Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

FEBRUARY 2001 

OEI-05-00-00241 

STATE CHILDREN’S HEALTH 

INSURANCE PROGRAM 

Ensuring Medicaid Eligibles are not Enrolled in 

SCHIP 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended by Public Law 100-504, is to protect the integrity of the Department of Health and 

Human Services programs as well as the health and welfare of beneficiaries served by them. This 

statutory mission is carried out through a nationwide program of audits, investigations, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary of program 

and management problems and recommends legislative, regulatory, and operational approaches to 

correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Chicago regional office prepared this report under the direction of William Moran, Regional 

Inspector General and Natalie Coen, Deputy Regional Inspector General. Principal OEI staff 

included: 

REGION HEADQUARTERS 

Deborah Walden, Team Leader Joan Richardson, Program Specialist

Nora Leibowitz, Project Leader

Michael Craig, Program Analyst

To obtain copies of this report, please call the Chicago Regional Office at (312) 353-9867. 

Reports are also available on the World Wide Web at our home page address: 

http://www.hhs.gov/oig/oei/ 
EXECUTIVE SUMMARY 

PURPOSE 

To evaluate whether States are enrolling Medicaid eligible children in the State Children’s 

Health Insurance Program. 

BACKGROUND 

Many low-income children receive health care coverage through Medicaid and the State 

Children’s Health Insurance Program (SCHIP). The SCHIP is designed to reduce the 

number of uninsured children by offering health care coverage to previously uninsured 

children. The program targets children with family income too high for Medicaid and too 

low to afford private insurance. 

The Balanced Budget Refinement Act of 1999 required that the Office of Inspector 

General (OIG) sample States in order to: (1) evaluate whether States are correctly 

enrolling children in SCHIP or Medicaid; and (2) assess States’ progress in reducing the 

number of uninsured low-income children. According to the Act, the OIG was to evaluate 

the States’ progress on performance goals. Sampled States were to be selected only from 

States not using SCHIP funds to expand Medicaid. 

This is one of two reports focusing on five of the 15 States administering separate child 

health programs as of October 1, 2000. Those States are North Carolina, Oregon, 

Pennsylvania, Utah and Vermont. This report focuses on State efforts to ensure that 

Medicaid eligibles are not enrolled in SCHIP. In a companion report, we assess States’ 

efforts to evaluate their SCHIP performance goals. 

FINDINGS 

SCHIP eligible children are enrolled in the proper program 

We found few Medicaid eligible children enrolled in SCHIP in the 100 cases we reviewed

in each of the 5 sample States. One State had a single case in which a Medicaid eligible

child was enrolled in SCHIP, while two other States had three and five cases, respectively. 

Two States had no Medicaid eligible children enrolled in SCHIP. Three States had no

over-income children in SCHIP. We found only one over-income case in one of the States

and three such cases in the other. Based on our 2-stage stratified-cluster sample, we

estimate that at the 90 percent confidence level, between 97.6 percent and 

99.6 percent of SCHIP enrollees were correctly enrolled in the 13 States administering

separate child health programs in fiscal year 1999. States attribute correct enrollments to

SCHIP - Enrollment i OEI-05-00-00241 
review of income information and staff training. All five States require proof of income to 

determine eligibility for some applicants. 

Four sample States manually determine SCHIP eligibility, while the fifth utilizes an 

electronic eligibility system. One State is currently developing an electronic eligibility 

system. Others are interested in such systems but have no plans to implement them. 

States provide a smooth transition between SCHIP and Medicaid 

States have worked to streamline the process of transferring children from one program to 

another. Four of the 5 States permit 6 to 12 months of continuous eligibility for SCHIP. 

This reduces the burden of frequent income verification for States and relieves families of 

the need to provide frequent income updates to the State. 

In an effort to encourage and simplify SCHIP re-enrollment, States have sent out 

re-enrollment reminder letters to families and allowed applicants to submit shorter reapplication forms. Medicaid staff often determine both SCHIP and Medicaid eligibility, 

which increases program coordination and staff knowledge about eligibility rules. 

Conclusion 

We believe that Medicaid eligible children are not being enrolled in SCHIP by States who 

administer separate child health programs. 

AGENCY COMMENTS 

The Health Care Financing Administration (HCFA) and the Health Resources and

Services Administration (HRSA) provided formal comments to the draft report. 

