SCHIP reauthorization legislation takes center role in Congress

Policy & Practice, June, 2007 by Andrea Maresca

The reauthorization of the State Children's Health Insurance Program may be the most important federal health legislation for the current Congress. It is occurring at a time when the availability and affordability of employer-sponsored health insurance continues to decline and the number of individuals with health insurance is dropping. Universal health insurance is at the center of the 2008 presidential candidates' health care platforms.

SCHIP was created by Congress in 1997 to provide health insurance coverage to targeted low-income children in families with incomes above the state Medicaid eligibility level. States may choose to create a separate program, referred to as a SCHIP stand-alone program, expand their Medicaid program, or do a combination of both. Today, every state has established an SCHIP. More than 6 million children nationwide receive health care coverage through this state block grant program. When it was enacted, Congress approved $40 million for SCHIP for the first 10 years with the funding fluctuating over that period.

There are two aspects that have helped make SCHIP attractive to states and successful. First, states receive an "enhanced match" above their Medicaid reimbursement rate for individuals who receive coverage through SCHIP. Second, states have the flexibility to design SCHIP benefit packages that best meet the needs of the targeted population while staying within the fiscal constraints of state budgets. Similar to Medicaid, states must meet certain standards and provide some specific benefits. The SCHIP model of designing flexible benefit packages was deemed so successful that Congress modeled the Medicaid reform provisions in the Deficit Reduction Act on the flexibility in SCHIP.

New Jersey's SCHIP program, the NJ KidCare program, was implemented in January 1998 and was met with great anticipation over the prospect of providing health insurance to thousands of uninsured children. According to Ann Kohler, deputy commissioner of the New Jersey Department of Human Services, "The KidCare program was successful, and through it we learned more about the uninsured population in New Jersey. The flexibility to tailor our KidCare program to meet the state's needs has allowed us to reach eligible children and parents at income levels that truly need assistance in accessing health insurance."

At the 10-year anniversary, SCHIP wields strong bipartisan support from elected officials at the state and federal levels, providers, insurers and consumers. Authorization for the program will expire on Sept. 30. Meanwhile, Congress must take a fresh look at the program and decide the resources it will invest and any new policies to strengthen the program.

Congress spent the first part of 2007 laying the groundwork for the reauthorization debate. Among the most contentious issues is the formula used to determine states' allocations and the level of available funding. Many congressional leaders have indicated that they want to build on the success of SCHIP and ensure that there is sufficient funding available to cover the 6 million children eligible but not enrolled in Medicaid and SCHIP.

Funding is an especially complicated issue for SCHIP reauthorization because states have experienced significant federal funding shortfalls in recent years. In most years, Congress has taken steps to ensure that states could access the additional funding necessary to maintain their programs. In each successive year, however, lawmakers have had less funding to work with, and they imposed more restrictions on the use of funding, while an increasing number of states were experiencing shortfalls. In fiscal year 2007, 14 states estimate that they do not have access to sufficient federal funds; and as of mid-May, Congress was still debating whether and how to provide the funding necessary to ensure that individuals were not dropped from these states' SCHIP programs.

The House and Senate have budgeted an additional $50 million for SCHIP over the next five years. However, new pay-as-you-go, or "pay-go," rules require that Congress offset any new spending with cuts elsewhere in the budget. These rules are expected to test the political will of Congress and the Bush administration as they strive to shape the direction of the program for the next five years.

One reason that many states have experienced shortfalls is because the allocation formula has not always accurately reflected their funding needs and the number of uninsured low-income children and families. Congress is expected to identify ways to improve the formula and to ensure that no state is penalized for lowering the number of uninsured children, which happens under the existing formula.

In addition to increasing funding for the program, Congress is examining ways to leverage Medicaid and SCHIP in an environment where fewer low-income individuals have access to affordable employer-sponsored insurance. One issue that policymakers are exploring is how to provide more flexibility to coordinate SCHIP with private coverage.