill a research purpose. Section 1115 demonstration projects are given five years in which to prove their research and public policy value. The demonstration projects must contain specific objectives and an evaluation component.

In the past, Medicaid Section 1115 waivers have been used by states to test new ideas on ways to better serve those enrolled in Medicaid and to adapt the program to the changing marketplace and health care environment. States use these waivers to function with some freedom from the rules and regulations of Medicaid. The most significant effect on the Medicaid program from Section 1115 waivers has been the use of managed care to deliver services to enrolled populations. The numerous managed care demonstration projects under Medicaid led to permanent federal policy changes in 1997. Thus, Medicaid 1115 waivers not only provided additional flexibility to states, but they also paved the way for major federal structural and funding changes.

The HCFA guidance lays out specific considerations regarding which states can apply for a waiver and under what circumstances. To qualify for an 1115 demonstration project, a state must have operated its SCHIP program for at least one year, have submitted all the required reports and evaluations, offer their program statewide and have open enrollment with no waiting lists for the program. States also must submit the following assurances:

The state must prove it is covering children to age 19 with family incomes up to 200 percent of the federal poverty level (FPL).
The state must assure it will provide coverage for lower-income populations before covering the higher-income populations made eligible by the demonstration project. Further, the state cannot cover any group at a higher FPL than it covers its targeted low-income children.
Finally, the state must show that it is promoting enrollment and retention of currently eligible children through its existing application and redetermination process. The state must be doing at least three of the following five things:

Use a joint, mail-in application and common application process for SCHIP and Medicaid;
Eliminate assets tests;
Offer presumptive eligibility;
Have 12-month continuous eligibility; and
Have simplified its procedures for redetermination so this can be done by mail; and, in the case of state-designed programs, have procedures in place so children who shift between SCHIP and Medicaid can do so without a new application or a lapse in coverage.

As of January 31, 2001, 38 states covered children at or above 200 percent of the FPL. Most states also have eliminated the assets test and simplified application and verification procedures. Table 1 provides information about states that meet the criteria.

All state activities under SCHIP 1115 demonstration projects must be "budget neutral." In the case of SCHIP, this means "allotment neutrality"-that is, a state cannot exceed its individual SCHIP funds allotment. Reallocated funds from previously unspent SCHIP allotments do not count toward the available amount. Rules on budget neutrality and funding differ somewhat between SCHIP Medicaid expansions and SCHIP state-designed programs. In the case of Medicaid expansion 1115 waivers, a state could receive funds from a Medicaid amendment or waiver should its SCHIP allotment run out. If a SCHIP demonstration project is operated under a SCHIP state-designed program, no more federal funds would be available once SCHIP funds are exhausted.

Three possible options are generally possible for a SCHIP demonstration project. It can 1) expand benefits and services, 2) expand coverage to new populations, or 3) both. Expanded services and benefits can be provided to discrete populations as long as these services do not substitute for existing services funded by state or federal money. The two types of additional services are:

Supplemental services, and
Public health initiatives.

New populations-such as parents of eligible children, pregnant women and children age 18 to 21 otherwise eligible for SCHIP- could be covered under a SCHIP 1115 demonstration project. Adults with no children and who are not pregnant will not be considered an eligible population for demonstration projects. Specifically, HCFA will consider the following groups.

Pregnant women with incomes above 185 percent of the FPL- in those states already covering pregnant women up to this level under Medicaid- may be covered under SCHIP demonstration projects.
Parents above 100 percent of the FPL can be covered with an enhanced match rate;
For parent-expansions in effect before March 31, 2001, parents below 100 percent of the FPL will be covered with regular Medicaid funding at the Medicaid match rate.
Expansions to parents occurring after March 31, 2001, can cover parents with the enhanced match rate at any income level.
Parents can be covered by the SCHIP or Medicaid programs, or provided with premium assistance (PA) for employer-sponsored insurance (ESI). SCHIP regulations on ESI apply.

Other demonstration projects that HCFA has said it would consider are:

Extending coverage for children who become ineligible for SCHIP because of their age while in treatment for a specific condition; and
Proposals to promote enrollment of children eligible for other programs such as the free and reduced school lunch program and the Healthy Start program.

As of January 31st, 2001, seven states -California, Minnesota, New Jersey, New Mexico, Ohio, Rhode Island and Wisconsin- had submitted Section 1115 demonstration project proposals to HCFA. New Jersey, Rhode Island and Wisconsin received approval on January 18, 2001. (The final section of this report includes a description of each state Section 1115 demonstration project's proposal and progress.)

Because many states have unused SCHIP funds and because SCHIP is a smaller and less costly program than Medicaid, states may be more willing to test new ideas through 1115 demonstration projects while receiving an enhanced match rate. In addition, the fact that the program is still in its infancy makes experimentation more feasible and makes the lessons to be learned more useful because the programs are still maturing and taking shape. On the other hand, with the current economic uncertainty, states may be wary of taking on new challenges and incurring additional costs. Further, Medicaid costs are on the rise and state budgets are experiencing substantial cuts. Operating a program within a program may not be administratively workable for some states, and the fact that demonstration projects are time-limited (although Medicaid 1115 waivers have received extensions in the past) may discourage states from establishing a service or program that may need to be sustained with state-only funds once the demonstration project ends. Still, because SCHIP 1115 demonstration projects have the potential to influence the program at both the state level and federal level- just as Medicaid 1115 waivers did in the past- it will be important to pay close attention as some states undertake new ventures and explore this recently available option under SCHIP.

I. Introduction

As the State Children's Health Insurance Program (SCHIP) enters its fourth year, enrollment now surpasses 3.3 million children. Despite initial concerns that states were off to a slow start, the SCHIP program has gained momentum, with enrollment growing 70 percent from fiscal year 1999 to fiscal year 2000 alone.1 States have achieved such growth by taking full advantage of the flexibility of the program and, at the same time, being creative and innovative in their approaches. On July 31, 2000, the flexibility of the program was further enhanced when the Health Care Financing Administration (HCFA) released guidance on the use of Section 1115 demonstration projects under SCHIP. This new guidance lays out the general parameters for Section 1115 demonstration projects and opens new paths for states to provide quality health care to low-income, uninsured children. The ability to use Section 1115 demonstration projects " ... may provide States additional opportunities to develop innovative methods for expanding children's coverage, promoting participation in SCHIP and Medicaid, and improving the scope and quality of services available to children."2

This report provides background information on Section 1115 demonstration projects under SCHIP and provides general guidance for states that may consider this new alternative. Up-to-date information, current as of January 31, 2001, is presented and examples are included from states that have submitted proposals to HCFA.

II. Section 1115 Research and Demonstration Projects: What are they?

Research and demonstration projects are authorized by Section 1115 of the Social Security Act. Congress enacted Section 1115 in 1962, granting the secretary of Health and Human Services the authority to waive certain provisions in the legislation of certain "grant-in-aid" programs such as Medicaid-and, more recently, the State Children's Health Insurance Program (SCHIP)-to authorize a pilot, experimental or demonstration project aimed at promoting the objectives of the program. For many years, the process of seeking an 1115 waiver often was time-consuming and complex, barring many states from receiving, or even submitting proposals for, these waivers. In 1993, President Clinton called for the streamlining of the application and approval process of 1115 waivers, causing an upsurge in Medicaid 1115 waiver applications and approvals in the 1990s.3

Limitations

These demonstration projects carry limitations on content as well as on time. In general, these demonstration projects must be used to:

investigate issues of interest to HCFA;
test a program; or
otherwise fulfill a research purpose.

Because these are research projects, they must include measurable objectives and an evaluation component. The procedure for SCHIP demonstration projects is:

1) Concept development

a) consult with HCFA (optional)

b) evaluation design

c) public notice

d) confer with American Indians/Alaska Natives (AI/AN) Tribes and Tribal organizations

2) Proposal review and decision

a) demonstration proposal (electronic copy and three hard copies to HCFA)

b) state plan amendment (if demonstration project proposal will affect current SCHIP population, a SCHIP amendment must be submitted; if the demonstration project will affect current Medicaid population, a Medicaid amendment must be submitted)

3) Implementation and evaluation

Most projects are given five years to demonstrate outcomes, but continuation must be requested annually. At the end of the five years, an evaluation must be conducted. Extensions have, however, been granted to states with Medicaid 1115 waiver projects (Arizona, the longest-running Medicaid 1115 waiver, has operated its Medicaid demonstration project since 1982.)

