MAY 2007

The State Children’s 

Health Insurance 

Program

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

P A P E R

CBO
Pub. No. 2970
The Congress of the United States O Congressional Budget Office

CBO

The State Children’s

Health Insurance Program

May 2007

A

PAPER
Notes

Unless otherwise indicated, the years referred to in this report are fiscal years.

References to “states” include all 50 states and the District of Columbia.
Preface

Enacted as title XXI of the Social Security Act in 1997, the State Children’s Health 

Insurance Program (SCHIP) provides health insurance coverage for uninsured children living 

in families with income that is modest but too high for them to be eligible for Medicaid. This 

Congressional Budget Office (CBO) paper—prepared at the request of the Chairman and 

Ranking Member of the Senate Finance Committee—summarizes the key features of SCHIP, 

provides information on historical trends in enrollment and federal spending, summarizes the 

evidence on the effects of the program on children’s insurance coverage, and discusses key 

issues that are likely to arise as the Congress considers reauthorization of the program this 

year. In keeping with CBO’s mandate to provide objective, impartial analysis, this paper 

makes no recommendations.

Noelia Duchovny and Lyle Nelson of CBO’s Health and Human Resources Division prepared 

the report under the supervision of James Baumgardner and Bruce Vavrichek. Carol Frost 

provided assistance with the data analysis. Tom Bradley, Jeanne De Sa, Tim Gronniger, Arlene 

Holen, Donald Marron, Eric Rollins, and Sven Sinclair, all of CBO, provided comments on 

drafts, as did Jeanne Lambrew of the George Washington University, Anthony T. Lo Sasso of 

the University of Illinois at Chicago, and Kosali I. Simon of Cornell University. (The assistance of external reviewers implies no responsibility for the final product, which rests solely 

with CBO.)

John Skeen edited the paper, and Christine Bogusz proofread it. Maureen Costantino 

designed the cover and prepared the report for publication. Lenny Skutnik produced the 

printed copies, Linda Schimmel coordinated the print distribution, and Simone Thomas prepared the electronic versions for CBO’s Web site (www.cbo.gov).

Peter R. Orszag

Director

May 2007

Contents

Summary vii

The Design of the State Children’s Health Insurance Program 1

Eligibility Criteria for Children 1

Eligibility Criteria for Adults 1

The Design of Benefits 2

Cost Sharing and Premiums 3

The Financing of SCHIP 4

Federal Funding for SCHIP 4

The State Allocation Formula 4

Enrollment in and Expenditures for SCHIP 6

The Effect of SCHIP on Children’s Health Insurance Coverage 7

Changes in the Number of Uninsured Children 7

Children’s Participation in SCHIP 8

The Effect of SCHIP on Private Coverage 9

Issues in Reauthorizing SCHIP 13

The Cost of Maintaining the States’ Current Programs 14

Options for Modifying SCHIP 14

Appendix: Studies Reviewed by the Congressional Budget Office for 

This Analysis 19

Tables

1. Enrollment in the State Children’s Health Insurance Program, 

1998 to 2006 5

2. Allotments and Spending Under the State Children’s Health 

Insurance Program, 1998 to 2007 6
VI THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Figures

1. Percentage of Children Who Were Uninsured, by Family

Income as a Percentage of the Federal Poverty Level, 

1996 to 2005 7

2. CBO’s Baseline Projections of Funding and Enrollment in 

SCHIP, 2007 to 2017 13

3. CBO’s Projections of Funding and Enrollment to Maintain 

States’ Current Programs Under SCHIP, 2007 to 2017 14

Boxes

1. A Brief Overview of Medicaid and the State Children’s Health

Insurance Program 2

2. Overview of the Financing Structure for the State Children’s 

Health Insurance Program 3
Summary

The State Children’s Health Insurance Program 

(SCHIP) was established by the Balanced Budget Act of 

1997 to expand health insurance coverage to uninsured 

children in families with income that is modest but too 

high to qualify for Medicaid. SCHIP is financed jointly 

by the federal government and the states, and it is administered by the states within broad federal guidelines. Since 

the program’s inception, the Congress has provided 

nearly $40 billion for it. Approximately 6.6 million children were enrolled in SCHIP at some time during 2006, 

as were about 670,000 adults through waivers of statutory provisions. Under current law, SCHIP is not authorized to continue beyond 2007, and the Congress is considering reauthorization of the program this year. 

Overview of SCHIP 

States have considerable flexibility in designing their eligibility requirements and policies for SCHIP. 1 In 2006, 26 

states set their eligibility thresholds at 200 percent of the 

federal poverty level, 15 states had thresholds above 200 

percent of the poverty level, and 9 had thresholds below.2

(The federal poverty level for a family of three in 2007 is 

$17,170.) The lowest eligibility threshold in a state was 

140 percent of the poverty level and the highest was 

350 percent. Most states subtract a portion of the family’s 

earnings and certain expenses to compute a measure of 

net income that is used to determine a child’s eligibility 

for SCHIP.

States can provide SCHIP coverage by expanding Medicaid to children not eligible for that program, creating a 

separate program under SCHIP, or using a combination 

of the two approaches.3 In 2006, 11 states expanded 

Medicaid, 18 states operated a separate program under 

SCHIP, and 21 states used a combination approach.4

States that provide SCHIP coverage by expanding Medicaid must provide the same benefits that are available 

under their Medicaid program and follow all other 

requirements of that program. States that create a separate program under SCHIP are subject to certain minimum standards, including providing a benefit package 

that is based on one of several specified “benchmark” 

insurance plans or an alternative that is actuarially equivalent or otherwise approved by the federal government.

Each year, the federal funding for SCHIP is allocated 

among states on the basis of a formula that takes into 

account the number of children in low-income families 

in each state, the number of such children who are uninsured, and wages in the health services sector in the state 

relative to the national average. States must provide 

matching funds for expenditures from their federal allotments and have up to three years to spend those allotments. Funds that are not spent within three years are 

redistributed to states that have exhausted their allotments and are made available to those states for an 

additional year.

1. This paper focuses primarily on the 50 states and the District of 

Columbia (which, for the purpose here is counted as a “state”). 

The five U.S. territories—Puerto Rico, Guam, the Virgin Islands, 

American Samoa, and the Northern Mariana Islands—also have 

programs under SCHIP. Tennessee did not have any enrollment in 

SCHIP between 2002 and 2006. 

2. Elicia J. Herz and Chris L. Peterson, State Children’s Health 

Insurance Program (SCHIP): A Brief Overview, CRS Report for 

Congress RL30473 (Congressional Research Service, 

October 12, 2006; updated January 30, 2007).

3. In some states that use a combination approach, children at the 

lower end of the income range of eligibility are enrolled under the 

expansion of Medicaid, while children at the upper end of the 

range are enrolled in the separate program under SCHIP. Using a 

different approach, other states cover children below a certain age 

under the Medicaid expansion and older children under the separate program.

4. Herz and Peterson, State Children’s Health Insurance Program.
VIII THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

To encourage states to participate in SCHIP, the federal 

government pays a higher share of their spending on 

SCHIP than it pays for Medicaid. The federal government’s matching rate for SCHIP varies among states from 

65 percent to 83 percent, while the federal matching rate 

for Medicaid varies from 50 percent to 76 percent. 

Although federal spending is made available on a matching basis for both programs, the nature of the programs 

differs significantly because SCHIP is a grant program in 

which federal spending is capped in advance whereas 

Medicaid is an entitlement program with no predetermined limit on spending.

Because the implementation of SCHIP occurred over several years, federal spending on the program was lower in 

its initial years. As the states’ programs matured, federal 

spending exceeded current-year allotments starting in 

2002. Some states have been able to spend more federal 

dollars than their allotment in a particular year by drawing on unspent funds from previous years and funds 

redistributed from other states. Yet a great deal of variation exists among states in their spending relative to their 

allotments: Federal spending falls short of the allotments 

in some states and exceeds it in others. In recent years, 

some states have projected that they will exhaust their 

federal funds. As a result, the Congress has acted twice to 

provide additional funding. The Deficit Reduction Act of 

2005 appropriated an additional $283 million for 

SCHIP in 2006, and the National Institutes of Health 

Reform Act of 2006 included provisions modifying the 

redistribution of unspent funds from previous years to 

provide additional funds in 2007.

The implications of exhausting the available SCHIP 

funds vary among states. States that provide coverage by 

expanding Medicaid automatically receive federal matching payments under the Medicaid program once their 

SCHIP funds have been exhausted, but at the lower 

matching rate for Medicaid. Similarly, states that operate 

a combination program receive federal matching payments under Medicaid for beneficiaries who are enrolled 

in the Medicaid component of their program. In contrast, states that operate a separate program under SCHIP 

receive no additional federal matching payments once 

their available SCHIP funds have been exhausted. However, those states can constrain their expenditures through 

measures such as capping enrollment or increasing premiums, which are not allowed in states that provide SCHIP 

coverage through an expansion of Medicaid. In addition, 

states that operate a separate program have the option of 

converting some or all of their program into an expansion 

of Medicaid, which would provide access to additional 

federal matching funds under that program.

