SCHIP Steers Through Turbulent Waters

SCHIP STEERS THROUGH TURBULENT WATERS

Volume 29, Issue 509 February 19, 2008

Anna Wolke

Not since the State Children’s Health Insurance Program (SCHIP) was created has it been so controversial.

The 10-year-old state/federal partnership was up for reauthorization last summer. But Congress and the President were unable to agree on funding and policies, and their clashes made headlines across the nation.

On Aug. 17, 2007, the Centers for Medicare & Medicaid Services (CMS) made the program even more controversial by issuing guidance (in the form of a letter to state Medicaid directors) that limits states’ ability to expand SCHIP to children in families with incomes above 250 percent of the federal poverty line.

The states that have been using SCHIP as a platform for expanding coverage to children say the letter could force them to roll back their efforts. Prior to last August, ten states had enacted legislation to expand enrollment above 250 percent of poverty in their SCHIP or Medicaid programs. Fourteen states currently cover children above 250 percent of poverty.

"[I]t has become clear that the potential for crowd out is greater for higher income beneficiaries,” the letter states. To ensure that SCHIP does not lead parents to shift their children from private coverage to SCHIP, CMS informs states that they may not expand SCHIP eligibility to children above 250 percent of the poverty line unless they have first:

shown that they have enrolled at least 95 percent of children from families earning less than 200 percent of poverty into SCHIP; and
demonstrated that employer-sponsored insurance rates for lower income children have not declined by more than 2 percent over the past five years.

In addition, a twelve-month waiting period will be enforced for children previously covered through employer-sponsored policies, and cost-sharing will be imposed. States have 12 months in which to comply with the changes.

The Bush administration wants states to enroll their neediest children before they consider expanding Medicaid and SCHIP to higher income children, said Tony Fratto, a White House spokesperson.

Not Feasible?

But many state officials say that enrolling 95 percent of children under 200 percent of poverty into SCHIP is not feasible. Currently, about 63 percent of children in families earning up to twice the poverty level are enrolled in SCHIP. Informational and administrative barriers make reaching 100 percent participation difficult for the voluntary program, state officials say. Medicare, which automatically enrolls individuals as they reach the age of 65, has a participation rate of approximately 95 percent.

There also are disagreements over how to estimate SCHIP and Medicaid participation rates. Using recent data from the Census Bureau’s Current Population Survey, no states meet the 95 percent requirement. But according to CMS’s August 2007 estimates, all but nine states met the 95 percent threshold.

States are uncertain how CMS will measure participation rates. For example, New York, which was purported by CMS to have reached 95 percent, was denied a proposal to expand SCHIP to 400 percent of poverty, based in part on the August directive.

A Legal Battle

The fact that the guidance was issued in a letter and did not go through the usual rule-making process—in which a proposed rule is published, outside parties are allowed to comment and a final rule released—has riled many states. Some are turning to the courts for a resolution.

In October 2007, New York filed suit against the federal government challenging the CMS directive. Six other states, including Maryland, have since joined the lawsuit, and New Jersey has filed a similar, separate suit. While the lawsuits are pending, many states’ SCHIP programs remain in a holding pattern.

“We hope the courts will throw out the August 17 letter by finding that CMS did not follow the formal rule-making process,” said John Folkemer, the Maryland state Medicaid director and deputy secretary for health care financing. “Otherwise, the effects of the rule will hit us in August, when we will either need to comply or stop covering children above 250 percent of poverty.”

Maryland currently covers children up to 300 percent of poverty. As many as 3,800 children in families earning between 250 percent and 300 percent of poverty would be affected by the directive.

Medicaid Expansions Threatened

While the directive’s impact on stand-alone SCHIP programs is evident, few states anticipated that the new restrictions also would be applied to state Medicaid programs. To the surprise of many, proposed Medicaid expansions in at least three states—Oklahoma, Ohio and Louisiana—are affected by the directive.

In August 2007, Oklahoma applied to CMS for a Medicaid waiver to expand its premium assistance program, Insure Oklahoma. The program would provide premium subsidies to children and adults with incomes up to 250 percent of poverty to enable them to purchase private health coverage or, if private coverage was not available, to buy into Medicaid. The Legislature, which passed measures authorizing the expansion in May 2007, expected to cover an additional 42,000 children.

Recently, Oklahoma state health officials were “informed, albeit informally, that there is a new federal policy that [would] make it impossible to obtain approval,” said Oklahoma Health Care Authority CEO Mike Fogarty. They were told to refer to the August 17 directive for further explanation. The state has not yet received a formal written response to their request from CMS.

This informal denial of Oklahoma’s proposed Medicaid expansions was unexpected. In early 2007, the Secretary of Health and Human Services, Michael Leavitt, praised the Insure Oklahoma program in a visit with Oklahoma Governor Brad Henry, according to Fogarty. At the time, the Administration was particularly pleased with the public-private nature of the state’s premium assistance program.

Administration officials have indicated that they will limit any states that try to “get around” the August directive by expanding their Medicaid programs above 250 percent of poverty, rather than their SCHIP programs. Dennis Smith, the director of the federal Center for Medicaid and State Operations, has said, “To be consistent and logical, you have to apply the criteria to Medicaid and SCHIP.”

The President’s proposed FY 2009 budget re-enforces and expands the August guidance by setting what it describes as a “hard cap” on SCHIP income eligibility of 250 percent of poverty. In addition, states that do not comply with the 95 percent enrollment target referred to above would be subject to a 1 percentage point reduction in their federal matching rate.

As states wait to see how the lawsuits turn out, many have put their proposed expansions on hold.

According to the Henry J. Kaiser Family Foundation:

20 states cover children in families with incomes up to 200 percent of poverty; 17 states set eligibility above 250 percent of poverty; and
in 2006, 91 percent of children in SCHIP had incomes that were at or below 200 percent of poverty.