Another limitation is that of budget neutrality. States that apply for an 1115 demonstration project must prove that the demonstration will not increase the amount of the existing budget for the life of the demonstration. In other words, the project cannot cost the federal government more than it would cost it without the demonstration project. Budget neutrality is decided over the life of the project, rather than on a yearly basis.

Medicaid 1115 Waivers

Section 1115 waiver demonstration projects have given states a platform upon which to test new ideas for ways to transform Medicaid to better serve those enrolled and adapt the program to the changing marketplace and health care environment. Despite limitations of 1115 waivers, they have provided states with unprecedented freedom to exercise innovation and, thus, to influence federal policy regarding Medicaid. Many Medicaid demonstration projects served as precedents for the changes enacted in the Balanced Budget Act of 1997, especially in the area of Medicaid managed care. The Balanced Budget Act (BBA) of 1997 was signed into law by President Clinton to balance the federal budget. It represents the largest reduction in federal spending in Medicaid since 1981, as well as the most significant structural changes to Medicaid since 1991. The BBA of 1997 also made significant cuts and changes to Medicare and limited federal funding for "disproportionate share hospitals"- health centers providing care to a high percentage of uninsured. Under the BBA, both Medicaid and Medicare program rules were substantially rewritten and the health safety net was restructured. The BBA of 1997 furthered states' flexibility in administering their Medicaid programs by eliminating minimum standards for reimbursement rates to hospitals, nursing homes and community health centers and by mandating most Medicaid enrollees to be enrolled in managed care organizations. The State Children's Health Insurance Program (SCHIP) was created by this legislation. The BBA also restored some public benefits to legal immigrants and to children with disabilities.

With Section 1115 waivers, state Medicaid programs can function with some freedom from the rules and regulations of the Medicaid program, allowing them to expand eligible populations and obtain federal support, and allow them the option to discontinue a program which does not work as planned.4 Not only do these waivers provide additional flexibility to states, but they also serve as a potential and powerful influence on the future and progress of programs such as Medicaid and SCHIP. For a program as young as SCHIP, Section 1115 waivers offer states a way to accrue research information on what works best for the program while receiving enhanced matching rates for their experiments. (Appendix A contains more information about Medicaid 1115 waivers.)

III. SCHIP Demonstration Projects

The HCFA guidance on 1115 demonstration project programs tells states what is permitted and what must be submitted to HCFA for consideration. The guidance, however, is not an exhaustive listing of all that states can do with the new authority. It is, instead, a guideline. Section 1115 demonstration projects are based on the expectation that each proposal will be unique and novel. There are no model proposals for states to follow. HCFA has developed a 12-page template and a guideline for Section 1115 demonstration project proposals in 2001 that provides further guidance on the necessary steps to pursue this option. It is not mandatory to use the template, however, states may find it useful to ensure that they submit the required information and assurances. Because SCHIP still is in its infancy and this is the first round of SCHIP Section 1115 demonstration projects to be proposed, much will be learned from what is accepted and denied and from the process itself. The first few proposals to be approved or denied will provide precedents for future proposals. Further guidance will be supplied by HCFA as more questions arise.

SCHIP Background

Since SCHIP legislation passed in 1997, plans from all states, commonwealths and territories have been approved and programs have been tailored further through 72 amendments as of January 31, 2001, with more currently under review. In order to meet programmatic goals and objectives, the demonstration projects authorized by Section 1115 waivers grant states permission to implement state-devised approaches that ordinarily are not permitted under SCHIP law.

Most states-33 to be precise- implemented their programs in 1998, compared to only eight in 1997, another eight in 1999 and the remaining two in 2000.5 This staggered implementation of states' programs is one reason states have not taken full advantage of their allotments. By June 2000, only eight states - Alaska, Indiana, Kentucky, Maryland, Massachusetts, New York, North Carolina, and South Carolina- had spent their 1998 SCHIP allotments, and only 45 percent of the total 1998 SCHIP allotments had been spent by all states.6 This leaves a substantial amount of unused SCHIP funds for states to tap into to support Section 1115 demonstration project programs. Because SCHIP is a much smaller and less costly program than Medicaid, states may be more willing to test new ideas and approaches through demonstration projects.

On the other hand, states may be wary of undertaking a new challenge in the current uncertain economic climate that they face. If state budget cuts are needed and Medicaid costs increase, it may not be feasible for some states to add further program costs despite the enhanced matching rate for SCHIP. In addition, because of the way SCHIP funding was designed, unless Congress adjusts the levels, funding will drop by almost 25 percent in FY 2002 to 2004, just as SCHIP spending in states is increasing.7 It is possible that a number of states will need to draw upon other states' unspent funds to cover their costs as their programs mature and spending increases. During 2002-2004, the period of decreased funding, it is possible that some states may spend more than is available through SCHIP funds.8 States with rising expenditures and growing programs certainly should consider this issue because Section 1115 demonstration projects could require even more funds than their existing SCHIP program.

Because Section 1115 waiver demonstrations have the potential to significantly change certain aspects of a state's SCHIP program, HCFA is strongly encouraging states to seek public input- including consultation with Tribes in situations where American Indians and Alaska Natives are involved- before submitting a proposal.

A. Which States Can Apply

The guidance states that the Department of Health and Human Services (DHHS) will consider proposals that "expand coverage and improve enrollment, health care outcomes, and access to health care services for children."9 In short, SCHIP funds can be used to support a wide array of efforts aimed at improving the health of low-income children, not just for the provision of insurance.

HCFA guidance lays out the factors for who can apply for demonstration projects. These factors are intended to ensure that Title XXI goals are being met before services are expanded to new populations or are expanded. States must have had their program running for at least one year, and must have submitted all required evaluations and reports. In addition, states must offer the program statewide and have open enrollment with no waiting lists for the program. States also must meet certain conditions. Generally, states must prove that they have met the primary goal of SCHIP: providing services to low-income children and enrolling and serving them. Specifically, the state must present the following three assurances:

The state must prove it is covering children to age 19 with family incomes up to 200 percent of the federal poverty level (FPL).
The state must assure it will provide coverage for lower-income populations before covering the higher-income populations made eligible by the demonstration project. Further, the state cannot cover any group at a higher FPL than it covers its targeted low-income children.
Finally, a state must demonstrate that it is promoting enrollment and retention of currently eligible children through its existing application and re-determination processes. In states that are interested in covering populations other than targeted low-income children, the state must be doing at least three of the following five things,

use a joint, mail-in application and common application process for SCHIP and Medicaid;
eliminate assets tests;
have 12-month continuous eligibility;
have presumptive eligibility; and/or
have simplified its procedures for redetermination so this can be done by mail and, in the case of state-designed programs, have procedures in place so children who shift between SCHIP and Medicaid can do so without a new application or a lapse in coverage.

States That Meet the Section 1115 Criteria

A majority of states have expanded their eligibility levels up to or above 200 percent of the FPL. Most states also have eliminated the assets test and simplified application and verification procedures. Table 1 shows states that cover children at 200 percent of the FPL or above and shows other necessary considerations to be eligible for a Section 1115 demonstration project. States should meet three of the five criteria shown in the table to qualify for a demonstration project to cover populations other than targeted low-income children. However, HCFA will take into consideration the total state efforts and accomplishments in terms of Title XXI goals and covering eligible children. In other words, although these factors are a good guideline for what states should have accomplished before applying for a demonstration project, they are not the only deciding factors.

Table 1.