The Effect of SCHIP on Children’s 

Health Insurance Coverage

SCHIP has significantly reduced the number of lowincome children who are uninsured. According to the 

Congressional Budget Office’s (CBO’s) analysis, among 

children living in families with income between 100 percent and 200 percent of the poverty level (the group with 

the greatest increase in eligibility for public coverage 

under SCHIP), the uninsurance rate fell from 22.5 percent in 1996 (the year before SCHIP was enacted) to 

16.9 percent in 2005, a reduction of 25 percent. In contrast, the uninsurance rate among higher-income children 

remained relatively stable during that period. SCHIP has 

also apparently contributed to an increase in insurance 

coverage among children below the poverty level, as 

states’ outreach efforts and simplified enrollment procedures for SCHIP appear to have increased the percentage 

of eligible children who participate in Medicaid.5

Although SCHIP has significantly reduced the number of 

uninsured children in low-income families, the net effect 

on the extent of coverage is smaller than the number of 

children who have been enrolled in public coverage as a 

result of SCHIP because the increase in public coverage 

has been partially offset by a reduction in private coverage.6

 SCHIP provides an alternative source of coverage 

that is less expensive and that often provides a broader 

range of benefits than private insurance. As a result, some 

parents who otherwise would have enrolled their children 

in private coverage may prefer instead to switch their coverage to SCHIP.7 In addition, to the extent that SCHIP 

5. Most children below the poverty level are eligible for Medicaid. 

Children who apply for SCHIP must be enrolled in Medicaid if 

they are eligible for that program.

6. For the purpose of this paper, private coverage is insurance that is 

privately financed; it includes employer-sponsored insurance and 

private nongroup insurance. Public coverage is publicly financed, 

although some states use private health plans to deliver care to 

enrollees in SCHIP.

7. Such a change in coverage need not result from the parents of previously insured children dropping their coverage to enroll them in 

SCHIP, although that is one possibility. Another possibility, for 

example, is for parents who lost their coverage to decline coverage 

at a new job if their children are eligible for (or already enrolled 

in) SCHIP. 
SUMMARY IX

makes private coverage less important for some lowincome families, parents might be more inclined to take 

jobs that offer higher cash wages rather than health insurance. Moreover, if employers of low-wage workers believe 

that SCHIP reduces the value of private health insurance 

in attracting employees, some might reduce their contribution to the premiums for family coverage, reduce the 

benefits offered, stop offering family coverage, or stop 

offering insurance altogether.

Considerable potential thus exists for increases in SCHIP 

coverage to be partially offset by a reduction in private 

coverage. For example, about 60 percent of the children 

who were eligible for the program were covered by private 

insurance in the year before the program was enacted.8

But measuring the extent to which enrollment in SCHIP 

has actually been offset by a reduction in private coverage 

is difficult. Estimates vary depending on the measure that 

is used. Moreover, studies have obtained widely varying 

estimates depending on the data sources and methods 

used.

On the basis of a review of the research literature, CBO 

concludes that the most reliable estimates currently available suggest that the reduction in private coverage among 

children is between a quarter and a half of the increase in 

public coverage resulting from SCHIP. In other words, 

for every 100 children who enroll as a result of SCHIP, 

there is a corresponding reduction in private coverage of 

between 25 and 50 children.9 The available evidence, 

which is quite limited, suggests that the bulk of the 

reduction in private coverage occurs because parents 

choose to forgo private coverage and enroll their children 

in SCHIP (because of better benefits, lower costs, or 

some combination thereof), rather than employers deciding to drop coverage for such children. No studies have 

estimated the extent to which SCHIP reduces private 

coverage among parents, so the available estimates probably understate the total reduction in private coverage 

associated with the introduction of SCHIP. 

Changes to the program may generate different effects on 

private coverage than those estimates suggest; in general, 

expanding the program to children in higher-income 

families is likely to generate more of an offsetting reduction in private coverage (and therefore less of a net reduction in uninsurance) than expanding the program to 

more children in low-income families. (Over the course 

of 2005, an average of nearly 2 million children were 

apparently eligible for SCHIP but remained uninsured.)10 As discussed below, policymakers are exploring 

options to increase participation among eligible children.

Key Issues for Reauthorizing SCHIP

The process of reauthorizing SCHIP gives the Congress 

an opportunity to reexamine the program’s design and 

reassess budgetary priorities. A key issue is the level of 

federal funding for the program and whether funding levels will be adjusted to account for growth in enrollment 

and health care costs and for possible changes in the 

design of the program, including eligibility rules and benefit packages. Until recently, the level of federal funding 

has not been an issue because states generally could cover 

their SCHIP spending through a combination of annual 

allotments; unspent funds from earlier years; and, if eligible, redistributed funds from other states. In addition, the 

Congress has provided additional money to prevent states 

from exhausting their federal funds. If federal funding for 

the program in the future did not keep pace with 

increases in health care spending per beneficiary and the 

number of enrollees, an increasing number of states 

would exhaust their federal funds. As a result, states 

would have to pay an increasing share of costs to maintain their current programs, modify their programs to 

lower spending, or both.

8. Julie L. Hudson, Thomas M. Selden, and Jessica S. Banthin, “The 

Impact of SCHIP on Insurance Coverage of Children,” Inquiry, 

vol. 42, no. 3 (Fall 2005), pp. 232–254.

9. That range includes estimates obtained under various approaches. 

For example, one approach seeks to estimate the reduction in private coverage associated with both the increase in enrollment in 

SCHIP and the increase in enrollment in Medicaid that is attributable to SCHIP. Another approach seeks to estimate the reduction in private coverage associated just with the increase in 

enrollment in SCHIP. A final approach examines the share of 

SCHIP enrollees who had private coverage before enrolling.

10. Genevieve Kenney and Allison Cook, Coverage Patterns Among 

SCHIP-Eligible Children and Their Parents (Washington, D.C.: 

Urban Institute, Health Policy Online, no. 15, February 2007).
X THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

A number of options to modify the program have been 

suggested:

B Intensifying efforts to enroll uninsured children who 

are eligible for SCHIP or Medicaid.

B Redefining the target population—either broadening 

it or narrowing it—by changing the income levels 

determining eligibility; changing the rules regarding 

the eligibility of adults; or expanding eligibility to new 

groups, such as pregnant women, legal immigrants, 

and children of state employees.

B Changing the formula that determines the distribution of federal SCHIP funding among states.

B Modifying the rules for the redistribution of unspent 

funds.

B Changing the matching rates for SCHIP.

B Modifying the benefits that states are required to provide—for example, by requiring that states provide 

services covered under Medicaid’s Early and Periodic 

Screening, Diagnosis, and Treatment program.
The State Children’s Health Insurance Program

The Design of the State Children’s 

Health Insurance Program

The State Children’s Health Insurance Program (SCHIP) 

was created by the Balanced Budget Act of 1997 (Public 

Law 105-33), under title XXI of the Social Security Act. 

The program provides federal funding that states can use 

to expand health insurance coverage to uninsured children living in families with income that is low but too 

high to be eligible for Medicaid. Under broad federal 

guidelines, the program grants states flexibility in how 

they design their programs, including eligibility, benefits, 

and cost-sharing provisions. (See Box 1 for a comparison 

with Medicaid.)

Eligibility Criteria for Children

SCHIP was designed for uninsured children under age 19 

living in families with income that is low but above Medicaid’s threshold.1 According to the SCHIP statute, states 

may cover children living in families with income up to 

200 percent of the federal poverty level or 50 percentage 

points above their Medicaid threshold.2 States are also 

allowed to disregard certain types of income and expenses 

in determining eligibility for the program. Eligibility criteria vary among the states. As of 2006, 26 states had a 

threshold of 200 percent of the poverty level, 15 states set 

the limit above 200 percent of the poverty level, and 9 

states set it below 200 percent of the poverty level. North 

Dakota had the lowest threshold, at 140 percent of 

the poverty level, while New Jersey had the highest, at 

350 percent of the poverty level.3

 In addition, variation 

among states in their Medicaid thresholds means that 

programs under SCHIP with equal thresholds may cover 

different segments of the population. For example, both 

Colorado and Kentucky have thresholds for SCHIP of 

200 percent of the poverty level, but Kentucky’s program 

covers a narrower range of people because its Medicaid 

program covers children in families with income up to 

150 percent of the poverty level, whereas for Colorado’s 

Medicaid program, the threshold is the poverty level.4

States with a separate program under SCHIP (as opposed 

to implementing SCHIP through an expansion of Medicaid) have some flexibility to control enrollment. For 

example, such states can cap or freeze enrollment. They 

can also impose waiting periods, typically lasting three to 

six months, during which children must be uninsured—

a provision originally intended to discourage people from 

dropping private health insurance coverage for children 

in order to enroll them in SCHIP. 

Eligibility Criteria for Adults

A number of states have used waiver authority to expand 

coverage under SCHIP to adults. Covering parents may 

help to increase participation among children, because 

parents who are eligible may be more likely to enroll their 

children also. In particular, section 1115 of the Social 

Security Act gives the Secretary of Health and Human 

Services the authority to waive certain statutory and regulatory requirements of Medicaid and SCHIP. The Secretary has used that authority to allow states to expand

1. Children of state employees cannot be covered under a separate 

program under SCHIP if they are eligible for coverage under a 

state health benefits plan. In addition, SCHIP is generally limited 

to citizens and to legal immigrants who have resided in the United 

States for five or more years.

