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SCHIP: MONEY MATTERS By Leah N. Oliver and Martha P. King January 2000 CLICK ON THESE TO LINK TO MAJOR TOPICS BELOW:
The State Children's Health Insurance Program (SCHIP), enacted in 1997 as Title XXI of the Social Security Act, provides insurance to uninsured children in low-income families. Under federal guidelines, states may develop a unique program to serve the individual needs of their population. This paper focuses on several state funding issues regarding SCHIP implementation and maintenance efforts, including:
The report includes four appendices: a summary of the Title XXI law (appendix A); a table that lists federal funding allotments, states' use of the allotments and sources of state matching funds (appendix B); a table that lists average private sector health maintenance organization (HMO) premiums by state (appendix C); and a table that shows states' SCHIP cost-sharing provisions (appendix D). Background SCHIP is the largest single extension of health insurance coverage to children since the creation and expansion of Medicaid. The program was designed to reach children from working families with incomes too high to qualify for Medicaid, but too low to afford private insurance. This initiative set aside approximately $40 billion over 10 years for states to provide new health coverage for millions of children (see appendix A for a summary of the federal Title XXI legislation). By December 1999, all 50 states, the District of Columbia, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands had developed SCHIP plans. All have been approved by the Health Care Financing Administration (HCFA), the federal agency that co-administers SCHIP with the Health Resources and Services Administration (HRSA). Based on their individual needs, states may create their SCHIP programs in one of three ways-expand Medicaid, develop an alternative state plan, or combine the two options (covering some additional children under Medicaid and others under a non-Medicaid program). Currently, 15 states have created a separate SCHIP program, 24 states or territories have expanded Medicaid, and 17 states use a combination of both. Within federal guidelines, each state determines the specific design of its program, eligibility groups, benefits covered, payments to providers, and administrative and operating procedures. As a result, precise costs and benefits associated with the program are difficult to compare among states. Federal Funding According to HCFA, the total federal amount available for allotment to the 50 states, the District of Columbia and the commonwealths and territories over 10 years is shown in table 1.
Under SCHIP, states receive an enhanced federal matching rate that exceeds their federal Medicaid match by about 30 percent, with the federal share capped at 85 percent. For example, in FY 1999, Connecticut's federal Medicaid match was 50 percent and its federal SCHIP match was 65 percent; West Virginia's federal Medicaid match was almost 75 percent, while its federal SCHIP match was almost 82 percent (see appendix B). Each yearly federal allotment to the states may be used for up to three years. Although states are eligible to receive additional SCHIP funds each year, they cannot use the new funds until the funds from the previous year are expended. For example, states cannot use FY 1999 or FY 2000 funds before fully expending FY 1998 funds (or until reaching the three-year limit). In order for a state to obtain federal matching funds, the federal government must have a record of state expenditures. States must submit expenditure information on a quarterly basis. Appendix B shows state expenditures as of September 30, 1999. States' Use of Federal Funds States have received some criticism for having used less than 20 percent of the federal funds available for SCHIP in its first year-FY 1998. At first glance, SCHIP appears to have experienced a slow start and some critics charge that states are not being aggressive enough in promoting and implementing the program. Only New York, South Carolina, American Samoa, Puerto Rico, and the U.S. Virgin Islands have begun to use FY 1999 funding. However, planning and implementing such a large-scale new program is a complicated and time-consuming process. Congress passed SCHIP legislation in August 1997, and made federal allotments available to states for the initiation of SCHIP programs less than two months later on October 1, 1997. And, even though HCFA issued periodic guidance letters about program implementation, the agency did not publish proposed rules for SCHIP implementation until Nov. 8, 1999, more than two years after the law passed. As of Jan. 31, 2000, final rules had not yet been adopted. Before programs could start enrolling children, states had to assess and plan, pass enabling legislation, determine state appropriations, develop and submit a state plan, await federal approval, implement the program, contract with providers and find eligible children. So, even though federal funds technically were available in October 1997, the planning and approval process takes months. Only seven programs were operating during 1998, mostly in those states that already had an existing program similar to SCHIP. As of September 1999, approximately 2 million children were enrolled in SCHIP. HCFA estimates that 2.6 million children will be enrolled by September 2000. In creating Title XXI, Congress allocated enough money to cover an estimated 5 million children in the initial years of SCHIP, but estimates of the number of children who qualify range from 2.9 million to 4 million. The Congressional Budget Office (CBO) estimates that 2.3 million children will be covered with SCHIP funds on an average annual basis after 1999. By 2000, CBO estimates that federal outlays will reach $4 billion per year. As mentioned, only four jurisdictions have used the full federal allotments designated for SCHIP's first year. Alaska and Maine expect to spend all or very close to all of their first-year federal allotments by September 2000. As of September 30, 1999, seven states and territories had not expended any of their federal FY 1998 SCHIP funds; 26 states had expended between 1 percent and 25 percent; 13 states had expended between 26 percent and 50 percent; and four states had expended between 51 percent and 99 percent (see appendix B). Sources of State Matching Funds The majority of states have tapped general funds for their share of the State Children's Health Insurance Program, although some are using other sources. Most states and territories-except Arizona, New York, Oregon, Texas, Utah and Washington-are using at least some general funds for SCHIP. Eleven states supplement their general fund appropriations with money from other sources, including tobacco settlement funds, county contributions, cigarette and other tobacco taxes, children's and seniors' health care fund revenue, private donations, existing state agency funds already earmarked for similar purposes, and intergovernmental transfers (see appendix B). SCHIP Administrative Cap and Outreach Funding Federal law limits administrative costs-which must cover program administration, outreach and direct purchase of services-to 