State/ Jurisdiction	Use of Joint-Application	Eliminated Assets Test	12-month Continuous Eligibility	Presumptive Eligibility	Simplified Procedures for Re-determination
Alabama	X	X	X	-	X
Alaska	X	X	6 months	-	X
Arizona	X	X	X	-	X
Arkansas	X	-	-	-	-
California	X	X	X	-	X
Connecticut	X	X	X	-	X
Delaware	X	X	X	-	X
District of Columbia	X	X	X	-	X
Florida	X	X	6 months	-	X
Georgia	X	X	-	-	X
Hawaii	X	X	-	-	X
Indiana	X	X	X	-	X
Iowa ^a	X	X	X	-	X
Kansas	X	X	X	-	X
Kentucky ^b	X	X	6 months	X	X
Maine ^c	X	X	6 months	X	X
Maryland	-	X	-	-	X
Massachusetts	X	X	-	X	X
Michigan ^d	X	X	X	X	X
Minnesota ^e	X	X	24 months	-	X
Mississippi	X	X	X	-	X
Missouri	X	X	-	-	X
Nevada	-	X	X	-	X
New Hampshire ^f	X	X	6 months	X	X
New Jersey	X	X	X	X	X
New Mexico	X	X	X	X	X
New York	X	X	X	X	X
North Carolina	X	X	X	-	X
Ohio ^g	X	X	-	-	X
Pennsylvania	X	X	X	-	X
Rhode Island	X	X	-	-	X
South Dakota ^h	-	X	-	-	X
Texas	X	-	X	-	-
Utah	X	X	X	-	X
Vermont	X	X	-	-	X
Washington	X	X	X	-	X
West Virginia	X	X	X	-	X
Wisconsin ⁱ	X	X	-	-	X
Totals = 38	35	36	21	8	36

Notes: This table is current as of September 30, 2000. The following states and territories did not cover children up to 200 percent of the FPL as of September 30, 2000: American Samoa, Colorado, Guam, Idaho, Illinois, Louisiana, Montana, Nebraska, North Dakota, N. Mariana Islands, Oklahoma, Oregon, Puerto Rico, South Carolina, Tennessee, Virginia, Virgin Islands, Wyoming. Puerto Rico reports its eligibility level as 200 percent of the FPL; however, because the standards for its poverty levels are not comparable to the FPL used in states, it is therefore not included in this table.

Iowa covers children up to age 6 up to 200 percent of the FPL and children older than age 6 up to 185 percent of the FPL.
In Kentucky, continuous eligibility is available for six months to those children enrolled in a managed care plan. Presumptive eligibility is allowed in the SCHIP plan, but has not yet been implemented.
Maine offers presumptive eligibility under its Medicaid expansion and state-designed program for pregnant women.
MIChild plans have the option of using presumptive eligibility but none have implemented it yet.
Minnesota covers children from birth to age 2.
New Hampshire provides presumptive eligibility for infants from birth to age 1 under the Medicaid expansion.
Ohio covers children up to age 6 up to 200 percent of the FPL and children older than age 6 up to 150 percent of the FPL.
South Dakota covers children up to age 6 up to 200 percent of the FPL in a state-designed program and children above age 6 up to 140 percent of the FPL in a Medicaid expansion.
Wisconsin covers children up to 185 percent of the FPL, but allows them to stay in the program until they surpass 200 percent of the FPL.

Sources: National Conference of State Legislatures. SCHIP Chartbook 2000. (Washington, D.C.: NCSL, March 2001); National Conference of State Legislatures and the National Governors' Association. SCHIP 1999 Annual Report. (Washington, D.C.: NCSL, January 2000); Data compiled from SCHIP plans, amendments and evaluations submitted to the Health Care Financing Administration (HCFA).

B. What States Can Do

The full extent of what states can do is in part determined by interpretation of the general guidelines. Some general categories of demonstrations will be accepted and some types of demonstrations that will not be considered at all. States that submit proposals that would affect children currently covered under the SCHIP also must submit an amendment to their SCHIP plans. If the demonstration project program would cover new populations in its Medicaid program, the state may need to submit a Medicaid amendment with its proposal.

In general, HCFA will review proposals that seek to expand coverage to children, institute new outreach strategies, and provide services that improve the quality of care and health outcomes of the recipients. HCFA also will accept proposals that seek to extend coverage to related populations. HCFA will not, however, consider any proposal that would:

Reduce benefits below benchmark levels;
Impose cost-sharing above levels specified under SCHIP;
Cover groups such as state employees, children in institutions for mental illness or children already insured with comprehensive health plans because this could lead to federal funds being substituted for state or private funds;
Cover Medicaid-eligible children in a separate child health program; or
Waive the 10 percent cap on administrative expenditures.

All proposals must specify objectives and goals that are to be met by the demonstration project. These measurable objectives will facilitate the required evaluation component. According to HCFA, it will conduct rigorous examinations of proposals' hypotheses and evaluation elements. HCFA has recently released a template and guidelines for applying for a SCHIP 1115 waiver through a Dear State Official Letter, which is available through the HCFA Web site, www.hcfa.gov.

Budget Neutrality

All state activities under 1115 demonstration projects must be "budget neutral," which means they must not cost the federal government more than they would have without a demonstration project. States need to estimate the cost of their program would have been with and without the waiver, which makes this concept a bit more complex. States must abide by the following in regard to budget neutrality.

In the case of SCHIP, budget neutrality is defined as "allotment neutrality." States can spend up to their individual SCHIP funds allotment. Reallocated funds from previously unspent SCHIP allotments will not be included in this amount.
States that operate a joint Medicaid and SCHIP demonstration project must meet Medicaid demonstration budget neutrality rules for any portion of the project where costs would be claimed against Title XIX. Budget neutrality conditions would be agreed upon at the beginning of a combination demonstration project in the event that the SCHIP allotment should run out. If this should happen, a combination demonstration project could receive funds through Medicaid within the limits of criteria established at the outset and by changing the SCHIP demonstration project to a Medicaid demonstration project.
SCHIP demonstration projects operated through a SCHIP Medicaid expansion would have options similar to those of Medicaid demonstration projects. If SCHIP allotments are used up, a SCHIP Medicaid expansion demonstration project could receive funds through a Medicaid amendment or a Medicaid demonstration project.
If, however, the SCHIP demonstration project is operated via a state-designed program, once SCHIP allotment funds have been depleted, no more federal matching funds would be available.

Medicaid expansions versus State-designed programs

Differences in the way Section 1115 demonstration projects apply to SCHIP Medicaid expansions and SCHIP state-designed programs exist primarily in the funding issues discussed above. It is possible that there may be some other differences for Medicaid expansions due to Medicaid law. For example, HCFA may not be able to waive certain provisions for a Medicaid expansion that could be waived in state-designed plans because of Medicaid law.

In general, new groups covered by demonstration projects that normally are not Medicaid-eligible will not become entitled to Medicaid services because of the waiver beyond the duration of the demonstration project. Demonstration projects are time-limited and do not create an entitlement on their own. It is possible, however, to create an entitlement through a Section 1115 waiver under a SCHIP Medicaid expansion if it is coupled with a state plan amendment, such as a 1931 amendment.

If a SCHIP Section 1115 demonstration project for parents of Medicaid-eligible children is used in conjunction with a Medicaid 1931 state plan amendment to expand coverage to parents of Medicaid-eligible children, for example, those parents would be entitled to Medicaid coverage. Once SCHIP funds are exhausted, the state would have to cover these parents with regular Medicaid funding. A Section 1931 amendment allows states to expand coverage to the parents of Medicaid-eligible children through Medicaid. This option is not available for parents of state-designed SCHIP-eligible children. States can have a more liberal methodology for income determination by, for example, expanding income disregards (disregarding a portion of personal assets) while retaining the ability to scale back the expansion at any time. This option was created to allow states to cover families currently or formerly receiving cash assistance; states can expand the number of families eligible by disregarding income.

Section 1115 Options

A SCHIP demonstration can generally take three directions. It can expand benefits and services or expand coverage to new populations, or both.

Expanded Benefits and Services. Health and health-related services can be provided to discrete populations as long as these services and benefits do not substitute for existing services that already are funded by state or federal money. States can provide new services under a SCHIP demonstration project either by offering services not covered by SCHIP or Medicaid or by implementing a public health initiative to serve a portion or all of the low-income children in the state.

Supplemental services: These services must be clearly and precisely defined in order to prove that they do not overlap with services already covered by SCHIP or Medicaid. These services should complement the services currently provided by other public health programs. These can be health or health-related services such as home visiting, dental education, nutritional counseling, smoking cessation, family planning education and services, weight loss and management, respite care, school mental health and others.

Public health initiatives: States electing this route must prove that the new initiative does not replicate or replace existing state public health services or programs. Public health initiatives can serve all or a portion of children in the state. This option is broadly defined and may permit states a wide scope of alternatives. Demonstration projects could allow such things as coordination initiatives, specific services to specific populations of children and outreach initiatives. According to HCFA, this option was purposefully made very broad to allow states to come up with innovative ideas. Because this option is so loosely defined, it is particularly important for public health initiatives to specify a hypothesis and evaluation element. It also is important for public health initiatives to have well-defined populations of children the initiative would serve with well-defined, specific services. This option is not intended to be used as a block grant. An example of a public health initiative would be a program to coordinate community mental health and substance abuse services to children; an initiative to address the needs of children with special health care needs through various support services; an outreach or after-school project for at-risk adolescents; or an initiative to improve access to dental care services and link children to dental care providers for children living in an area with low access to such services.