2. States are required to maintain the Medicaid threshold that was in 

place just before SCHIP was enacted. That requirement, known 

as “maintenance of effort,” prevents states from lowering their 

Medicaid threshold in order to receive a higher matching rate 

under SCHIP for children who would have otherwise been covered by Medicaid.

3. New Jersey, for example, has effectively expanded its threshold to 

350 percent of the poverty level by disregarding all income 

between 200 percent and 350 percent of the poverty level. 

4. Those Medicaid thresholds apply for children between the ages of 

6 and 19.
2 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

eligibility for SCHIP to low-income parents, pregnant 

women, and adults without children.5 As a condition for 

those waivers, states are required to cover those populations with funds not used to cover children. Section 1115 

waivers also provide states additional flexibility to use 

SCHIP funds to subsidize the purchase of private health 

insurance through premium assistance programs. Of the 

18 states that have obtained section 1115 waivers, 13 

have expanded coverage to parents, related caretakers, 

and legal guardians, as well as pregnant women. Adults 

without children are currently covered in four states; 

however, the Deficit Reduction Act of 2005 (P.L. 109-

171) prohibits the approval of such waivers in the future. 

The Design of Benefits

States have the option of enrolling children by expanding 

their existing Medicaid program, creating a separate program under SCHIP, or implementing a combination of 

the two approaches. As of 2006, 11 states used an expansion under Medicaid, 18 states used a separate program, 

and 21 states used a combination of the two approaches. 

States that implement SCHIP by expanding Medicaid 

must provide all of the benefits that are covered in their 

Medicaid plan. States that choose a separate program 

must provide a benefit package that is based on one of

Box 1.

A Brief Overview of Medicaid and the State Children’s Health

Insurance Program

Medicaid, enacted under title XIX of the Social Security Act in 1965, offers health insurance coverage to a 

variety of low-income individuals, including children 

and their parents, pregnant women, the disabled, and 

the elderly. In 2006, about 30 million nondisabled 

children were enrolled in Medicaid, accounting for 

roughly $31 billion in federal expenditures. (Medicaid also provides coverage to about 1 million disabled 

children, primarily recipients of Supplemental Security Income benefits.)

 The State Children’s Health Insurance Program 

(SCHIP) was enacted as part of the Balanced Budget 

Act of 1997, under title XXI of the Social Security 

Act, to provide health insurance coverage to uninsured children living in families with income that is 

low but too high to qualify for Medicaid. Over the 

course of 2006, 6.7 million children were enrolled in 

SCHIP, at a total cost to the federal government of 

$4.8 billion.

Both Medicaid and SCHIP are financed by the federal government and the states. The federal government matches spending according to a formula that 

determines the matching rate. Medicaid is an openended entitlement program, with no predetermined 

limit on federal spending. Annual federal funding for 

SCHIP, by contrast, is set at a fixed level ($5 billion 

for 2007), and each state receives an allotment based 

on the number of children in low-income families, 

the number of such children who are uninsured, and 

health care costs. 

Under Medicaid, the federal government matches 

states’ spending using a matching rate, known as the 

federal medical assistance percentage, or FMAP, that 

is based on each state’s per capita income relative 

to the national average. In 2007, the FMAP ranges 

from 50 percent to 76 percent. Under SCHIP, the 

federal government matches states’ spending using a 

higher rate that, in 2007, ranges from 65 percent to 

83 percent.

5. In addition to waivers, the SCHIP statute allows states to purchase family coverage with SCHIP funds if such coverage is 

deemed cost-effective and does not displace private coverage. 

(Family coverage is considered to be cost-effective when the cost 

does not exceed that of coverage for children only.) That statutory 

test has seldom, if ever, been passed.
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 3

several “benchmark” insurance plans, 6 a package that is 

actuarially equivalent to a benchmark plan, an existing 

state-funded plan,7

 or any other benefit plan approved by 

the federal government. Some states with a separate program have gone beyond the minimum federal requirements for a benefit package. For example, many states 

cover dental and vision services, even though those 

services are normally not covered by private health 

insurance.8

Cost Sharing and Premiums 

States that have chosen to participate in SCHIP by 

expanding their Medicaid program are required to follow 

Medicaid’s guidelines for cost sharing and premiums. 

Historically, children in the Medicaid program were 

exempt from cost sharing or premiums. However, as of 

March 31, 2006 (with the enactment of the Deficit 

Reduction Act of 2005), states have the option of imposing cost sharing for some children under their Medicaid 

program (except for preventive services), including a program under SCHIP that expands Medicaid. For children 

living in families with income below the poverty level, 

premiums are prohibited but nominal cost sharing is 

allowed for certain services—namely, prescription drugs 

and nonemergency care provided in a hospital. For children living in families with income between 100 percent 

Box 2.

Overview of the Financing Structure for the State Children’s Health 

Insurance Program

Federal Funding Levels. Legislation provided the 

State Children’s Health Insurance Program (SCHIP) 

federal funding for 1998 to 2007.

Annual State Allotments. For each fiscal year, federal 

funding is allocated among states on the basis of the 

number of children in low-income households, the 

number of such children who are uninsured, and a 

geographic cost factor for health care wages. Floors or 

ceilings may result in adjusted annual allotments. 

Federal Matching Rates. The federal government 

matches states’ SCHIP spending using an enhanced 

matching rate (relative to that of Medicaid) that 

ranges from 65 percent to 83 percent. 

Availability of Allotments. In general, states have 

three years to spend their original allotments. For 

instance, in 2006 a state had SCHIP funds from its 

2006 allotment plus any unspent funds from 2004 

and 2005.

Redistribution of Unspent Funds. In general, any 

funds that are not spent within three years are redistributed to states that have spent all of their funds. 

Recently, the Centers for Medicare & Medicaid Services has redistributed funds only to those states that 

are projected to exhaust all of their available funds. 

Redistributed funds that remain unused after one 

year expire.

Total Funds Available to States. Total available funds 

for states in any given year are equal to the sum of 

their annual allotment plus any unspent funds from 

previous years plus any funding redistributed from 

other states. 

Note: Different procedures apply to the U.S. territories’

programs under SCHIP.

6. A state may choose one of three benchmark plans: the Blue Cross/

Blue Shield Standard Option Service Benefit Plan offered under 

the Federal Employees Health Benefits program, a health benefit 

plan that is available to the state’s employees, or a plan offered by 

the HMO (health maintenance organization) with the largest 

enrollment outside of Medicaid in the state. 

7. Florida, New York, and Pennsylvania had state-funded programs 

prior to the enactment of SCHIP. The benefits provided under 

those programs were deemed to meet SCHIP’s requirements.

8. Margo Rosenbach and others, Implementation of the State Children’s Health Insurance Program: Synthesis of State Evaluations

(report submitted by Mathematica Policy Research, Inc., to the 

Centers for Medicare & Medicaid Services, March 2003).
4 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

and 150 percent of the poverty level, states cannot charge 

premiums, and coinsurance is capped at 10 percent of the 

charge for a given service. For children living in families 

with higher income levels, premiums are allowed, and 

copayments can be as high as 20 percent. For all income 

levels, the sum of cost sharing and premiums cannot 

exceed 5 percent of family income. 

In separate programs under SCHIP, cost sharing is 

allowed for certain populations and services. However, 

as in the Medicaid program, states are prohibited from 

imposing cost-sharing requirements for preventive services. For children living in families with income below 

150 percent of the poverty level, premiums cannot exceed 

Medicaid’s limits, and cost sharing is limited to nominal 

amounts. For families with income above 150 percent of 

the poverty level, states can impose premiums and cost 

sharing of up to 20 percent. For all income levels, 

expenses for cost sharing and premiums cannot exceed 

5 percent of annual income.

As of 2005, 39 states had cost-sharing requirements 

under SCHIP.9 States with a program expanding Medicaid have been less likely to require cost sharing, but they 

could expand the use of it under new Medicaid rules. 

The Financing of SCHIP

As part of the implementation of SCHIP, national funding levels were specified for 1998 to 2007. In addition, 

the SCHIP statute established a formula for determining 

each state’s share of the federal funding, a matching rate 

for federal reimbursement of SCHIP spending, and a 

mechanism for redistributing states’ unused SCHIP 

funds. (See Box 2 for an overview of the program’s financing structure.)

Federal Funding for SCHIP

Unlike Medicaid, SCHIP is not an open-ended entitlement program: SCHIP is a matching grant program with 

a fixed nationwide cap on federal spending. The Congress provided roughly $40 billion for 1998 to 2007. 

Annual funding levels were specified in the original 

SCHIP legislation as follows: for 1998 through 2001, 

roughly $4.2 billion annually; for 2002 through 2004, 

about $3.2 billion per year; for 2005 and 2006, $4 billion 

per year; and for 2007, $5 billion.

The State Allocation Formula

Each state receives an annual SCHIP allotment based on 

two factors: an estimate of the target population and an 

adjustment reflecting the cost of providing medical services there.10

Estimate of Target Population. The target population is 

based on the number of children under the age of 19 living in low-income families (families with income below 

200 percent of the poverty level) in that state and the 

number of such children who are uninsured. 