Both concur with the findings. The full text of their comments are included as Appendices

A and B.

SCHIP - Enrollment ii OEI-05-00-00241 
TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY .................................................... i

INTRODUCTION .......................................................... 1

FINDINGS

SCHIP eligible children are enrolled in the proper program ................ 5

States provide a smooth transition between State CHIP and Medicaid ........ 7

APPENDICES 

A: HCFA Comments ............................................ 9

B: HRSA Comments ........................................... 12

SCHIP - Enrollment OEI-05-00-00241 
INTRODUCTION 

PURPOSE 

To evaluate whether States are enrolling Medicaid eligible children in the State Children’s 

Health Insurance Program. 

BACKGROUND 

Many low-income children receive health care coverage through Medicaid and the State 

Children’s Health Insurance Program (SCHIP).1 Both Medicaid and SCHIP are joint 

State-Federal programs that allow States administrative discretion within guidelines 

established by statute and the U.S. Department of Health and Human Services. 

Medicaid, which was established in 1965, is the largest program providing health care 

services to America's poorest people. Within broad national guidelines set by the Federal 

Government, each State administers its own program, sets its own eligibility standards, 

determines the type, amount, duration and scope of services, and sets payment rates. 

Total non-administrative expenditures for the Medicaid program were $180.9 billion in 

1999 ($102.5 billion in Federal and $78.4 billion in State funds). The Health Care 

Financing Administration (HCFA) reports that in 1998, 51 percent of all Medicaid 

recipients were children. In 1998, Medicaid paid an average of $1,150 per child for the 

20.6 million children who received services through the program. 

The State Children’s Health Insurance Program and uninsured children 

Over 10 million children in the United States are uninsured. SCHIP is designed to help 

reduce the number of uninsured low-income children by providing them with health care 

coverage. Title XXI of the Social Security Act (SCHIP’s enabling legislation) was 

created by the Balanced Budget Act of 1997 (P.L. 105-33). The law appropriated nearly 

$40 billion over 10 years to help States expand health insurance to children whose families 

earn too much to qualify for Medicaid, yet not enough to afford private insurance. 

Like Medicaid, SCHIP is a State and Federal partnership, but the Federal match for 

SCHIP expenses is greater than the match for Medicaid. States have three options for 

covering uninsured children under Title XXI: design a separate children’s health insurance 

program, expand Medicaid eligibility, or a combination of the two strategies. As of 

October 1, 2000, 15 States administer separate child health programs, 23 run 

1

The Health Care Financing Administration refers to Title XXI-funded programs as State CHIP or SCHIP. 

SCHIP - Enrollment 1 OEI-05-00-00241 
expanded Medicaid, and 18 have combination programs.2 This report focuses on the 

15 States operating separate programs. These States are Arizona, Colorado, Delaware, 

Georgia, Kansas, Montana, Nevada, North Carolina, Oregon, Pennsylvania, Utah, 

Vermont, Virginia, Washington, and Wyoming. 

Under Title XXI, a State must have an approved State plan for a fiscal year in order to 

receive an allotment that year. Each State submitted a SCHIP plan to HCFA, outlining 

program structures, use of funds, benefits, strategic objectives, and performance goals. 

Close to 2 million children who would otherwise be without health insurance coverage 

were enrolled in SCHIP in fiscal year 1999. This is double the number reported enrolled 

in 1998, the first full year of the program. Of the 56 State and territorial children's health 

insurance programs to date, 53 were operational during fiscal year 1999. Of the nearly 

2 million children covered as of September 30, 1999, over 1.2 million were enrolled in 

separate children's health insurance programs and almost 700,000 were enrolled in 

Medicaid expansion plans. 

Ensuring correct enrollment in State CHIP and Medicaid 

To encourage States to expand child health insurance eligibility, the Federal match for 

States’ Title XXI expenditures is greater than the match for Medicaid. The average 

Federal match for Title XXI is 71 percent, while the average Federal match for Medicaid 

is 57 percent. Medicaid is an entitlement program and States are required to enroll all 

eligible children. SCHIP is not an entitlement program and States have the discretion to 

cap enrollment for SCHIP eligibles or create waiting lists. So that States do not try to 

maximize SCHIP reimbursements by enrolling Medicaid eligibles in SCHIP, Title XXI 

requires States to screen SCHIP applicants for Medicaid eligibility. Therefore it is 

essential that children found eligible for Medicaid must be enrolled in Medicaid rather than 

in the SCHIP. States receive only the Medicaid-level match for any child enrolled in 

Medicaid based on the eligibility standards that existed before Title XXI was enacted. 