New Populations. Section 1115 demonstration projects allow coverage to be extended to new populations such as parents of eligible children, children age 18 to 21 otherwise eligible for SCHIP, and pregnant women. Former Health and Human Services Secretary Donna Shalala has said that extending coverage to the parents of eligible children is a "natural progression of this program." This is also one of the most frequently mentioned recommendations by the states in their annual evaluations to HCFA; stating that otherwise they will not be able to attain their goal of providing health care to uninsured children until certain other uninsured populations- such as the children's parents- are made eligible. Adults with no children and who are not pregnant will not be considered an eligible population for demonstration projects. Some populations identified by HCFA as consistent with the purposes of the Title XXI statute are:

Pregnant women with incomes above 185 percent of the FPL, for those states already covering pregnant women up to this level under Medicaid, may be covered under SCHIP demonstration projects.
Parents above 100 percent of the FPL can be covered with an enhanced match rate, and parents below 100 percent of the FPL will be covered with regular Medicaid funding at the Medicaid match rate.
Parents can be covered by the SCHIP or Medicaid programs, or can be provided with premium assistance (PA) for employer-sponsored insurance (ESI).

In seeking to cover new groups, states must verify that the groups do not have private insurance and are not eligible for Medicaid. Some states already have expanded coverage to parents. These changes have been made primarily with Medicaid 1115 waivers and Section 1931 income disregards (see previous comments on 1931 amendments). Massachusetts, Mississippi and Wisconsin cover parents through SCHIP premium assistance programs for employer-sponsored insurance. Oregon, Rhode Island and Washington provide family coverage through state-only programs.

Parents can be covered under a demonstration project regardless of whether their child is eligible for SCHIP or Medicaid. In states that already cover parents through a Medicaid waiver or other Medicaid option, the lowest income parents could not be shifted to a SCHIP demonstration project and the enhanced match rate could not be claimed for the lowest income parents. Parents above 100 percent of the FPL will be eligible for coverage with the enhanced match rate. Parent expansions in effect before March 31, 2001, that cover parents below 100 percent of the FPL will be covered with regular Medicaid funding at the Medicaid match rate, and expansions to parents occurring after March 31, 2001, can cover parents at any income level with the enhanced match rate. According to SCHIP regulations, parents with lower incomes must be covered before those with higher incomes.

Another option for expanding coverage to parents is through employer-sponsored insurance (ESI). States must abide by SCHIP regulations and do not need to use a demonstration project for this option.10

Other Demonstration Projects. HCFA has not provided an exhaustive or comprehensive list of types of demonstration projects that it will consider. All proposals will be reviewed and assessed on a case-by-case basis. However, some additional types of demonstration projects identified by states as areas of interest that HCFA has said it will consider are:

Extending coverage for children who become ineligible for SCHIP because of their age while in treatment for a specific condition; and
Proposals to promote enrollment of children eligible for other programs such as the free and reduced school lunch program and the Healthy Start Program.

Supporting Research

States must provide evidence that suggests the validity of their proposals. States can base their hypothesis on existing research or propose a hypothesis to research a new question or area. Under all circumstances, the hypothesis must be linked to promoting an existing goal of SCHIP. If states choose to cover additional populations, they must provide evidence of how expanding coverage to parents, pregnant women or other new populations will improve enrollment, coverage and health care for low-income children. There is substantial literature in support of the link between parental health coverage and higher rates of child coverage and health care use, as well as the health and financial advantages of prenatal care. The body of literature to document that being uninsured is associated with poor health, higher health care costs for the individual and the state has grown significantly in the past few years. These findings can be used to support expansion of coverage to new populations as well as expanded health services aimed at improving health outcomes.11

Despite the research supporting expansions to new populations, states may find that these expansions can be controversial. It could be argued that research in this area is not yet conclusive and, because each state is unique, research on one state's experience may not necessarily translate to another state. The cost of covering new populations may simply make demonstration projects impractical. Under current budgetary constraints, states may feel that they must make cuts to one program to expand another, in which case expanding coverage to new populations may not be politically feasible. In addition, because demonstration projects are time-limited, states may be concerned about creating a service or program that the state cannot support on state-only funds once the project expires.

Evaluation

As previously mentioned, the evaluation component is a key factor in Section 1115 demonstration projects. States are responsible for conducting the evaluation and must submit a detailed description of the type of evaluation that will be used, who will conduct it, and how it will be conducted. States also must submit annual reports for the demonstration projects and include in these a progress report of the evaluation-how data is being collected, analyses being conducted or planned- and any preliminary findings.

IV. SCHIP 1115 Waiver Activity

States have wasted no time in submitting proposals to take advantage of this new option. As of January 31, 2001, seven states -California, Minnesota, New Jersey, New Mexico, Ohio, Rhode Island, and Wisconsin- had submitted proposals for Section 1115 demonstration projects under SCHIP and three already have been approved. The three states approved in January have made extensive efforts to cover parents of eligible children and increase eligibility and have achieved very high enrollment rates. The first proposals were submitted in March 2000 before the guidance was issued. Most of these proposals, however, were submitted between October and December 2000. This section provides a synopsis of each state's proposal along with some insight into their experience with this process so far.

California 12

California submitted its proposal to expand coverage to parents to HCFA on December 20, 2000. The state sought approval by February 2001 so implementation could take place in July 2001. The demonstration would expand coverage to the uninsured parents of children participating in Healthy Families (SCHIP) and the no-cost portion of Medi-Cal (Medicaid). California estimates that approximately 290,000 parents would be covered through the demonstration project at full implementation.

Despite the fact that it is the wealthiest state in the nation, California has the fourth highest uninsured rate in the nation. Approximately 40 percent of the state's population has incomes below 200 percent of the FPL and about 30 percent of these low-income families are uninsured. California's objectives for this demonstration project are to prove that a family-based approach promotes enrollment, access to care and continuity of care for low-income children. The project aims to prove that providing:

family coverage will increase the number of eligible targeted low-income children covered;
comprehensive health care coverage will improve the health status of covered children and their families; and
coverage for families provides support to workers who are not offered or cannot afford health insurance.

Uninsured parents with income levels between 100 percent and 200 percent of the FPL would be eligible. Parents below 100 percent of the FPL who are not eligible for Medi-Cal due to assets also would be eligible. Currently, parents are covered up to 100 percent of the FPL under Medi-Cal along with their children. Children are covered up to 250 percent of the FPL under Healthy Families. Most parents would be enrolled in the same program as their children.

Parents will receive a benefits plan based on the state employee plan, which includes dental and vision care. The family would be responsible for monthly premiums of $20 to $25 per parent-depending on family income, in addition to copayments for certain benefits. Limits on copayments will be similar to those for the state employee health plan. Children enrolled in Healthy Families also pay premiums and copayments. Premium discounts are available to families for certain plans.

The state has designed a new, joint mail-in application for families for Medi-Cal and Healthy Families. California uses a single point of entry for all applications to facilitate the application process. Continuous eligibility, which is available to children, would be extended to the parents.

California's evaluation will entail:

Developing and using a reporting format that tracks enrollment levels of targeted low-income children by income, ethnicity, geographic region and age before and during the demonstration project;
Developing and using a reporting format that tracks retention levels and the transition between programs for families by income, ethnicity, geographic region and age before and during the demonstration project;
Analyzing the take-up rates of coverage based on the premium rates; and
Giving attention to the impact of parental coverage on children's health status.

Minnesota

Minnesota, the first state to submit a Section 1115 demonstration project proposal to HCFA, did so on March 31, 2000, before the guidelines for 1115 demonstration projects under SCHIP had been released. The state submitted an amendment to its original proposal on December 1, 2000, in response to the July guidance issued by HCFA and added coverage to parents and relative caretakers to the demonstration project's proposal. The proposal is under review.