When SCHIP was first implemented, the allotment formula was solely based on the number of uninsured children in low-income families. In 2000, the number of 

such children was given a weight of 75 percent, and the 

number of low-income children received a weight of 

25 percent.11 Since 2001, each factor has received an 

equal weight of 50 percent. 

Estimates of the total number of children in low-income 

families and the number of such children who are uninsured are derived using the Annual Social and Economic 

Supplement to the Current Population Survey (formerly 

known as the March Supplement) conducted by the 

Bureau of the Census. Because of a lack of precision in 

estimating the figures for some of the states with data 

from a single year, the formula is based on the average of 

the most recent three surveys.12

9. Statement of Kathryn G. Allen, Director, Health Care, Government Accountability Office, before the Subcommittee on Health 

of the House Committee on Energy and Commerce, published as 

Government Accountability Office, Children’s Health Insurance: 

States’ SCHIP Enrollment and Spending Experiences and Considerations for Reauthorization, GAO-07-558T (March 1, 2007).

10. SCHIP funding for the five territories is not based on that formula; in aggregate, they receive 0.25 percent of the total funding; 

additional funding has been appropriated to the territories starting 

in 1999.

11. That change was introduced by the Medicare, Medicaid and 

SCHIP Balanced Budget Refinement Act of 1999 with the purpose of limiting the reduction in the share of federal SCHIP funding among states that were successful in enrolling children in the 

program.

12. The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 provided new funding to increase the sample 

size of the survey in order to improve the reliability of the 

estimates.
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 5

Table 1.

Enrollment in the State Children’s 

Health Insurance Program, 

1998 to 2006

Source: Department of Health and Human Services, Centers for 

Medicare & Medicaid Services.

Notes: n.a. = not applicable.

The figures for the number of people enrolled reflect enrollment at any time during the year. The number of people 

enrolled in an average month would be about 60 percent of 

the above totals.

There was a change in reporting between 2004 and 2005. 

Prior to 2005, in states with a combination program, children enrolled in both the Medicaid expansion and the separate program during a given year were counted twice. 

Starting in 2005, however, those children were counted only 

in the program where they were last enrolled.

a. Preliminary. 

Geographic Cost Adjustment. SCHIP allotments for 

states are also adjusted to account for differences in health 

care costs. The formula includes a so-called state cost factor that is based on the ratio of wages in the health services industry in the state relative to the national average.13 Estimates of wages in the health care industry in 

states are calculated using data from the Bureau of Labor 

Statistics. As with the estimates of the number of children, wage data are averaged across three years.

States’ Annual Allotment of Federal SCHIP Funds. To 

compute each state’s annual allotment, the above two factors (the target population and the geographic cost 

adjustment) are multiplied, and the products for each 

state are summed. Each state’s percentage of that total is 

multiplied by the annual federal funding level, yielding 

the state’s allotted amount for that year. Annual allotments are also subject to floors and ceilings. A $2 million 

floor has been in effect since the beginning of the program but has never been constraining because all states 

have qualified for funds in excess of that amount. The 

Medicare, Medicaid and SCHIP Balanced Budget 

Refinement Act of 1999 (incorporated in the Consolidated Appropriations Act for Fiscal Year 2000, P.L. 106-

113) instituted two new floors effective as of 2000: A 

state’s share of the annual funding could be no lower than 

90 percent of the previous year’s share and no lower than 

70 percent of the 1999 share. The law also introduced a 

ceiling such that a state’s annual allotment could not 

exceed 145 percent of the 1999 share.14

Each state is paid a matching rate for SCHIP expenditures up to its available funds. The “enhanced” federal 

matching rate for SCHIP is higher than that for Medicaid. In 2007, the matching rate for SCHIP ranges from 

65 percent to 83 percent, whereas for Medicaid, it ranges 

from 50 percent to 76 percent.15 The national average 

matching rate for SCHIP is 69 percent and for Medicaid, 

57 percent.

Both Medicaid and SCHIP include federal funds for 

administrative expenses. For Medicaid, the federal matching rate for that purpose is set at 50 percent, with the 

exception of certain expenses matched at higher rates. For 

SCHIP, the federal matching rate for administrative 

expenses is the same as the enhanced matching rate for 

the program, with a limit of 10 percent of the annual 

SCHIP expenditures.

Redistribution of Unspent SCHIP Funds. In general, states 

are given three years to spend their allotments. Then, the 

federal government redistributes unspent funds to states 

that spent all of their funds within the three-year period. 

13. Specifically, the state cost factor is the result of the following formula: 0.15 + 0.85 * (wagesstate/wagesnational average).

Fiscal

Year

1998 660 n.a. 0 n.a.

1999 2,014 205 0 n.a.

2000 3,358 67 0 n.a.

2001 4,603 37 234 n.a.

2002 5,354 16 374 60

2003 5,985 12 484 29

2004 6,103 2 646 33

2005 6,114 0 639 -1

2006a 6,622 9 671 5

Percentage Percentage

Change from

Previous

Year

Number of

(Thousands)

Adults

Number of

Children

(Thousands)

Change from

Previous

Year

14. For more detail, see John L. Czajka and Thomas B. Jabine, “Using 

Survey Data to Allocate Federal Funds for the State Children’s 

Health Insurance Program (SCHIP),” Journal of Official Statistics, 

vol. 18, no. 3 (2002), pp. 417–418.

15. SCHIP’s formula for the matching rate is based on the state’s federal medical assistance percentage (FMAP), as used in the Medicaid program, and equals FMAP + 0.3 * (100 - FMAP), with an 

upper limit of 85 percent. The enhanced rate was originally 

adopted to encourage states’ participation in SCHIP.
6 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Table 2.

Allotments and Spending Under the 

State Children’s Health Insurance 

Program, 1998 to 2007

(Millions of dollars)

Sources: Congressional Budget Office, Congressional Research Service, the Balanced Budget Act of 1997, the Deficit Reduction Act of 2005, and the Centers for Medicare & Medicaid 

Services.

Note: n.a. = not applicable.

a. For both states and the five territories.

b. In general, states’ annual allotments are available for three fiscal years. Any funds unspent after three years become available 

to other states with projected spending in excess of their allocation plus any available funds from previous years.

c. Includes additional funding from the Deficit Reduction Act of 

2005.

d. Projection by the Congressional Budget Office.

Most recently, the redistribution of funds has been a way 

to provide funding to states with projected spending in 

excess of available funds. (Redistributed funds that 

remain unused after one year expire, a phenomenon that 

occurred at the end of 2004 and 2005.) Therefore, the 

total funding available to states is equal to the sum of 

their original allotment plus any unspent funds from previous years plus any funding redistributed from other 

states.

Redistribution rules have been amended a number of 

times, both by extending and shortening the periods during which unspent funds are available. Because states 

were initially slow in spending their allotments, the Congress allowed the states to retain some of their allotments 

longer than three years. In contrast, because recent spending has outpaced federal funds, the National Institutes of 

Health Reform Act of 2006 (P.L. 109-482) required that 

a portion of unspent 2005 allotments be redistributed in 

2007 instead of 2008.

Funding Interactions Between Medicaid and SCHIP. The 

type of program that a state operates under SCHIP has 

distinct implications for funding levels. States choosing to 

implement SCHIP by expanding Medicaid may continue 

receiving federal matching funds at that program’s lower 

federal matching rate once their SCHIP spending exceeds 

their available funds. In contrast, states operating a separate program receive federal matching funds (at the 

enhanced rate) only for their available funds (unless they 

convert their program to a Medicaid expansion).16

Enrollment in and Expenditures for 

SCHIP

The number of children enrolled in SCHIP at any time 

during the year increased from 660,000 in 1998 to 

6.6 million in 2006 (see Table 1). Enrollment grew very 

rapidly as states first implemented their programs, reaching almost 6 million children by 2003. Since then, enrollment has slowed as states’ programs have matured and as 

some states have enacted policies to restrict enrollment in 

response to budgetary pressures. About 670,000 adults 

were enrolled at some time during the year in 2006.

Initially, federal spending on SCHIP was well below the 

allotments, as states implemented their programs (see 

Table 2). However, since 2002, federal spending has 

exceeded the annual allotments every year. Because 

unspent funds from previous years and the redistribution 

of unspent funds provide additional funding for some 

states, the exhaustion of funding in those states has been 

forestalled. Recently, however, some states have had insufficient federal funds available to fully match their desired 

level of SCHIP spending. As a result, the Congress has 

acted twice to provide additional funding. The Deficit 

Reduction Act of 2005 appropriated an extra $283 million in federal funding to support states’ SCHIP spending in 2006. The National Institutes of Health Reform

Fiscal

Year

1998 4,235 n.a. 122 0

1999 4,247 n.a. 922 0

2000 4,249 n.a. 1,929 0

2001 4,249 2,034 2,672 0

2002 3,115 2,819 3,776 0

2003 3,175 2,206 4,276 0

2004 3,175 1,749 4,645 1,281

2005 4,082 643 5,089 128

2006 4,365 c 173 5,452 0

2007 5,040 147 5,656 d 0

SCHIP

Allotmentsa

Allotments

Unspent After

3 Yearsb

Federal

Spending

Funds

Expiring

16. As previously discussed, those states have other options that allow 

them to control their SCHIP expenditures, including charging 

limited premiums and cost sharing, capping enrollment, or establishing waiting lists.
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 7

Figure 1.

