The State Children's Health Insurance Program

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. This report was supported under a contract with The urban Institute. The views expressed in this report are solely those of the authors, and no endorsement by the United Hospital Fund, New York university, or The Urban Institute, its trustees, or its funders is intended or should be inferred. We gratefully acknowledge the assitance of Lali Ruiz for her assistance in scheduling the interviews for this project.

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

Introduction

The Balanced Budget Act of 1997 provides approximately $24 billion in funding over the next five years for new children's health care initiatives.¹ Most of this spending is earmarked for the new State Children's Health Insurance Program (CHIP), established as Title XXI of the Social Security Act. This program entitles states to block grants in order to initiate and expand health insurance programs for low-income children with higher federal matching payments than under Medicaid. Funds are allocated in proportion to each state's share of the nation's uninsured children in families with incomes below 200 percent of the federal poverty level (FPL), with adjustments for differences in costs among states. The program allows states to cover currently uninsured children in families with incomes up to 200 percent of FPL (and higher in states which already have extensive coverage). States cannot receive higher matching funds for children currently eligible for Medicaid.

The design of CHIP reflected a number of constraints facing policymakers during the Balanced Budget debate of 1997. These included concerns that any new funds for health or social programs be carefully targeted to needy populations. The result in this case was to make funds available only for those children who were not eligible for Medicaid, whose incomes were (in most states) below 200 percent of FPL, and who would otherwise be uninsured. Concerns about targeting also affected how funds were distributed across states as well as provisions to prevent the displacement of current private health insurance.

This analysis of CHIP gauges the capacity of states to provide health insurance for low-income children, given the initial allocation of federal funds. We estimate that if states were able to use the maximum amount of federal dollars available to them and provide the required matching funds from new state funds, about six million children could be covered, resulting in a huge reduction in the number of uninsured children.

We also demonstrate some of the problems with the design of CHIP. First, while there is sufficient funding to cover almost six million children, we conclude that there are approximately 2.9 million uninsured children under 200 percent of FPL eligible for CHIP, less than 30 percent of all uninsured children (about 40 percent according to another estimate). There are another 300,000 uninsured CHIP-eligible children in families with incomes above 200 percent of FPL in states which could expand coverage beyond the 200 percent of FPL threshold. These results suggest that states could have difficulty spending their CHIP funds under current program rules.

Second, the analysis also suggests that many uninsured children in low-income households (1.6 million to 4.7 million depending on the data source) are already Medicaid eligible. Some increased participation of these children in Medicaid could occur because of the increased publicity and outreach efforts accompanying CHIP implementation. These children are not eligible for the CHIP program, and states would not receive the higher CHIP matching rates. The favorable treatment of the generally higher-income CHIP eligibles, coupled with the potentially large number of lower-income Medicaid eligibles, has raised funding concerns among states. There is a need to consider increasing the financial incentives for states to increase Medicaid participation among those who are currently Medicaid-eligible, e.g., allowing some of the CHIP funds to be used to offset the costs of higher Medicaid participation rates where a state receives a lower federal match.

Third, we find that there are approximately 3.0 million uninsured children in families with incomes too high to be eligible for CHIP. Some of these children could become eligible if states exclude some portion of families' income and assets when determining eligibility. Congress could also extend coverage to these children if a significant amount of the CHIP allocation were to go unused.

Fourth, we examine the distribution of federal funds among states and demonstrate that states that currently have broad levels of coverage for children will receive fewer federal dollars per poor child than if federal funds were allocated simply on the basis of the state's share of low-income children. Meanwhile, states that have not already enacted comprehensive coverage for children get more federal money per poor child under the CHIP allocation formula.

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

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