Minnesota currently covers children from birth to age 2 from 275 percent to 280 percent of the FPL under SCHIP's Medicaid expansion, Minnesota Medical Assistance Program. Minnesota has a Medicaid 1115 waiver project, MinnesotaCare, which covers all children under age 21 and their parents or related caretakers up to 275 percent of the FPL. Because of this expansive coverage and because the majority of the uninsured under age 19 have incomes below 200 percent of the FPL, Minnesota elected not to expand eligibility for all children under SCHIP. Minnesota is using a very small portion of its SCHIP allotment and wants a SCHIP 1115 demonstration project so it can use more SCHIP funds and address the unmet needs of the already eligible population.

Minnesota originally requested four types of expansions to the MinnesotaCare program through the SCHIP demonstration project, and later added the coverage for parents through its amendment. Minnesota plans to implement the demonstration project in two phases. Phase one will include proposals that do not require legislative action. Phase two, which would include all activities that require enactment by the Legislature, would begin October 1, 2001.

Enrollment. Minnesota would claim the enhanced match rate for children enrolled in MinnesotaCare above baseline figures. Baseline is defined as the number of children under age 19 enrolled in the Medicaid 1115 waiver program in September 1998, when the state's SCHIP program went into effect;

Presumptive Eligibility. The state would implement presumptive eligibility for both SCHIP and MinnesotaCare. The expenditures for the additional eligibility months would be matched at the enhanced match rate. The state would train entities-such as HeadStart and WIC- to perform presumptive eligibility determinations. This would require legislative action and would go into effect October 1, 2001.

Premiums. The state would modify MinnesotaCare's cost-sharing schedule to abide by SCHIP regulations. This would require eliminating cost-sharing for certain groups, and limiting it for others. This also requires legislative action and would be implemented in October 2001.

Special Health Initiatives. Minnesota would use the rest of its allotment to implement health initiatives to improve the health of low-income children in the state. Existing initiatives and areas of need- such as lead poisoning prevention and reduction, reduction of ethnic and racial health disparities, outreach and services for homeless children, mental and dental health-have been identified. For phase one, three mental health projects and a dental project to improve access to care are planned. Any funds generated by these initiatives would be used for phase two initiatives or to continue phase one initiatives.

Coverage for MinnesotaCare Parents. Parents and caretakers enrolled in MinnesotaCare with incomes between 100 percent and 275 percent of the FPL with children up to age 19 would be matched at the enhanced rate. MinnesotaCare eligibility criteria, benefits package and cost-sharing would be used. Minnesota would begin claiming the enhanced match rate as of January 1, 2001.

Minnesota has been progressive in covering children and adults and it believes that approval of these proposals could help to answer questions that other states are or will be facing. The objective of the evaluation is to identify characteristics of uninsured children in Minnesota and develop strategies that effectively identify, enroll and keep children covered. In addition, the state will assess the impact of the special health initiatives. Minnesota suggests a number of research issues that could be addressed with these proposals.

"Is presumptive eligibility effective in reaching low-income, uninsured children who would not have otherwise enrolled in SCHIP or MinnesotaCare?"
"Why have the number of uninsured persons of color increased greater than their proportion of the population in the State, despite beneficial effects of health insurance reform, MinnesotaCare and a good economy?"
"What eligibility requirements most interfere with continuous enrollment?"
"Does direct payment of preventive dental services for children improve overall oral health for children?"
"What circumstances affect uninsured status, and do they vary by subgroups?"
"What effect does the amount of the premium have on continuous coverage?"
"Is there a natural rate of uninsurance that will be reached, at which point government subsidies have limited effect?"
"What methods for preventing crowd-out are successful? Which methods serve as barriers to enrollment but do little to actually prevent crowd-out?"

New Jersey

New Jersey applied for an 1115 waiver demonstration to allow the state to cover pregnant women and parents of eligible children in October 2000; it was approved on January 18, 2001. New Jersey's SCHIP has four components:

Plan A, a Medicaid expansion for children up to age 19 with incomes up to 133 percent of the FPL.
Three separate, state-designed programs, plans B, C and D. Plan B covers children up to age 19 with incomes between 133 percent and 150 percent of the FPL. Plan C covers children up to age 19 with incomes between 150 percent and 200 percent of the FPL. Plan D covers children up to age 19 with incomes between 200 percent and 350 percent of the FPL through the use of income disregards.

The demonstration project, called NJ FamilyCare, covers uninsured parents and pregnant women with a gross income under 200 percent of the FPL as follows.

Parents of Medicaid expansion-eligible children with incomes up to 133 percent of the FPL, mirroring the coverage for children under Plan A of NJ KidCare. Current Medicaid income disregards will apply (states can disregard portions of a person's income and take into account certain types of expenses when evaluating their eligibility; different types and levels of income disregards can be used). These families will receive the Medicaid benefits package and will have no waiting period. If the allotment amount is exceeded, New Jersey will claim the regular Medicaid match rate for this category of families.

Pregnant women between 185 percent and 200 percent of the FPL. This category of people will receive the Medicaid benefits package and will have no cost-sharing. Coverage will be extended to 60 days postpartum, at which time eligibility for the general NJ FamilyCare program will be determined.

Parents of SCHIP-eligible children between 134 percent and 200% of the FPL. These families will receive the benefits package equivalent to the most widely sold HMO in the state. There is no assets test. A six-month waiting period exists for families who had coverage in the group health insurance market, but not for those in the individual market. Cost-sharing will be applied to families above 150 percent of the FPL. Premiums will be set at $25 for the first adult and $10 for each additional adult (premiums for children are $15 per family). Copayments similar to those under Plan D of KidCare will be applied. Cost-sharing must not exceed 5 percent of the family's annual income. Twelve-month continuous eligibility applies.

Premium assistance will be provided for parents between 134 percent and 200 percent of the FPL if employer-sponsored insurance is available and cost-effective. If ESI is cost-effective, the family must enroll in ESI. As an additional incentive for these families, the premium for children enrolled in ESI will be reduced. The employer must contribute at least 50 percent of the premium cost. In addition, there is a six-month waiting period and the coverage must cost the state no more than it would cost to cover only the children under SCHIP. The health plan must meet benchmark coverage or the state will provide wrap-around services on a fee-for-service basis. Payments for the premium will be made directly to the employee to coincide with payroll deductions. Since there can be no cost-sharing for children's preventive care visits, vouchers will be issued to reimburse health care providers directly for such services. Although the state had planned to begin the premium assistance program on January 1, 2001, this was delayed. New Jersey began outreach to eligible populations in March 2001 and hoped to begin enrollment in the premium assistance program soon after.13 Some businesses have already expressed interest in participating in the program. New Jersey is planning a pilot for a handful of businesses that volunteered to participate in the premium assistance program and will make it statewide later. Overall, says Debbie Bradley of the Office of New Jersey KidCare, businesses have been very supportive of this endeavor and have been involved throughout the process.14

New Jersey will expand its outreach plan to include families and pregnant women. It will use media, community-based organizations, direct mailings, a Web site with an on-line application and fact sheets and brochures in both Spanish and English. Fact sheets will be distributed in several commonly spoken languages.

The objectives of the demonstration project are to demonstrate that providing:

family coverage will facilitate the enrollment of uninsured children;
family coverage will improve the health status of covered children and their families;
family coverage will complement welfare reform activities; and
coverage to pregnant women with family incomes up to 200 percent of the FPL will protect the health status of the fetus and, hence, the infant.

New Jersey will evaluate whether these objectives have been met by determining:

the number of newly enrolled children under NJ FamilyCare by age;
the retention rate for children whose parents are covered under NJ FamilyCare compared to children whose parents are not covered by NJ FamilyCare;
the number of well-child visits for children whose parents are covered by NJ FamilyCare versus those for children whose parents are not covered by NJ FamilyCare; and
the number of children born to women between 185 percent and 200 percent of the FPL who were covered while pregnant.

New Jersey implemented a state-only plan in September, 2000 to supplement the federal allotment. This plan will cover the cost of parents and pregnant women should the SCHIP allotment not be sufficient. The state also plans to extend coverage through the state-only plan to legal aliens who do not meet the criteria for qualified alien, single adults and childless couples up to 100 percent of the FPL. According to Michelle Walsky,15 community relations manager in the Office of NJ KidCare, 70,000 adults already have been enrolled in the state-only program since October 2000, and applications from adults for what is now the NJ FamilyCare Program have been rolling in at around 1,500 per week, overwhelming the system to some extent.