Percentage of Children Who Were 

Uninsured, by Family Income as a 

Percentage of the Federal Poverty 

Level, 1996 to 2005

(Percent)

Source: Congressional Budget Office based on data from the Current Population Survey for 1996 to 2005. 

Note: FPL = federal poverty level. 

Act of 2006 included provisions modifying the redistribution of unspent funds from previous years to provide 

additional funds in 2007. 17

According to the Congressional Budget Office’s (CBO’s) 

estimates, 35 states have projected spending in 2007 

above their allotment for the year, and 11 of those states 

will exhaust their available funds. CBO estimates that 

those states would require $646 million in 2007 to 

maintain their existing programs. Without that funding, 

some states will turn to Medicaid to fund coverage for 

children no longer funded under SCHIP, and, by CBO’s 

estimates, therefore increase Medicaid spending by 

$250 million.

The Effect of SCHIP on Children’s 

Health Insurance Coverage

SCHIP has significantly increased the number of children in low-income families who have health insurance, 

but the increase has not been one for one with the number of children enrolled in public coverage as a result of 

the program. SCHIP provides an alternative source of 

coverage that is less expensive to enrollees and often provides a broader range of benefits than private coverage; as 

a result, the program “crowds out” private coverage to 

some extent. Estimates of the extent to which private coverage has declined in response to the program vary; the 

available evidence, however, strongly suggests the net 

effect of the program has been to reduce the number of 

uninsured children.

Changes in the Number of Uninsured Children 

Information on changes in the number of children who 

are uninsured comes from self-reported data collected in 

household surveys. This paper used data from the Annual 

Social and Economic Supplements to the Current Population Survey, conducted by the Census Bureau, which is 

the most widely cited source of information on insurance 

coverage. Although the survey is intended to measure the 

number of people who were uninsured throughout the 

calendar year, it is widely believed that the survey’s estimates more closely approximate the number of people 

who were uninsured at a particular point in time.18

SCHIP should be expected to have had the greatest effect 

on uninsurance rates among children in families with 

income between 100 percent and 200 percent of the poverty level because that was the group that had the greatest

17. The National Institutes of Health Reform Act of 2006 reduced 

the availability of 2005 allotments in some states from three years 

to two and a half. Specifically, states forfeited half of their unspent 

2005 funds (not exceeding $20 million) if their total available 

funds as of March 31, 2007, were at least twice their projected 

spending in 2007. The law also specified that spending in 2007 

from redistributed funds on adults who are not pregnant will be 

reimbursed at Medicaid’s lower matching rate.

1996 1999 2002 2005

0

5

10

15

20

25

30

Less Than FPL

100% to 199% of FPL

200% to 299% of FPL

300% of FPL or More

18. For a discussion of the strengths and limitations of the Current 

Population Survey and other household surveys for measuring 

insurance coverage, see Congressional Budget Office, How Many 

People Lack Health Insurance and For How Long? (May 2003); and 

Genevieve Kenney, John Holahan, and Len Nichols, “Toward a 

More Reliable Federal Survey for Tracking Health Insurance Coverage and Access,” Health Services Research, vol. 41, no. 3 (June 

2006), pp. 918–945. 
8 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

increase in eligibility for public coverage.19 According to 

CBO’s analysis, the percentage of children in that income 

range who were uninsured fell from 22.5 percent in 1996 

(the year before SCHIP was created) to 16.9 percent in 

2005, a reduction of 5.6 percentage points (see Figure 1). 

The uninsurance rate was relatively stable among children in families with income over 200 percent of the poverty level. For example, among children whose families 

had income between 200 percent and 300 percent of the 

poverty level, the uninsurance rate fell from 10.5 percent 

in 1996 to 9.8 percent in 2005.20

Among children below the poverty level, the uninsurance 

rate rose from 23.8 percent in 1996 to 26.7 percent in 

1998 and then fell to 22.0 percent in 2005. The increase 

from 1996 to 1998 in the percentage of poor children 

who were uninsured was accompanied by a drop in Medicaid coverage, which some analysts have cited as an unintended consequence of the welfare reform law that was 

passed in 1996.21

The decline in the percentage of poor children who were 

uninsured after 1998 was accompanied by an increase in 

Medicaid coverage. SCHIP did not in general make more 

poor children eligible for public coverage, since most 

were already eligible for Medicaid. However, the percentage of children eligible for Medicaid who participated in 

that program increased, which some analysts have attributed partly to states’ outreach efforts for SCHIP (as applicants for SCHIP were enrolled in Medicaid if they were 

found eligible for that program) and the simplified application procedures that states adopted for both SCHIP 

and Medicaid.22

Those changes in the percentage of children who were 

uninsured do not yield an estimate of the impact of 

SCHIP because there are many other factors—such as 

changes in employment levels, family income, and health 

insurance premiums—that affect children’s health insurance coverage. Nevertheless, the fact that the greatest 

reduction in the percentage of children who were uninsured occurred among those who had the greatest 

increase in eligibility for public coverage after SCHIP 

was established strongly suggests that the program has 

reduced the number of children in low-income families 

who are uninsured. As discussed below, however, estimating the effect of SCHIP on children’s health insurance 

coverage requires a more sophisticated analysis that controls for other factors that influence such coverage and 

accounts for the program’s effects on the number of people with private insurance.

Children’s Participation in SCHIP

The number of children who participate in SCHIP 

depends in part on low-income parents’ awareness and 

understanding of the program, their attitudes toward 

public insurance programs and health insurance generally, and the ease of the application process. Nearly all 

states have promoted SCHIP through mass media campaigns, and most have used community-based efforts 

such as educational sessions and home visits.23 States 

have also implemented simpler enrollment procedures for 

SCHIP than what is in place for Medicaid (although 

some have also adopted simpler enrollment procedures 

for Medicaid). For example, most states do not require a 

face-to-face interview to apply for SCHIP or to renew 

coverage but instead use simple mail-in application 

19. One recent study found that children between 100 percent and 

200 percent of the poverty level had a 70 percentage-point 

increase in their rate of eligibility for public coverage from 1996 to 

2002—compared with an increase of about 30 percentage points 

among children between 200 percent and 300 percent of the poverty level, an increase of 10 percentage points among children 

below the poverty level, and an increase of 8 percentage points 

among those between 300 percent and 400 percent of the poverty 

level. See Jonathan Gruber and Kosali Simon, Crowd-Out Ten 

Years Later: Have Recent Public Insurance Expansions Crowded Out 

Private Health Insurance? Working Paper No. 12858 (Cambridge, 

Mass.: National Bureau of Economic Research, January 2007).

20. In its analysis, CBO accounted for the fact that a “confirmation” 

question was added to the Current Population Survey beginning 

with the interviews that collected data for 1999. The new question asked people who did not report having any of several types 

of insurance coverage whether, in fact, they were uninsured. CBO 

compared estimates of uninsurance rates with and without the 

data from the confirmation question and used those two sets of 

estimates to create an adjustment factor (separately for each 

income group) that it applied to the estimates for years prior to 

1999 to make them comparable with estimates for later years. 

21. See, for example, Karl Kronebusch, “Medicaid for Children: Federal Mandates, Welfare Reform, and Policy Backsliding,” Health 

Affairs, vol. 20, no. 1 (January/February 2001), pp. 97–111.

22. See Thomas M. Selden, Julie L. Hudson, and Jessica S. Banthin, 

“Tracking Changes in Eligibility and Coverage Among Children, 

1996–2002,” Health Affairs, vol. 23, no. 5 (September/October 

2004), pp. 39–50.

23. Rosenbach and others, Implementation of the State Children’s 

Health Insurance Program. 
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 9

forms, and most do not impose an asset test. Most states 

have a 12-month renewal period, which enables children 

to remain enrolled in SCHIP for a year unless their family reports a change in income or other circumstances.24

Since 2001, though, some states have reduced their outreach efforts and retracted certain simplified enrollment 

procedures in response to fiscal pressures.25

According to one study, 29 percent of the children who 

appeared to be eligible for SCHIP in 2005 on the basis of 

their family’s income participated in the program.26 Half 

of the children who were eligible for SCHIP had 

employer-sponsored insurance, 6 percent had other coverage, and 15 percent were uninsured. By that study’s 

estimates, the uninsured children who were eligible for 

SCHIP accounted for over a fifth of all uninsured children in 2005. Other studies have estimated that between 

60 percent and 75 percent of all uninsured children are 

eligible for either Medicaid or SCHIP.27 The wide range 

of estimates obtained in those studies is due to differences 

in the data sources and methods used.

Although all of those studies were based on rigorous statistical methods, they have important limitations because 

they relied on data collected in household surveys to 

determine children’s health insurance coverage and to 

identify children who were eligible for SCHIP or Medicaid. Coverage in public programs such as Medicaid is 

underreported in such surveys, but the implications of 

that underreporting for the estimated number of people 

who are uninsured is unclear. There is some evidence that 

many people who are enrolled in Medicaid but who do 

not report having coverage under the program may report 

having private coverage instead.28 There is also evidence 

that some SCHIP enrollees report having private nongroup insurance, which is not surprising given that many 

states design their programs to resemble private insurance.29 Additional research is needed to fully understand 

the implications of the underreporting. 