Due to their effort to enroll children in new Title XXI funded programs, some States have 

noticed the so-called “woodwork effect”; by conducting outreach for SCHIP, they 

encourage greater numbers of Medicaid eligibles to apply for health care services as well. 

In their SCHIP State plans, States agreed to assess all SCHIP applicants for Medicaid 

eligibility before checking SCHIP eligibility. Medicaid assessment techniques for some 

States are outlined as follows: 

C North Carolina checks the Medicaid information system to see whether the 

applicant has existing Medicaid coverage. If the child is not currently covered by 

Medicaid, Medicaid eligibility is assessed before SCHIP eligibility is pursued. 

2 Currently, 50 States, 5 Territories and the District of Columbia administer Title XXI programs. 

SCHIP - Enrollment 3 OEI-05-00-00241 
C Nevada checks Medicaid eligibility for all applicants reporting income up to 

25 percent above the Medicaid limit before assessing eligibility for SCHIP. 

C Delaware uses a common computer eligibility system for Medicaid and SCHIP. 

Legislative Requirement for OIG Studies 

Section 703 of the Balanced Budget Refinement Act of 1999 required that the Office of 

Inspector General (OIG) sample States in order to: (1) evaluate whether States are 

correctly enrolling children in SCHIP or Medicaid as appropriate; and (2) assess the 

progress made by States to reduce the number of uninsured low-income children. The Act 

further requires that the OIG evaluate the progress sampled States have made to achieve 

their strategic objectives and performance goals. Sampled States were to be selected from 

States not using any SCHIP funds to expand Medicaid. 

This is one of two reports focusing on a sample of five States administering separate 

children’s health programs. This report focuses on State efforts to ensure that Medicaid 

eligibles are not enrolled in SCHIP. In a companion report entitled “State Children’s 

Health Insurance Plan - Assessment of State Evaluation Reports,” OEI-05-00-00240, we 

address States’ evaluations of their performance goals. 

METHODOLOGY 

Based on the requirements outlined in the Balanced Budget Refinement Act of 1999, we 

limited our universe to the 15 States utilizing their Title XXI allotments to operate 

separate children’s health programs. Two States, Wyoming and Washington, were 

excluded from the population because they began administering SCHIP in December 1999 

and February 2000, respectively, and thus had no enrollees in fiscal year 1999. 

We used a 2-stage stratified-cluster sampling plan to select 5 States from the 13 remaining 

States. The remaining 13 States were divided among 2 strata. Pennsylvania was a selfrepresenting State as illustrated in Strata 1, based on the significantly large number of 

children enrolled in their SCHIP. From the remaining 12 States, we randomly selected 4 

States, North Carolina, Oregon, Utah, and Vermont, for Strata 2. The chart on the 

following page outlines the number of children enrolled in SCHIP in each of the Strata and 

sample States in Fiscal Year 1999. 

SCHIP - Enrollment 3 OEI-05-00-00241 
Selected Sample States 

STRATA 1 

States Selected Number of Children Enrolled in 

SCHIP in FY 1999 

Number of Cases Selected For 

Review 

Pennsylvania 81,758 100 

Totals 81,758 100 

STRATA 2

States Selected Number of Children Enrolled in 

SCHIP in FY 1999 

Number of Cases Selected For 

Review 

North Carolina 57,300 100 

Oregon 27,285 100 

Utah 13,040 100 

Vermont 2,055 100 

Totals 99,680 400 

We reviewed the 5 States’ Title XXI plans and the SCHIP evaluation reports submitted to 

HCFA in March 2000. We conducted on-site visits and met with staff at the agency 

administering SCHIP in each of the five States. 

We conducted case file reviews and discussed enrollment issues and goal attainment with 

State staff. We reviewed 100 randomly selected active SCHIP case files in each State in 

order to evaluate whether ineligible children were enrolled in SCHIP. We provided each 

State with randomly selected case numbers and staff pulled these cases in preparation for 

our visit. The results of our case file review were analyzed using a statistical analysis 

package that takes into account complex sample designs. 

One part of our discussions with SCHIP staff focused on State efforts to appropriately 

enroll children and safeguards used to ensure proper enrollment. We also discussed State 

CHIP evaluations. We collected documentation of State eligibility and enrollment 

practices and of evaluation efforts. 