New Jersey found the SCHIP 1115 demonstration project process to be "not difficult at all" when compared to the process for other waivers. New Jersey KidCare staff found HCFA to be supportive of covering parents and felt that HCFA "really worked with us on this process."16 Debbie Bradley, who worked on the proposal from its inception, recommended communicating with HCFA about the state plans before submitting the proposal in order to determine what would be feasible for approval. New Jersey received one set of formal questions and one set of informal questions from HCFA, many of them about the evaluation component. Overall, New Jersey's experience was "very smooth" and somewhat more flexible than a Medicaid 1115 waiver, especially in that budget neutrality is less of an issue when it is interpreted as staying within the SCHIP allotment.17

New Mexico

New Mexico submitted its proposal to HCFA on December 14, 2000. The proposal seeks to provide supplemental services to both SCHIP and Medicaid enrollees. The state currently is awaiting its first set of questions from HCFA. New Mexico's proposal is similar to its first amendment, submitted in April 1999, that was denied by HCFA on July 1999. New Mexico hopes to have the demonstration project in place by late 2001.

New Mexico's SCHIP program covers children under age 19 with family incomes between 185 percent and 235 percent of the FPL. The state estimates it will meet its enrollment goals by January 2001. Medicaid was expanded in 1995 to cover children up to 185 percent of the FPL.

New Mexico is proposing to use the remainder of its SCHIP allotment to provide supplemental services and public health initiatives. The new wrap-around services would be integrated, begin prenatally, use a multi-disciplinary approach, be organized at the community level and be voluntary for both individuals and communities. Three of the eight services originally designed and proposed under New Mexico's amendment are being proposed: behavioral respite care, home visiting and service coordination. According to Robert Beardsley of the Office of Planning and Program Operation of the Medical Assistance Division, the state plans to introduce the other five services as an amendment to the demonstration project request within a few months.

Behavioral health respite care. This service would provide more cost-effective care in a less restrictive setting. It would provide rest for a caregiver of an "exceptional" child up to age 19 with a diagnosis based on established medical criteria of the DSM IV and ICD-9 18. This service can be provided in the enrollees' home, in the respite provider's home, in a behavioral health facility, or through planned community activities. Services would be limited to 300 hours per family annually.

Home visiting. This service would provide home visiting to pregnant women up to age 19 and to first-born infants under three months of age born to any age mother. Home visiting is intended to promote coordination among providers and services and to prevent duplication of services. Home visitation will be coordinated with the Medicaid case management program. The state anticipates serving 1,340 clients.

Service Coordination. This service is defined as a " ... set of preventive activities aimed at assuring that children and families are connected to all available services which will improve the child's health and well-being, and minimize or eliminate the need for the child to access more intensive services." The family will chose its service coordinator. The service coordinator's role will be to determine appropriate services for the child and family and to link the child with those services in a timely and appropriate manner.

Evaluation for the demonstration project will be conducted by a contracted evaluator. All service providers will be required to maintain data on services rendered using standard client identifiers to ease collection and handling of data while protecting privacy. Both client and provider surveys will be conducted. The outcome measures to be evaluated are listed below.

For behavioral health respite care: 1) Type and amount of behavioral health respite care services; 2) number of out-of-home placements; 3) parental stress and family functioning; and 4) satisfaction with the agency and the respite care provider.

For home visiting: 1) A baseline survey covering healthy behaviors and health risk behaviors; 2) client services; 3) increase in early entrance into prenatal care and in number of prenatal care visits for participating pregnant women; 4) reduction in cigarette smoking during pregnancy among women who smoked at time of program initiation; 5) reduction of low-birth weight among participants; 6) reduction in rate of infant mortality; 7) immunization card up to date; 8) "Ages and Stages" screen completed at appropriate intervals; 9) percentage of infants referred to the early intervention program before age 24 months; 10) reduction in rates of substantiated child abuse among participants; 11) improvement in family coping index with respect to family stress; 12) reduction in rate of accidental injury and ingestion for children; 13) increase in mother's level of education of employment; and 14) percentage of children with a medical home or a usual source of primary care.

For service coordination: The evaluation will consist of an analysis of critical incidents such as 1) families being able to access needed services in a timely manner; 2) families receiving services as per child's plan; 3) families report sense of control over service options; 4) families express satisfaction with service systems; and 5) duplication and fragmentation of services is reduced.

Ohio

Ohio submitted its 1115 demonstration project proposal to HCFA on October 3, 2000 to impose annual enrollment fees and provide 12-month continuous eligibility to part of its SCHIP population. The state is currently working on responses to the formal questions sent by HCFA on February 2001.19 Ohio has a Medicaid expansion that covers children under age 19 in families with incomes up to 200 percent of the FPL. Ohio wants to begin collecting the enrollment fee in April 2001, allowing it to market the time between July 2000 to April 2001 as a free year of coverage. If this demonstration project is not approved, Ohio will consider moving its most recent expansion population-children under age 19 from 151 percent to 200 percent of the FPL- to a separate, state-designed SCHIP program where both these provisions are allowed without waivers. The state would prefer to continue its SCHIP program as a Medicaid expansion.

The objective of the waiver program is to demonstrate that the implementation of modest annual enrollment fees for the Healthy Start population between 151 percent and 200 percent of the FPL does not interfere with access to medical care and that the fee will reinforce personal responsibility and a sense of ownership. With 86 percent of Ohio children in the 151 percent to 200 percent of the FPL income range covered by private insurance that requires cost-sharing, Ohio believes this also will serve as a likely crowd-out provision. As a result of the enrollment fee, this population also will be given continuous eligibility to increase continuity of care. Children in both fee-for-service and managed care delivery systems will have enrollment fees.

The difference between children who pay the enrollment fee and those who do not, says Lisa Koss of Ohio Job and Family Services, is that those who do not pay the fee and have their eligibility checked at 12 months will have to submit proof of income and inform the state of a change in income. Those with 12-month continuous eligibility need not report anything during those 12 months. The enrollment fees would be $25 per child per year with a limit of $75 per year per family. The enrollment fees will be collected by mail. If the fee is not received by the payment deadline, the application will be denied. American Indians and Alaska Natives must identify themselves as such on the application form in order to be exempt from cost-sharing. The current information system will be modified so that information regarding fee status can be entered electronically.

The evaluation, conducted by the state, would monitor the following:

The extent to which cost-sharing gets in the way of completing the application process;
Differences in utilization rates between children paying enrollment fees who have 12-month continuous eligibility and those who do not;
Differences in the cost to families who pay enrollment fees and have 12-month continuous coverage and those who do not; and
Differences in the retention rate between children who pay the enrollment fee and have 12-month continuous coverage and those who do not.

Rhode Island

Rhode Island submitted its proposal to HCFA on November 2, 2000; part of it was approved on January 18, 2001. The state resubmitted the parts of the demonstration project that were not approved in January 2001. Rhode Island's proposal is for both a SCHIP and a Medicaid 1115 waiver. As a result of the waiver, the state will receive the enhanced match rate for the existing coverage of parents between 100 percent and 185 percent of the FPL, families currently covered under Extended Medical Assistance, and pregnant women between 185 percent and 250 percent of the FPL. Currently, these parents 20 are covered through a Section 1931 amendment under the Medicaid program and pregnant women are covered under the state's current Medicaid 1115 waiver program. The state anticipates increasing coverage of both parents and children under RIteCare from 106,000 to 130,000 during the next three years.

Rhode Island has a complex system for covering children and adults under RIteCare, its Medicaid 1115 managed care demonstration. Currently, it covers the following groups:

All uninsured pregnant women under 250 percent of the FPL;
Children up to age 19 below 250 percent of the FPL; and
Uninsured parents of enrolled children under age 19 with incomes up to 185 percent of the FPL.

The state has been approved for an expansion to children up to age 19 up to 300 percent of the FPL. The state legislature has approved the expansion to children's 19th birthday but has not approved the expansion to the 300 percent FPL. Tricia Leddy of the Center for Child and Family Health, the agency that administers SCHIP and Medicaid, says she does not expect the legislature to approve the income expansion because most children are covered under 250 percent of the FPL.

This complex system has managed to lower the uninsurance rate substantially since 1994, giving Rhode Island the lowest rate in the country in 1999 according to the Current Population Survey of the U.S. Census Bureau.