Another potential problem is that survey data on such 

things as types of income and expenses that may be disregarded for determining eligibility are also subject to misreporting. In addition, some major surveys (such as the 

Current Population Survey) collect data on annual 

income, and no information on fluctuations during the 

year, which would be relevant for determining eligibility 

for SCHIP.

The Effect of SCHIP on Private Coverage

Determining the extent to which enrollment in SCHIP is 

offset by reductions in private coverage is important for 

evaluating the overall effects of the program and for 

assessing the extent to which government spending on 

the program has reduced the number of children who are 

uninsured. The crowd-out of private coverage can occur 

through various mechanisms. For example, some parents 

who would have otherwise had family coverage through 

their employer might decline it for their children—or 

might decline coverage altogether—if their children are 

eligible for SCHIP. In addition, previously unemployed 

parents might be more likely to decline coverage at a new 

job if their children are enrolled in SCHIP. To the extent 

that SCHIP makes private coverage less important for 

some families, the program might also increase the likelihood that low-income parents take jobs that offer higher 

cash wages rather than health insurance. Thus, even in 

the majority of states where SCHIP covers only children, 

the program could reduce private coverage among adults 

as well as children.

SCHIP can also reduce private coverage by influencing 

the actions of employers. If employers of low-wage work24. Kaiser Commission on Medicaid and the Uninsured, Resuming the 

Path to Health Coverage for Children and Parents: A 50 State Update 

on Eligibility Rules, Enrollment and Renewal Procedures, and CostSharing Practices in Medicaid and SCHIP in 2006 (January 9, 

2007), available at www.kff.org/medicaid/7608a.cfm.

25. Ibid.

26. Genevieve Kenney and Allison Cook, Coverage Patterns Among 

SCHIP-Eligible Children and Their Parents (Washington, D.C.: 

Urban Institute, Health Policy Online, no. 15, February 2007). 

27. See Selden, Hudson, and Banthin, “Tracking Changes in Eligibility”; and Lisa Dubay, John Holahan, and Allison Cook, “The 

Uninsured and the Affordability of Health Insurance Coverage,” 

Health Affairs, Web Exclusive, November 30, 2006.

28. See Kathleen Thiede Call and others, “Uncovering the Missing 

Medicaid Cases and Assessing Their Bias for Estimates of the 

Uninsured,” Inquiry, vol. 38, no. 4 (Winter 2001/2002), pp. 396– 

408.

29. See Joel C. Cantor and others, “The Adequacy of Household Survey Data for Evaluating the Nongroup Health Insurance Market,” 

Health Services Research (forthcoming); and Anthony T. Lo Sasso 

and Thomas C. Buchmueller, “The Effect of the State Children’s 

Health Insurance Program on Health Insurance Coverage,” Journal of Health Economics, vol. 23, no. 5 (2004), pp. 1059–1082.
10 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

ers believe that SCHIP makes health insurance less 

important in attracting high-quality employees, some 

might reduce their contribution to the premiums for 

family coverage, reduce the level of benefits offered, stop 

offering family coverage, or stop offering insurance altogether. Those actions could lead to less private coverage 

among families that are eligible for SCHIP as well as ones 

that are not.

Families that substitute SCHIP for private coverage are 

generally better off as a result of switching to an alternative source of coverage that is not only lower in cost (to 

the enrollee) but may also have a more extensive package 

of benefits. However, to the extent that employers 

respond to SCHIP by increasing premiums, reducing 

benefits, or declining to offer coverage, other families 

could be worse off. 

Little is known about how employers have responded to 

SCHIP. As discussed below, the limited evidence that is 

available suggests that SCHIP has not affected employers’ 

decisions on whether to offer coverage but may have 

caused them to modestly raise employees’ premiums for 

family coverage relative to the premiums for individual 

coverage. The implication is that most of the reduction in 

private coverage associated with SCHIP’s existence 

appears to result from parents choosing to forgo private 

insurance for their children and instead enroll them in 

SCHIP, presumably because the parents believe the program offers better benefits or lower costs than private 

insurance.

As noted previously, the outreach that states have conducted for SCHIP and the simplified application procedures that many have adopted (in some cases, for Medicaid as well as for SCHIP) appear to have increased 

enrollment in Medicaid. That increased enrollment in 

Medicaid has probably been offset to some extent by a 

reduction in private coverage, for the same reasons that 

enrollment in SCHIP has probably been partly offset by a 

reduction in private coverage. The reduction in private 

coverage associated with the increase in Medicaid coverage is probably smaller than that associated with enrollment in SCHIP, however, because people eligible for 

Medicaid have lower income and less access to private 

insurance than people eligible for SCHIP do.

Measuring the Effect of SCHIP on Private Coverage. Studies typically define the crowd-out associated with SCHIP 

as the reduction in private coverage due to SCHIP 

expressed as a percentage of the increase in public coverage due to the program: 

Crowd-out = -100 * private/ public.30

Defined that way, the effect can range from zero (if 

SCHIP causes no change in the number of people with 

private coverage) to 100 percent (if the reduction in private coverage is equal to the increase in public coverage).

There are several possible variants of the measure, 

depending on how the changes in public and private coverage are defined. Two common measures are these: 

B A broader measure, which captures the total increase 

in public coverage due to SCHIP (including the 

impact on Medicaid) as well as the total reduction in 

private coverage attributable to the program. The 

reduction in private coverage under this measure 

includes all those who would have had private coverage if the program did not exist.

B A narrower measure, which captures the substitution 

of SCHIP for private coverage, includes only those 

individuals who are covered by SCHIP under current 

law but who would have had private coverage if the 

program did not exist or, in some studies, had such 

coverage before enrolling in SCHIP.

The broader measure is the most useful for assessing the 

net effect of SCHIP on the insurance coverage of children 

and adults. It accounts for the fact that some people who 

would have otherwise had private coverage might be 

uninsured as a result of families’ or employers’ reactions 

to SCHIP. The narrower measure focuses strictly on people enrolled in SCHIP and on the insurance coverage 

they would have had without the program. That measure 

includes people who switched directly from private coverage to SCHIP as well as those who were uninsured or 

covered by Medicaid before they enrolled in SCHIP but 

who would have gained private coverage if SCHIP did 

not exist. Both of those measures should include changes 

in private coverage among both children and adults, but 

30. The ratio of the change in private coverage ( private) to the 

change in public coverage ( public) is multiplied by 100 to convert the proportion to a percentage. That value is typically multiplied by -1 to express crowd-out as a positive number rather than a 

negative number.

Δ Δ

Δ

Δ
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 11

the existing studies have estimated only changes among 

children.31

Efforts to Limit the Substitution of SCHIP for EmployerSponsored Insurance. Federal law requires that the states 

have procedures in place to prevent people from substituting SCHIP for employer-sponsored insurance. The 

Congress included that provision in the authorizing legislation because of concern about substitution, in part 

resulting from a study that estimated that an expansion of 

Medicaid in the late 1980s and early 1990s caused a 

decline in private coverage that was about half the size of 

the increase in Medicaid coverage.32 Subsequent studies 

obtained much lower estimates for the effects of Medicaid on private coverage.33

The potential for SCHIP to displace employer-sponsored 

insurance is greater than it was for the expansion of Medicaid because the children eligible for SCHIP are from 

families with higher income and greater access to private 

coverage. According to one study, 60 percent of the children who became eligible for SCHIP had private coverage in the year before the program was established.34

States have included a variety of features in their programs to try to prevent SCHIP from displacing 

employer-sponsored insurance. A widely used approach is 

to impose a waiting period—that is, a specified length of 

time that children must be uninsured before becoming 

eligible for SCHIP. In 2006, 35 states had a waiting 

period, the two most common being six months 

(imposed by 16 states) and three months (imposed by 

11).35 Only one state had a waiting period that was 

longer than six months. Many states allow exceptions to 

the waiting period—when a parent loses private coverage 

for reasons considered involuntary (by losing his or her 

job, switching to a job that does not offer family coverage, or becoming disabled, for instance) or when the 

available insurance is considered too expensive (if the 

employee’s premiums would exceed a specified percentage 

of income or if the employer contributes less than 50 percent to the cost of coverage, for example).36 Most states 

collect insurance information on the application for 

SCHIP, and some verify that information with employers. Some states try to limit the displacement of 

employer-sponsored insurance by requiring premiums 

and copayments within SCHIP.

Estimates of the Effects of SCHIP on Private Coverage. 

Estimates vary about the extent to which SCHIP has 

resulted in less private coverage. The available studies, 

which have focused on the effects of SCHIP on children, 

use various data sources and methods. On the basis of a 

review of the available studies, CBO concludes that the 

reduction in private coverage among children is most 

probably between a quarter and a half of the increase in 

public coverage resulting from SCHIP.37 That is, for 

every 100 children who gain coverage as a result of

31. As defined under the narrower measure, SCHIP could influence 

the private coverage of adults only in states that cover adults under 

the program. Under the broader measure, however, the program 

could affect the private coverage of adults in all states through the 

mechanisms described previously. 