We conducted our review in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

SCHIP - Enrollment 4 OEI-05-00-00241 
FINDINGS 

SCHIP eligible children are enrolled in the proper program 

We found few Medicaid eligible children enrolled in SCHIP in the 100 cases we reviewed 

in each of the 5 sample States. One State had a single case in which a Medicaid eligible 

child was enrolled in SCHIP, while two other States had three and five cases, respectively. 

Two States had no Medicaid eligible children enrolled in SCHIP. 

While the focus of our review was on children who were enrolled in SCHIP despite their 

eligibility for Medicaid, we also found a limited number of cases in which family income 

exceeded established limits for SCHIP eligibility. One State had one such case and 

another had three cases with over-income children. The other three States had no such 

cases. 

All five States reported a belief that they are enrolling children in the appropriate 

programs. When asked, States rated how successful they believed they had been on a 

scale of 1 to 10, with 10 being extremely successful, the average rating was 9. States 

attribute their success to careful analysis of income information and timely training of their 

employees. 

Our case file reviews confirmed the States own assessments. Using the results of our case 

file reviews in the 5 sampled States, we estimate that at the 90 percent confidence level, 

between 97.6 and 99.6 percent of the children were enrolled correctly in SCHIP in the 13 

States that administered separate child health programs in fiscal year 1999. 

Eligibility is primarily based on income 

All SCHIP programs must evaluate children’s eligibility based on family income. The five 

States we visited require some proof of income to determine program eligibility for most 

enrollees. Four States require between 1 and 3 months of current payroll information, one 

of which allows families to self-declare income earned through self-employment. The fifth 

sample State allows most families to self-declare their income but asks for proof of 

income, such as a recent W-2 tax form for children in families with self-employment 

income. States also verify some reported family income through checks of computerized 

data bases, such as WageMatch or Social Security Administration files. 

States report they are confident that children are enrolled correctly because they have faith 

in families’ willingness to report income changes. Several States that utilize continuous 

enrollment report that families contact program staff to report income changes when they 

happen, even though this is not required by the program. Because families 

SCHIP - Enrollment 5 OEI-05-00-00241 
volunteer information about income changes, States believe that families are honestly

reporting income and other information at enrollment.

Other eligibility factors require children to:

C be younger than 19 years old;

C not have other current health insurance;

C have been without health insurance for a period of time specified by the State

(usually 1 to 6 months); and 

C be U.S. citizens or legal residents. 

Training helps ensure proper enrollment 

SCHIP administrators reported they train eligibility staff about program rules and 

enrollment practices. They indicated that training helps ensure enrollment workers 

understand current programs and changes to SCHIP and Medicaid as they occur. 

One State found problems with workers enrolling children with current insurance despite 

SCHIP rules that prohibit this. As a result, the State retrained all enrollment workers to 

ensure that they understood program rules and now reports that incorrect enrollment of 

insured children has been stopped. Several States reported that they conduct periodic 

training for staff to ensure their knowledge of program rules and guidelines and to keep 

them informed of any changes in program operation. 

Eligibility mostly determined manually 

Four of the five sample States manually determine SCHIP eligibility. These States rely on 

enrollment workers to collect and review documentation, calculate eligibility, and ensure 

that applicant children are not Medicaid eligible before enrolling them in SCHIP. 

However, these States store this information electronically. The fifth sample State utilizes 

an electronic eligibility system that assesses whether the children are eligible for Medicaid. 

If children are found ineligible for Medicaid, the process is repeated to determine SCHIP 

eligibility. 

One State that currently determines eligibility manually is in the process of developing a 

centralized computer system to electronically verify eligibility. State staff anticipate the 

electronic verification process will enable them to move children between SCHIP and 

Medicaid more easily and will make the transition between programs seamless for the 

recipient. It also will diminish the possibility of improper program placement. The other 

three States we visited would like to develop a system to determine eligibility 

electronically but have no immediate plans to do so. 

None of the sampled States conduct systematic checks of eligibility after a child is 

enrolled in SCHIP. However, several States indicated that they conduct post-enrollment 

checks if they question information a family provides. 

SCHIP - Enrollment 6 OEI-05-00-00241 
Public perception of Medicaid may lead to enrollment challenges 

Two States report that families view SCHIP more favorably than Medicaid because people 

associate Medicaid with public assistance. These two States report they suspect some 

Medicaid eligibles are applying for SCHIP, meaning that State workers must pay close 

attention to income information. 