In July 2000, Rhode Island Governor Almond signed the Health Reform Rhode Island 2000 bill into law. This legislation has three components, the first of which creates create RIteShare, a premium assistance program to provide subsidies to low-income families that have access to employer-sponsored insurance. A SCHIP 1115 demonstration project is necessary to implement the RIteShare initiative. The goals of the SCHIP demonstration are to:

improve the health status of Rhode Islanders by improving access to and quality of health care;
reduce the rate of uninsurance in Rhode Island by maximizing access to affordable health insurance through the use of both private and public funds; and
serve as a pilot project for developing and implementing a combined Medicaid and SCHIP premium assistance program.

Benefits for those enrolled in employer-sponsored insurance plans must be "substantially similar" in scope, amount and duration to those provided by RIteCare. RIteCare will provide supplemental services as a wrap-around benefit when needed. RIteCare and RIteShare both will contract with physicians who participate in health plans used by both programs to enhance continuity of care for the entire family.

Rhode Island will apply waiting periods, affordability tests and cost-sharing provisions to the demonstration project populations once these provisions are approved. Although these provisions were included in the original demonstration project, only the parent coverage component, under both RIteCare and RiteShare, was approved. According the Center for Child and Family Health, HCFA has requested additional information and clarification on the cost-sharing, waiting periods and affordability test issues.21 In addition to these crowd out provisions, the state will monitor crowd out under SCHIP by income level. If approved, there will be a six month waiting period 22 if the person has access to employer-sponsored insurance where the employee's share is less than 50 percent or if the employee lost insurance because the employer dropped coverage for a class of employees that would qualify for RIteShare. Cost-sharing will be applied to adults and children above 150 percent of the FPL and pregnant women above 185 percent of the FPL as follows.

$25 for non-emergency/non-urgent use of the emergency room or for a visit to the emergency room that does not result in admission.
$10 for brand name prescriptions.
$5 for generic prescriptions.
Cost-sharing will not exceed 3 percent of the family's annual income. Health plans will be responsible for tracking cost-sharing and issuing a new card that specifies no more cost-sharing should be charged to a family that has reached the 3 percent cap.
There will be no disenrollment provisions for not paying copayments.

The state also is requesting an amendment to its current Medicaid 1115 waiver to mirror the waiting period, affordability test and cost-sharing provisions of the SCHIP 1115 demonstration project. Approval for the changes to the Medicaid 1115 waiver is also pending.

The primary hypotheses that Rhode Island will research are :

"Does providing health insurance to parents increase the rate of children and families with health insurance and/or decrease the rate of inappropriate utilization of preventive services?"
"What is the impact of being denied public benefits due to affordability tests and waiting periods on health care access and health status of affected families?"
'What is the effect of cost-sharing including point of service copayments on pharmacy and emergency room utilization and associated health outcomes?"
"What are the factors that maximize enrollment and cost savings in a premium assistance program? What factors determine if a small business chooses to participate in the program?"

The evaluation phase will include the following process and outcome evaluation studies.

Process evaluation studies:

Focus groups with employers and consumers (separately) to measure satisfaction, access and determine factors that enhance and inhibit enrollment by employers in RiteShare.
Case study analysis describing the process of implementing RIteShare as a "how to" manual for other states.

Outcome evaluation studies:

Evaluation reports using public health data to measure changes in health access and status of Rhode Islanders since RIteShare was implemented.
Satisfaction surveys of participating employers.
Follow-up surveys of RIteCare and RIteShare applicants who were denied approval due to affordability tests and waiting periods to determine the impact of this on health insurance and status.
Other outcome studies such as the effect of copayments on pharmacy and emergency room utilization and the impact of expanded Medicaid benefits on utilization, health status and cost.

Wisconsin 23

Wisconsin submitted its 1115 demonstration project proposal to HCFA on December 7, 2000. It previously submitted an amendment for the 1115 project in March 2000 but resubmitted it with some clarifications in December. According to Angie Dombrowicki, state plan coordinator in the Division of Health in Wisconsin, the process sped up once the guidance was released at the end of July. In her view, states are being allowed flexibility in the interpretation of the guidance, and HCFA staff has been supportive and flexible as they worked through this process. The proposal was approved on January 18, 2001, allowing the state to receive the enhanced matching rate for parents between 100 percent and 185 percent of the FPL who previously were covered under Wisconsin's Medicaid 1115 demonstration project. Before this SCHIP demonstration project, the state received the enhanced match rate for the entire family only when covering the entire family through the employer-sponsored insurance was cost-effective under SCHIP criteria. Otherwise, the family was eligible for a Medicaid buy-in option, while the children would be covered at the enhanced match rate. This demonstration project is effective retroactively to July 1, 2000.

BadgerCare covers all family members to the same level, therefore eliminating confusion about who is eligible. Wisconsin now receives the enhanced match rate for all family members between 100 percent and 200 percent of the FPL. This includes parents and caretakers who receive services under BadgerCare HMOs, fee-for-service, or employer-sponsored insurance health plans. Families receive a benefits package identical to the Medicaid package. Families in employer-sponsored coverage receive wrap-around benefits if coverage does not meet the BadgerCare standard. Families with access to employer-sponsored coverage where the employer pays for 80 percent or more of the premium are not eligible for coverage. There also is a six-month waiting period for those with employer-sponsored insurance and a three-month waiting period for those with private insurance coverage. Families with incomes above 150 percent of the FPL are required to pay 3 percent of their family income as a premium.

The objective of this demonstration project is to provide health care coverage to all uninsured, low-income children in Wisconsin. Wisconsin has enrolled 51 percent of the eligible, low-income children in the state; nationally, 24 percent of the eligible, low-income children have been enrolled in SCHIP. Wisconsin believes it has successfully enrolled children in BadgerCare because of its family-based approach. Because of the rapid and continuing enrollment growth in both the SCHIP and Medicaid components of BadgerCare, the state anticipates allocating more state funds by the end of fiscal year 2002, even when the SCHIP demonstration project is approved and the additional SCHIP funds are available.

The evaluation is the same as the Title XIX waiver evaluation questions, with a few modifications. Wisconsin's Office of Strategic Financing, Evaluation Section, modified the final evaluation design for the SCHIP demonstration project to fit research evaluation models. These questions are from a February, 2001 draft. However, no changes were expected before the design was finalized. Wisconsin anticipates, however, that as the program progresses and more data is collected, the study design might be changed through amendments if such changes are required. Among others, the following questions will be addressed in the BadgerCare study design.

Did BadgerCare increase the number of insured Wisconsin residents, particularly children?
Did BadgerCare increase the number of insured children by enrolling entire families?
Were BadgerCare enrollees more similar demographically to the general population than to the Medicaid population?
Were the service utilization patterns for BadgerCare enrollees more similar to that of the general population than that of the Medicaid population?
Did BadgerCare enrollees report improved health status?
Did BadgerCare enrollees drop other health insurance coverage in order to participate in this program?
Did employers change the coverage they offer or decrease the benefits packages because of the availability of BadgerCare?

Wisconsin will use surveys (of enrollees and employers), HMO encounter data, fee-for-service claims and other data to conduct its evaluation.

V. Conclusion

SCHIP has afforded states a great deal of flexibility and has grown considerably since it was established in 1997. It continues to evolve differently in each state. Section 1115 demonstration projects under SCHIP offer a new and promising option for states that wish to provide insurance and services to new groups and receive an enhanced match rate, improve the health status of children in their state, and tap into unused SCHIP allotments. It is a versatile tool that states are likely to use in many different ways. Section 1115 demonstration projects offer states a way to determine what works best for their programs, while receiving enhanced matching rates for their experiments. They can provide a foundation upon which to test new ideas and innovative approaches as states build upon past experiences to improve children's health. Because there is good deal of interest research interest in the effectiveness of a family-centered approach to health coverage, these demonstration projects could both expand our understanding of this approach and fine-tune it.

As with any new option, Section 1115 demonstration projects may prove too costly for some states, and the administrative burden of operating a program within a program may not be feasible. States that choose not to pursue this option still can learn a great deal from other states' demonstration projects. The long-term effects of Section 1115 demonstration projects may influence the future direction of SCHIP, just as Medicaid 1115 waiver demonstration projects paved the way for Medicaid national policy changes in the 1990s. It will be important to watch as states continue to use this powerful new tool creatively to fulfill policy goals.