32. That estimate includes changes in coverage among children, 

women of childbearing age, and other adults (who were not eligible for Medicaid). Among children, the study found, the reduction in private coverage was equal to 40 percent of the increase in 

public coverage. See David M. Cutler and Jonathan Gruber, 

“Does Public Insurance Crowd Out Private Insurance?” The 

Quarterly Journal of Economics, vol. 111, no. 2 (May 1996), 

pp. 391–430.

33. See, for example, Linda J. Blumberg, Lisa Dubay, and Stephen A. 

Norton, “Did the Medicaid Expansions for Children Displace Private Insurance? An Analysis Using the SIPP,” Journal of Health 

Economics, vol. 19, no. 1 (2000), pp. 33–60.

34. See Julie L. Hudson, Thomas M. Selden, and Jessica S. Banthin, 

“The Impact of SCHIP on Insurance Coverage of Children,” 

Inquiry, vol. 42, no. 3 (Fall 2005), pp. 232–254.

35. Kaiser Commission on Medicaid and the Uninsured, Resuming the 

Path to Health Coverage for Children and Parents.

36. Rosenbach and others, Implementation of the State Children’s 

Health Insurance Program.

37. That range includes estimates obtained under various approaches. 

Estimates differ under alternative specifications of the statistical 

models that analysts have used; some specifications yield estimates 

that are below or above the range cited. That range encompasses 

the estimates from specifications in the studies that CBO reviewed 

and considered most reliable (listed in the appendix).
12 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children.38

Measuring the extent to which SCHIP is associated with 

a decline in private coverage is difficult because it requires 

comparing the insurance coverage of people under current law with an estimate of the coverage they would have 

had if the program did not exist. Analysts have estimated 

the reduction in private coverage attributable to SCHIP 

by using various statistical models to try to remove the 

effects of other factors that affect private coverage. All 

studies that have been conducted to date have estimated 

the reduction in private coverage among children only; 

they do not capture any possible reduction in private coverage among parents or other adults. Consequently, the 

available estimates probably understate the total extent to 

which SCHIP has reduced private coverage.

The estimates reported in the research literature measure 

average changes in private coverage since SCHIP has 

been implemented, which may differ from what would 

occur if policies were adopted to increase enrollment. For 

example, policies designed to increase enrollment among 

children who are currently eligible would involve less 

reduction in private coverage than would expanding the 

program to cover children in families with higher 

income. Such an expansion to higher income would 

probably involve greater crowd-out of private coverage 

than has occurred to date because such children have 

greater access to private insurance.39

Some studies have estimated crowd-out using the narrower measure defined above by obtaining survey data on 

the insurance coverage of enrollees before they were in 

the program. Such studies classify enrollees who had private insurance prior to being in SCHIP as having potentially substituted SCHIP for private coverage, and they 

classify those who were uninsured or covered by Medicaid 

as not having substituted SCHIP for private coverage. 

One such study found that 28 percent of children 

enrolled in SCHIP in 10 states had private coverage at 

some time during the six months before they enrolled in 

the program. 40 Such studies probably understate the full 

extent to which SCHIP reduces private coverage because 

they do not account for the fact that some of the children 

who were uninsured or enrolled in Medicaid prior to 

enrolling in SCHIP may have obtained private coverage if 

SCHIP had not been established.41 Moreover, such studies do not account for the possibility that some of the 

children who were uninsured prior to enrolling in SCHIP 

may have lost coverage as a result of parents’ or employers’ response to the program (such as a decision by 

employers to drop family coverage or raise the premiums). In addition, in the surveys that are conducted for 

such studies, some parents might have underreported 

their children’s private coverage before they enrolled in 

SCHIP out of fear that their children could be dropped 

from the program if the state authorities learned that 

their children had private coverage.

There is limited evidence on whether SCHIP has affected 

the health insurance decisions of employers. Only one 

study has examined that issue, and it analyzed employers’ 38. Nearly all studies have estimated the effect of SCHIP on private 

coverage generally (including both employer-sponsored insurance 

and private nongroup coverage). Some might argue that studies 

should focus on the effects of the program on employer-sponsored 

insurance, because federal law requires states to have procedures in 

place to prevent the substitution of SCHIP for employer-sponsored insurance. However, estimates of the effects of SCHIP are 

not likely to be affected measurably by whether or not private 

nongroup insurance is included. According to CBO’s analysis of 

data from the Current Population Survey, only about 6 percent of 

children with family income between 100 percent and 200 percent of the poverty level had private nongroup insurance in the 

year before SCHIP was enacted, while about half had employersponsored insurance. Moreover, a recent study found that, 

although SCHIP reduced coverage of children by employer-sponsored insurance, it had no effect on private nongroup coverage of 

them. See Lisa Dubay and Genevieve Kenney, The Impact of 

SCHIP on Children’s Insurance Coverage: An Analysis Using the 

National Survey of America’s Families (working paper, Washington, 

D.C.: Urban Institute, May 2007). 

39. According to CBO’s analysis of data from the Current Population 

Survey, 50 percent of children in families with income between 

100 percent and 200 percent of the poverty level had private 

coverage in 2005. The rate of private coverage rose to 77 percent 

among children between 200 percent and 300 percent of the 

poverty level, 89 percent among those between 300 percent and 

400 percent of the poverty level, and 95 percent among those over 

400 percent of the poverty level. 

40. See Anna Sommers and others, “Substitution of SCHIP for Private Coverage: Results from a 2002 Evaluation in Ten States,” 

Health Affairs, vol. 26, no. 2 (March/April 2007), pp. 529–537.

41. The uninsured population is not a static group but is constantly 

changing. Some people are uninsured for long periods, while others are uninsured for shorter periods, such as between jobs. See 

Congressional Budget Office, How Many People Lack Health 

Insurance and For How Long?
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 13

Figure 2.

CBO’s Baseline Projections of 

Funding and Enrollment in SCHIP, 

2007 to 2017 

(Billions of dollars) (Millions of people)

Source: Congressional Budget Office, Fact Sheet for CBO’s March 

2007 Baseline: State Children’s Health Insurance Program

(February 23, 2007). 

responses to SCHIP only through 2001.42 It found no 

evidence that employers stopped offering single or family 

coverage in response to SCHIP but did find evidence suggesting that employers of low-wage workers reacted to the 

program by increasing the marginal cost of family coverage (which was defined as the difference between employees’ premiums for family coverage and single coverage). 

For example, the study estimated, a hypothetical 

employer with 20 percent of its workforce with children 

eligible for public coverage would increase employees’ 

marginal cost of family coverage by about $120 per year 

(in 2001 dollars). The estimated increase was larger in 

states that experienced a higher-than-average increase in 

eligibility for public coverage following the establishment 

of SCHIP and larger for employers with a higher percentage of the workforce with children eligible for public 

coverage.

The study also examined the extent to which employees 

accepted private insurance that was offered. It found evidence suggesting that SCHIP reduced the percentage of 

employees who accepted any private coverage, generally, 

and family coverage, specifically. For example, at a hypothetical employer at which 20 percent of the workforce 

had children eligible for public coverage, the estimated 

percentage of employees who accepted any offer of insurance fell by an average of 1 percentage point. Among 

employees who accepted any coverage, a similar decline 

occurred in the percentage of workers who accepted family coverage. The estimated declines were greater at 

employers that had a higher percentage of workers with 

children eligible for public coverage. Such findings suggest that SCHIP can reduce private coverage of adults 

as well as children; in other words, the study suggests that 

some workers responded to SCHIP by declining coverage 

altogether, not merely declining coverage for their 

children. 

Issues in Reauthorizing SCHIP

SCHIP, which is authorized to continue through the end 

of 2007, faces significant funding issues that are expected 

to shape its reauthorization. Reauthorization is occurring 

at a time of substantial budgetary pressures as lawmakers 

contend with growing federal spending on health care 

and competing priorities. An additional challenge is 

posed by the reintroduction of “pay-as-you-go” financing 

rules, which require offsets for any increases in mandatory federal spending.

Funding levels for SCHIP have not been a concern until 

recently, when some states exhausted their available 

funds. In 2007, CBO estimates, 11 states will require a 

total of $646 million in additional funds to maintain 

their existing programs. If annual funding for the program continued at $5 billion (the level incorporated in 

CBO’s baseline spending projections) and current eligibility rules and benefits were unchanged, by 2017, 43 

states would have projected spending outstrip available 

funds by $8.9 billion. With that level of funding, enrollment would fall from 7.4 million in 2007 to 3.5 million 

in 2017, CBO estimates (see Figure 2). 

A key issue to be addressed in reauthorizing SCHIP is 

whether the program will continue to operate as a capped 

grant program with predetermined spending limits or 

whether federal funding will be open-ended. If SCHIP 

continues to operate as a capped grant program, a basic 

question is how funding levels will be adjusted to account 

for growth in enrollment and health care costs and for 

possible changes in the design of the program, including 

eligibility rules and benefit packages.

42. Thomas Buchmueller and others, “The Effect of SCHIP Expansions on Health Insurance Decisions by Employers,” Inquiry, vol. 

