Number A-13 in Series, "New Federalism: Issues and Options for States"
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The Balanced Budget Act of 1997 creates a new program and funding source for states to provide health insurance to children. The purpose of the new State Children’s Health Insurance Program (S-CHIP), enacted as Title XXI of the Social Security Act, is "to provide funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children." 1
States have a great deal of flexibility in how they design their new S-CHIP programs. One of the first choices states will face is whether to use the new matching funds to expand Medicaid or to develop or expand existing separate child health insurance programs. After providing an overview of the new program, this brief discusses issues states might consider when making this choice.
Background
The S-CHIP program was enacted as a partial response to census data showing that about 10 million children under age 18, or 13.8 percent of children, were uninsured in 1995. The two major sources of coverage for children are employer-sponsored coverage through a parent and Medicaid. In 1995, private coverage, almost all of which is employer-sponsored, reached 66.1 percent of children and Medicaid covered 23.2 percent (some children had both). 2 Medicaid plays a particularly large role for low-income children, covering almost half of all children with family incomes below 200 percent of the federal poverty level (FPL). (The FPL is $13,330 for a family of three in 1997.) Estimates of the number of children without health insurance in each state appear in table 1. A note at the bottom of table 1 explains why these figures may be overstated.
Federal Medicaid law requires that states cover all children through age five in families with income below 133 percent of FPL, and children ages 6 through 13 to 100 percent of FPL. Children ages 14 through 18 must be covered only if they would have been eligible under the old Aid to Families with Dependent Children (AFDC) program rules. Maximum family income standards for AFDC were set by each state, with a median value of 61 percent of FPL for a family after one year of working. 3 Other eligibility criteria apply as well, most notably the requirement of "deprivation," which means an absent, incapacitated, or unemployed parent.
Most states have made some effort to expand health insurance coverage for children beyond the federal requirements—either through Medicaid expansions, separate state-funded programs, or smaller private programs. The primary mechanism states have used is Medicaid; 27 states have expanded coverage for children beyond the minimum levels required by the federal government. 4 Eight states have separate, state-administered programs that serve low-income families or children not eligible for Medicaid, but only four of these enroll more than 10,000 people. 5 This is a small number compared to the target population for the new children’s health program, which proponents hope will reach up to five million children. 6 Private programs, like the Blue Cross/Blue Shield–sponsored Caring Programs for Children, are generally quite small and offer a limited benefit package.
The new S-CHIP program makes federal funds available to states for certain efforts to increase coverage for children with family incomes below 200 percent of FPL. States that have expanded Medicaid coverage beyond 150 percent of FPL for any age group may use these funds to cover children with family incomes up to 50 percentage points above that group’s current Medicaid eligibility standard. The program is appropriated for 10 years, with $4.25 billion allocated for each of the first four years and $3.15 billion for each of the next three. Each state’s allocation is determined by a formula based largely on the number of uninsured children below 200 percent of FPL in the state. Federal funds are only available on a matching basis, but the match rate is more favorable to states than in the Medicaid program. States may not tighten their existing Medicaid eligibility standards if they wish to receive S-CHIP funds.
States have a variety of implementation options. States can expand Medicaid by increasing the maximum family income allowable for children. States with existing children’s health programs can expand those programs, either by increasing the number of spaces available or by allowing higher-income children in, if those programs meet the standards in the legislation. Alternatively, states can establish new programs that comply with the federal law. In all instances, the state will receive federal matching funds, up to the state’s allotment, for the new children enrolled.
Notes from this section
1. "State Children’s Health Insurance Program," Title XXI, Social Security Act, 1997, Section 2101(a).
2. Data from the U.S. Census Bureau for 1995. Data available at the Census Bureau web site.
3. See Zedlewski, Sheila, and Giannarelli, Linda (1997), "Diversity among State Welfare Programs: Implications for Reform," New Federalism: Issues and Options for States, series A, no. A-1, Urban Institute (January).
4. These are states that have expanded coverage for children ages 1 through 18. Thirty-four states have expanded coverage for pregnant women and infants under age 1. A future policy brief will examine these programs in greater detail.
5. Anne K. Gauthier and Stephen P. Schrodel, Expanding Children’s Coverage: Lessons from State Initiatives in Health Care Reform, Washington, D.C.: Alpha Center, 1997.
6. Sen. Edward Kennedy and Sen. Orrin Hatch, "Health Insurance for Every Child" (Op-Ed), The Washington Post, Aug. 20, 1997, p. A-25.
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