In the three other States, administrators report that families have not expressed a 

preference for SCHIP over Medicaid. Applicants may not be aware of a difference 

between SCHIP and Medicaid in these States, as the two programs are similar in structure 

and benefits. A single agency administers both programs in these States, and the 

distinction between the programs is not publicized. 

States provide a smooth transition between State CHIP and Medicaid 

Families eligible for SCHIP and Medicaid often experience changes in income which effect 

program eligibility. Since income fluctuations are common, the five sample States have 

worked to streamline the process of transferring children from one program to the other. 

States permit continuous eligibility 

Four of the five sample States allow SCHIP enrollees to remain in the program for a 

specified period even if family income changes enough to warrant transfer to Medicaid or 

out of the program. The “continuous eligibility period” begins when the application has 

been approved and lasts between 6 and 12 months, as determined by the State. 

Continuous eligibility helps reduce the burden on States to repeatedly verify income 

information and relieves families of the need to provide frequent income documentation. 

Although States utilizing continuous eligibility allow children to remain on SCHIP as 

family income changes, there can be exceptions to this rule to ensure proper enrollment. 

For instance, one State automatically transfers SCHIP recipients to Medicaid when their 

families begin receiving Temporary Assistance for Needy Families benefits. 

The only sample State that does not practice continuous eligibility requires SCHIP 

enrollees to notify staff of a change in income within 10 days of any change. After 

notification of a change, enrollees are transferred to the Medicaid program if they meet 

Medicaid eligibility requirements. Transferred individuals are unaware of a change in 

program enrollment because the transfer is done internally and enrollees see no differences 

in program structures or benefits. 

States have simplified the re-enrollment process 

In an effort to encourage and simplify SCHIP re-enrollment, sampled States have taken 

steps to ease the process. For example, several States send out reminder letters prior to 

SCHIP - Enrollment 7 OEI-05-00-00241 
the re-enrollment date, no longer require new applications to be completed at reenrollment, and allow eligibles to re-enroll by mail or phone. 

Medicaid staff often determine both SCHIP and Medicaid eligibility 

Four of the five States facilitate the transfer of applicants’ enrollment information 

between Medicaid and SCHIP by having the Medicaid enrollment staff also determine 

SCHIP eligibility. This method of partnering the programs allows the person conducting 

the eligibility determinations to become familiar with both programs and reduces the 

likelihood of incorrect program placement. Four States also automatically refer 

individuals who are not eligible for SCHIP to Medicaid and vice versa. In some States, 

those SCHIP applicants found to be Medicaid eligible only need to fill out an addendum to 

their completed SCHIP applications. 

Conclusion 

As required by Section 703 of the Balanced Budget Refinement Act of 1999, we evaluated 

whether States administering separate child health programs are enrolling Medicaid 

eligibles in SCHIP. Based on our random sample, these five States do not appear to be 

doing so. 

Agency Comments 

The Health Care Financing Administration and the Health Resources and Services 

Administration provided formal comments to the draft report. They concur with the 

findings. The full text of their comments are included in Appendices A and B. 

The HCFA provided information regarding their continued work with States to ensure 

that effective screening occurs, and acknowledged the importance of State developed 

systems to effectively ensure that children who are screened and found potentially eligible 

for Medicaid are enrolled in Medicaid. The HCFA also notes they have issued guidance to 

States encouraging simplification of the application and enrollment process to promote 

coordination, and are working with States to examine the redetermination process to 

assure that it promotes ongoing coverage of children who become ineligible for one 

program and eligible for the other. 

The HRSA offered technical comments that included stating the specific date for our 

summary of SCHIP plans, and adding language to clarify that the 15 States in our universe 

had “accessed their 1998 SCHIP allotment” rather than utilized “their entire Title XXI 

allotments.” 

SCHIP - Enrollment 8 OEI-05-00-00241 
APPENDIX A 

SCHIP - Enrollment 9 OEI-05-00-00241 
SCHIP - Enrollment 10 OEI-05-00-00241 
SCHIP - Enrollment 11 OEI-05-00-00241 
. APPENDIX B 

SCHIP - Enrollment 12 OEI-05-00-00241 
SCHIP - Enrollment 13 OEI-05-00-00241