Appendix A: The Medicaid Experience with 1115 Waivers

The Medicaid program has changed greatly since its inception in 1965. Many changes occurred in the 1980s with eligibility expansions, and many took place more recently with the 1997 Balanced Budget Act (BBA). Prior and leading to the nationwide changes brought on by the 1997 BBA, many changes were occurring to the Medicaid program on a state-by-state basis due to the use of waiver programs. During the Clinton administration, the use of 1115 waivers expanded significantly as states sought to reform their health care systems. In 1993, the application and approval process for Section 1115 waivers were made more accessible, and the use of 1115 waivers with Medicaid became more prevalent and very likely contributed to the changes made to the program at the national level in 1997.24

The requirements most commonly waived under Medicaid demonstrations fall into the following seven categories.

Statewide-ness: allowing the states to make changes in some areas of the state, but not all.
Comparability: allowing the states to provide different sets of benefits to different groups of beneficiaries.
Eligibility: allowing states to make changes to eligibility criteria and standards.
Freedom of choice: allowing states to restrict the choice of providers and implement mandatory managed care enrollment for certain categories of beneficiaries.
Managed care organizations: allowing states to contract with delivery systems not otherwise allowed.
Reimbursement: allowing for some changes in payment requirements.
Benefits: allowing states to expand benefits beyond what is offered in Medicaid.25

These waivers gave states permission to make the types of changes to their Medicaid programs that normally would have required federal legislative authority. As of December 2000, 23 states 1115 waivers for Medicaid were approved or pending, while two had submitted and later withdrawn their proposals, and one had been terminated.26 The time from submission of a proposal to approval for these states varied from as little as three months to somewhat more than two years. The effect of these demonstration projects in terms of numbers of people affected is significant. In 1997, about thirteen million people were eligible for Medicaid in states that have demonstration projects in effect or pending.27

Examples of Medicaid 1115 Demonstration Projects

Arkansas, Missouri and New Mexico received 1115 waivers to provide Medicaid coverage of family planning services to groups of women postpartum.

Kentucky created regional partnerships of private and public providers to deliver services to the non-institutionalized AFDC and AFDC-related Medicaid population via managed care with its 1115 waiver. Services do not include long-term care, mental health, school-based services, or the full range of EPSDT services for the waiver population.

Massachusetts operates its Medicaid program, MassHealth, through an 1115 waiver. It provides full subsidies for premium costs to families with incomes up to 150 percent of the FPL and access to employer-sponsored insurance (ESI). Those between 150 percent and 200 percent of the FPL must pay for some of the premium cost. Those without ESI and incomes up to 133 percent of the FPL receive the Medicaid package.

Minnesota's 1996 1115 waiver enforced mandatory managed care enrollment for TANF, poverty-related and aged populations. It also included an eligibility expansion and an expansion of managed care to the disabled population in one county. Evaluation of this demonstration project shows few significant differences between managed care and fee-for-service users. It also found some cost savings with the managed care system, but barriers encountered with fee-for-service were not diminished.

Wisconsin's BadgerCare was authorized through an 1115 waiver. Wisconsin expanded Medicaid coverage for adults. Some cost-sharing is imposed on those above 150 percent of the FPL. ESI is also subsidized when it is available and employers cover between 60 percent and 80 percent of the premium cost.

Appendix B: Resources for Section 1115 Demonstration Project Information

Academy for Health Services Research and Health Policy

(formerly the Alpha Center and the Association for Health Services Research)

1801 K Street, Suite 701-L

Washington, D.C. 20006

(202) 292-6700

(202) 292-6800 fax

www.academyhealth.org

Center on Budget and Policy Priorities (CBPP)

820 First Street, N.E., Suite 510

Washington, D.C. 20002

(202) 408-1080

(202) 408-1056 fax

www.cbpp.org

Department of Health and Human Services (HHS)

200 Independence Avenue S.W.

Washington, D.C. 20201

(877) 696-6775

www.os.dhhs.gov

Health Care Financing Administration (HCFA)

7500 Security Boulevard

Baltimore, MD 21244

www.hcfa.gov

(410) 786-3000

Mathematica Policy Research Inc.

600 Maryland Avenue, S.W., Suite 550

Washington, D.C. 20024

(202) 484-9220

(202) 863-1763 fax

www.mathematica-mpr.com

National Conference of State Legislatures (NCSL)

444 North Capitol Street, N.W., Suite 515 1560 Broadway, Suite 700

Washington, D.C. 20001 Denver, CO 80202

(202) 625-5400 (303) 364-7700

(202) 737-1069 fax (303) 836-8003 fax

www.ncsl.org and www.hpts.stateserv.org

National Governors' Association (NGA)

444 North Capitol Street, N.W., Suite 267

Washington, D.C. 20001

(202) 624-5300

www.nga.org

The Heritage Foundation

214 Massachusetts Avenue, N.E.

Washington D.C. 20002

(202) 546.4400

(202) 546.8328 fax

www.heritage.org

The Urban Institute

2100 M Street, N.W.

Washington, D.C. 20037

(202) 833-7200

www.urban.org

Notes

Health and Human Services Press Release. SCHIP Enrollment Reaches 3.3 Million, Final Regulation Published. January, 6, 2001. www.hhs.gov
Health Care Financing Administration (HCFA) Guidance on Proposed Demonstration Projects Under Section 1115 Authority, July 31, 2000. www.hcfa.gov
Rosenbaum, Sara et al. Access to Health Care: Promises and Prospects for Low-Income Americans. Edited by Marsha Lillie-Blanton, Rose Marie Martinez, Barbara Lyons, and Diane Rowland. The Kaiser Commission on Medicaid and the Uninsured. Chapter 9, p180.
Teske, Richard. How States Can Use Federal Waivers to Help the Poor and Test Health Reforms. The Heritage Foundation Backgrounder. The Heritage Foundation. Washington, DC. November 2, 1999.
Rosenbach, Margo, et al. Implementation of the State Children's Health Insurance Program: Momentum Is Increasing After a Modest Start. First Annual Report. Mathematica Policy Research, Inc. Cambridge, MA. January 2001.
Ibid.
Kenney, Genevieve M. et al. Three Years into SCHIP: What States Are Spending and Are Not Spending. The Urban Institute. Series A, Number A-44, September 2000. Washington, DC.
Ibid.
HCFA, Guidance on Proposed Demonstration Projects Under Section 1115 Authority, July 31, 2000
HCFA, Guidance on Proposed Demonstration Projects Under Section 1115 Authority, July 31, 2000.
Telephone conversation with Kathleen Farrell, Health Care Financing Administration. March 6^th, 2001.
Telephone conversation with Cynthia Shirk, SCHIP Technical Director, Health Care Financing Administration. March 7, 2001.
Telephone conversation with Kathleen Farrell, March 6^th, 2001.
Telephone conversation with Cynthia Shirk, March 7^th, 2001.
Rosenbach, Margo
Telephone conversation with Michelle Walsky, Community Relations Manager in the Office for NJ KidCare. February 15^th, 2001.
Telephone conversation with Debbie Bradley, Office of NJ KidCare. February 15^th, 2001.
Telephone conversation with Michelle Walsky.
Ibid.
Telephone conversation with Debbie Bradley.
Telephone conversation with Lisa Koss, Project Manager at the Bureau of Consumer and Program Support, Ohio Job and Family Services. February 20^th, 2001.
Telephone and electronic mail conversation with Tricia Leddy, Center for Child and Family Health, Rhode Island. February 20^th, 2001.
Telephone and electronic mail conversations with Victoria Agnew-Lyon, Office of Strategic Financing, Evaluation Section, Wisconsin Department of Health and Family Services. February 16^th, 2001.
Rosenbaum, Sara et al. p 182
American Public Human Services Association, http://medicaid.aphsa.org/waivers/1115waivers.htm. December 2000.
HCFA, http://www.hcfa.gov/medicaid. January, 2001.
Rosenbaum, Sara et al. p187

Acknowledgments

The author wishes to thank Shelly Gehshan of NCSL; Cynthia Shirk, SCHIP Technical Acting Director at HCFA; Ian Hill of the Urban Institute; and John McDonough of Brandeis University for reviewing and providing helpful comments on this report. Thanks also to Greg Martin for his formatting work and Leann Stelzer for editing the report. Finally, thanks are due to all the people in the states who were interviewed for their cooperation and information. This publication is made possible by funding from the David and Lucile Packard Foundation.

Cover design by Vincent Sagart.

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