Squeezing SCHIP

No. A-65 in Series, "New Federalism: Issues and Options for States"

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

At the beginning of 2003, nearly every state in the nation was facing its third straight fiscal year budget deficit. According to the National Conference of State Legislatures, states confronted a combined budget deficit of $78.4 billion in fiscal year 2004 (NCSL 2004). Early in the economic downturn, states closed gaps using reserves, special "rainy day" funds, budget and accounting maneuvers, and tobacco settlement funds. But increasingly, states have had to make real program cuts to address budget shortfalls. During fiscal year (FY) 2003, 40 states—the most in recorded history—made either across-the-board or selective program cuts totaling $11.8 billion (NGA and NASBO 2003). Few state programs were immune to cuts; even such high-priority programs as Medicaid, K-12 education, higher education, and public safety were reduced in most states.

But how has the State Children's Health Insurance Program (SCHIP)¹ fared during these difficult times? To answer this question two years ago, we interviewed SCHIP administrators and other state officials in 13 states as part of our multiyear SCHIP evaluation conducted under the Assessing the New Federalism (ANF) project.² We found that SCHIP had largely "dodged the first budget ax" in FY 2002: only one state had reduced eligibility thresholds under the program (for parents, not children); no states had cut benefits (while four states actually expanded coverage of such critical services as dental care); only two states had raised cost sharing; and only one state had cut provider reimbursement. The one program area where a significant number of states had reduced spending—roughly half of the 13 states we studied—was outreach (Howell, Hill, and Kapustka 2002).

State officials explained why SCHIP seemed largely immune to significant cuts, citing its strong popularity among consumers, providers, and politicians; the fact that it was small and inexpensive (relative to Medicaid) and not an entitlement (making it a program that policymakers felt they could "control"); its high federal matching rate (making it a less attractive target for cuts); and its success at its critical objective—insuring low-income children. But these same officials hinted that continued fiscal pressures could result in future cuts to SCHIP.

Given states' ongoing budget difficulties, it was important to repeat our survey last year and update our understanding of how SCHIP programs were affected. Telephone interviews with state SCHIP officials conducted during September and October 2003 found that the program was indeed suffering more severe cutbacks than during 2002. Highlights (or lowlights) include the following:

• While none of our study states actually reduced its upper income eligibility threshold, one state—Texas—did change its methodology for counting family income, effectively reducing its upper limit;
• Three states implemented enrollment freezes, placing thousands of children who would have previously been eligible for coverage onto waiting lists;
• Nearly one-third of states enacted changes in enrollment policies, which will make it more difficult for families to apply for SCHIP;
• Half the states raised cost sharing amounts for enrollees and/or imposed new cost sharing on families that didn't previously have to pay;
• Nearly half the states either froze or reduced reimbursement rates to providers serving SCHIP enrollees; and
• Most states discontinued support for outreach activities.

But not all the news was bad. Only two of the 13 study states reduced benefits for children; two-thirds of the study states reported new efforts to simplify enrollment and renewal procedures; and large states such as California and New York implemented innovative initiatives to enroll more children or dramatically expanded outreach spending. Perhaps most important, every state participating in the survey reported that SCHIP programs retained strong political support and fared quite well, relative to other state programs.

Therefore, depending on one's perspective, SCHIP's glass is either half full or half empty in the aftermath of the FY 2004 budget cycle.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Notes

1. In August 1997, Congress enacted SCHIP as Title XXI of the Social Security Act, providing states with $40 billion over 10 years to support expansions of health insurance to children ineligible for Medicaid.

2. The ANF states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin.

Usage, posting and reprint of materials on the UI web site:

Most publications may be downloaded free of charge from the web site in PDF format. This information may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact paffairs@ui.urban.org.

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.

Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.