10 percent of SCHIP funds (combined federal and state sources). In addition, the 10 percent allowance for these specified uses may be calculated only on the amount of program funds expended. States cannot therefore access federal monies for "up front" funding for program start-up costs or outreach activities. This restriction poses a problem for many states that are experiencing difficulties enrolling children because outreach funds are limited. Although the original 1997 federal law that created Title XXI required states to perform evaluations and report to HCFA, the law did not provide funding for data collection and evaluation activities. The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 earmarked $10 million for the federal government to perform an independent evaluation on a representative sample of 10 states. Additional outreach funds The 1996 federal welfare reform law that created Temporary Assistance to Needy Families (TANF), earmarked funds to help states ensure that children and parents do not lose Medicaid coverage as a result of welfare changes. The law created the "TANF-Medicaid Delinking Fund," which provided up to $500 million in federal matching funds for states to redesign application forms, update computer systems, conduct public education campaigns and perform outreach activities. The fund provides an enhanced federal matching rate of between 75 percent and 90 percent, while the usual federal Medicaid administrative match rate is 50 percent. Although the funds are not directly available for SCHIP outreach activities, if states find SCHIP-eligible children during their TANF-related Medicaid outreach activities, those activities nonetheless qualify for reimbursement. Originally, states were required to use the special TANF funds by September 2000. However, Congress recently lifted the restrictions, and now allows states to draw from the fund until money is fully expended. As of September 1999, 36 states had used less than 10 percent of the allocation available to them, and only Iowa, Minnesota and Nevada had tapped 50 percent or more of their available allocation. (Note: Information about state allotments under the fund may be found at http://www.ncsl.org/statefed/htl-500mil.htm.) Costs Per Child The vast majority of SCHIP programs enroll children into HMOs or other managed care plans and pay a capitated monthly fee for contracted services. Precise cost comparisons among states are difficult to make due to variations in services covered, geographic differences and other factors. Table 2 shows costs per child reported by state SCHIP contacts in a phone survey conducted by NCSL staff. The 19 states that responded by press time are listed. As seen in the table, most states report average costs per child per month. Delaware, Kansas, Nevada and Oregon differentiate costs by age and gender. Delaware and Kansas also break out costs by region.
Costs in the private market also vary considerably by state. On the high end, the average South Carolina family paid $613.85 per month for HMO coverage in 1998, while families in New Mexico paid an average of $382.27 (see appendix C for state-by-state figures). Some states have expressed interest in expanding their SCHIP programs to cover low-income families. Under HCFA's proposed rules for SCHIP implementation, in order to provide family coverage, states must apply for and receive a variance from HCFA and demonstrate budget neutrality and cost-effectiveness. Cost-Sharing Practices, Issues and Proposed Regulations Under Title XXI, states may require some cost sharing, especially under non-Medicaid plans. States with SCHIP Medicaid expansion plans are subject to Medicaid's cost-sharing rules, which prohibit copayments for children under age 18, but allow limited premiums, based on family size and income. States may not impose any other cost-sharing requirements without applying for and receiving a waiver from HCFA. States with non-Medicaid SCHIP programs may charge limited premiums, enrollment fees, deductibles and copayments. Among other restrictions, the federal law specifies the following:
In addition to these statutory requirements, HCFA proposes several other cost-sharing rules, as published in the Nov. 8, 1999, Federal Register. After a review and comment period, HCFA will issue final rules. Under the proposed rules, HCFA would also prohibit cost-sharing requirements for American Indian or Alaskan Native children and for routine preventive dental services. A later section of this paper highlights several other proposed rules. Cost-sharing pros and cons Whether to require cost sharing in SCHIP programs is subject to debate. On the one hand, proponents say that requiring families to contribute financially to the program may reduce the "welfare stigma," which may prevent some families from enrolling their children in SCHIP. In addition, cost-sharing requirements may help prevent "crowd out" by discouraging insured families from dropping their children's private coverage to enroll in the cheaper public program. Proponents also claim that it reduces unnecessary overuse of medical services. On the other hand, opponents of cost sharing argue that asking low-income families to pay anything for insurance may stress their budgets, and may prevent some from enrolling or maintaining coverage. Copayments on services may prevent some parents from seeking medical help when needed. Opponents also point out that managed care plans already discourage overuse of services through utilization controls. In addition, cost-sharing provisions carry an administrative expense, especially for programs with graduated premiums and copayments based on family income. Several studies conducted prior to the enactment of SCHIP researched the effect of cost sharing on children's access to health care and their health status. A few different studies used data from the Health Insurance Experiment (HIE), a federally funded, randomly controlled trial conducted in the mid-1970s. Two studies concluded that cost sharing affected whether parents sought treatment for their children, but did not affect the amount of treatment after a visit was initiated. Children in families with cost-sharing requirements under their insurance plans sought medical care less frequently than families that did not pay fees. Researchers concluded that children with cost-sharing obligations visited physicians less frequently than children with free care, but that cost sharing did not result in lower-priced services overall. Additionally, a third study concluded that, even with fewer visits, cost sharing did not result in adverse effects on the health status of children. Although these studies provide a basis for understanding the effects of cost sharing, state evaluations of SCHIP programs will provide additional information about how fees affect participant access, utilization and health status. State cost-sharing requirements As seen in figure 1, 32 states have implemented some kind of cost sharing, including premiums, copayments or enrollment fees (see appendix D for details). Of the 26 states with Medicaid expansion plans, 10 states have Medicaid section 1115 waivers, five of which require cost sharing. |
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