42, no. 3 (Fall 2005), pp. 218–231. 

2007 2009 2011 2013 2015 2017

0

2

4

6

8

10

12

14

16

0

1

2

3

4

5

6

7

8

Enrollment

Funding
14 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Figure 3.

CBO’s Projections of Funding and 

Enrollment to Maintain States’ Current 

Programs Under SCHIP, 2007 to 2017

(Billions of dollars) (Millions of people)

Source: Congressional Budget Office, Fact Sheet for CBO’s March 

2007 Baseline: State Children’s Health Insurance Program

(February 23, 2007). 

Notes: Following statutory guidelines, CBO’s baseline spending projections for the State Children’s Health Insurance Program 

(SCHIP) assume that annual funding after 2007 continues at 

the current level of $5 billion. CBO’s estimates were 

obtained by taking states’ projections of spending for 2007 

and 2008, adjusting them in later years to account for 

increases in both health spending per enrollee and the projected number of enrollees (due to both population growth 

and increases in the number of people who are uninsured). 

The calculations assume no change in eligibility rules or benefit packages after 2008.

Current funding rules for SCHIP do not allow specifically targeting funds to states whose spending exceeds available 

funding. Without such targeting, a greater increase in funding than the one projected in the figure would be needed. 

The net federal cost of maintaining states’ current programs 

under SCHIP incorporates savings that would arise in the 

Medicaid program, as additional SCHIP funding would 

reduce the states’ need for Medicaid funds.

a. Includes the $5 billion funding level used in CBO’s baseline 

spending projections. 

The Cost of Maintaining the States’ 

Current Programs

By CBO’s estimates, maintaining the states’ current programs under SCHIP would require funding of $39 billion for the 2007–2012 period and $98 billion over the 

2007–2017 period—increases of $14 billion and $48 billion, respectively, over the baseline spending levels. Those 

estimates account for projected increases in health spending per enrollee and the number of enrollees but assume 

no changes in the design and operation of the states’ 

programs—for example, no changes in eligibility rules, 

benefit packages, or outreach activities. The availability of 

additional federal funds for SCHIP would reduce the 

states’ need for some Medicaid funds, so the net cost to 

the federal government would be smaller. On balance, 

CBO estimates, the net additional federal cost to maintain current programs under SCHIP would be $8 billion 

over the 2007–2012 period and $28 billion over the 

2007–2017 period, relative to baseline spending levels. 

With those additional funds, enrollment (at any time 

during the year) would grow from the 8.1 million people 

in 2007 to 8.8 million in 2012 and 9.4 million in 2017 

(see Figure 3).

Those estimates assume that the additional funds could 

be targeted to states whose projected spending exceeded 

their available funds—though current rules for the program do not allow such targeting. Without effective targeting, however, a greater increase in funding would be 

needed to maintain states’ current programs.

Options for Modifying SCHIP

Reauthorization presents the Congress with an opportunity to consider changes in SCHIP, including encouraging or requiring efforts by the states to enroll eligible children who are uninsured, redefining the target population, 

changing the formula that allocates funds to individual 

states, modifying the rules for the redistribution of 

unspent funds, reexamining the matching rate for the 

program, and modifying the benefits that states are 

required to provide.

2007 2009 2011 2013 2015 2017

0

2

4

6

8

10

12

14

16

0

1

2

3

4

5

6

7

8

9

10

Enrollment

Total

SCHIP

Funding

Net

Federal

Cost

a
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 15

Intensify Efforts to Enroll Eligible Children Who Are 

Uninsured. According to one study, there were about 

2 million children who were eligible for SCHIP but 

uninsured in 2005, accounting for 20 percent of all uninsured children in that year.43 One option for policymakers is to maintain the current program but encourage or 

require states to undertake activities to enroll such children. For example, the federal government could require 

or provide incentives for states to conduct greater outreach and simplify their enrollment procedures, prohibit 

states from using waiting lists to limit enrollment, and 

require that all states grant 12 months of continuous eligibility. Such efforts could not be perfectly targeted to 

children who would have otherwise been uninsured, 

however, so they would reduce private coverage to some 

extent. The amount of any such reduction would depend 

on the nature of the policy and how it was implemented. 

Moreover, greater outreach for SCHIP would lead to 

greater enrollment in Medicaid as well.

The federal government would be limited in its ability to 

evaluate states’ performance at enrolling children who 

would have otherwise been uninsured because timely 

state-level data are not available for most states. The Current Population Survey is the only source of state-level 

data on insurance coverage, but sample sizes for most 

states are too small to yield reliable estimates for a single 

year.44 Moreover, sophisticated statistical analysis would 

be required to distinguish changes in uninsurance rates 

that result from efforts to enroll uninsured children in 

SCHIP from changes that result from other factors, such 

as changes in employment levels and family income. 

Consequently, if the federal government provided financial incentives to the states to undertake activities to 

enroll eligible but uninsured children, those incentives 

would most likely need to take the form of giving the 

states additional funds for conducting certain activities 

(such as outreach) rather than bonuses for meeting certain performance targets.

Redefine SCHIP’s Target Population. One approach to 

changing the target population for SCHIP is to modify 

the income thresholds that states use to determine eligibility. For example, the target population could be 

expanded by requiring states to increase their thresholds 

to 300 percent of the poverty level.45 Alternatively, the 

thresholds could be reduced—or the matching rate could 

be reduced for children and adults above a certain threshold, such as 200 percent of the poverty level—to focus 

federal funds on children in low-income families. The latter approach would disproportionately affect states that 

had already expanded Medicaid before the establishment 

of SCHIP and had used SCHIP funds to expand eligibility to children in families with higher income and to 

adults. Policymakers considering changes to the requirements for thresholds may want to take into account the 

fact that states vary in how they define income for determining eligibility. Many states subtract certain expenses 

or a portion of the family’s income to obtain a measure of 

net income.

Another approach to modifying SCHIP’s target population is to change the rules regarding parents. For example, 

making parents eligible would not only extend coverage 

to them but would probably boost participation among 

children currently eligible but not enrolled—as parents 

and their children could be covered under the same insurance.46 Disadvantages of this approach are that it would 

would probably result in greater crowd-out of private 

coverage and would draw funds that could be used to 

cover children.

Other possibilities for changing SCHIP’s target population are to expand eligibility to pregnant women, legal 

immigrants, and children of state employees. Coverage 

could also be extended to people with private insurance—for example, by dropping the requirement that 

people be uninsured in order to qualify for SCHIP, which 

would permit people to directly switch from employersponsored insurance to SCHIP. Such a policy might also 

allow the greater use of SCHIP funds in premium assistance programs.

43. Kenney and Cook, Coverage Patterns Among SCHIP-Eligible Children and Their Parents.

44. As mentioned previously, the formula that allocates federal funds 

to individual states uses an estimate of the average number of 

uninsured children in each state computed over a three-year 

period.

45. Current rules allow states to effectively expand coverage to families with income above 200 percent of the poverty level by disregarding certain expenses or a portion of their income. Therefore, 

merely permitting states to increase their thresholds (as opposed to 

requiring them to do so) could have little effect. 

46. Lisa Dubay and Genevieve Kenney, “Expanding Public Health 

Insurance to Parents: Effects on Children’s Coverage Under Medicaid,” Health Services Research, vol. 38, no. 5 (October 2003), 

pp. 1283–1302.
16 THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM

Change the Formula that Allocates Funding to Individual 

States. Each year, federal funding for SCHIP is allocated 

to states on the basis of a formula that takes into account 

the number of children in low-income families (with 

income less than 200 percent of the poverty level) in each 

state, the number of such children who are uninsured, 

and wages in the health services sector. An important and 

unintended limitation of the formula is that it reduces 

allotments for states that enroll more children in SCHIP. 

One possible solution is to include the number of children enrolled in SCHIP in the formula. For example, the 

formula could be modified to allocate funds to states on 

the basis of the sum of the number of children who are 

enrolled in SCHIP and the number of children who are 

in low-income families and who are uninsured.47 The 

number of children enrolled in SCHIP would be determined from administrative data, while the number of 

children who are in low-income families and who are 

uninsured would continue to be estimated from survey 

data.48 A potential problem with including SCHIP’s 

enrollment in the allocation formula is that it could 

reward states that had higher levels of substitution of 

SCHIP for private coverage.

Another possible approach is to allocate funds to states on 

the basis of their historical spending on SCHIP. For 

example, each state’s share of the national funding for a 

particular year could be determined from its share of federal spending for SCHIP in a specified base year (or perhaps its share of funding averaged over several base years). 

Alternatively, state-specific allotments could be determined by a statutory formula that would adjust each 

state’s spending from a specified base year to account for 

factors such as projected growth in costs per enrollee and 

population growth. Although using historical data on 

spending would be intended to align states’ future allotments more closely with their funding requirements, such 

an approach would make it more difficult for states that 

have operated limited programs in the past to expand 

their programs. In addition, if the base year for determining funding allocations was updated periodically, this 

approach could reduce states’ incentive to spend money 

efficiently, because greater spending in the base year 

could increase states’ share of federal funds in the future. 

Finally, some of the floors and the ceilings that are used to 

calculate a state’s share of federal SCHIP funding utilize 

1999 as the base year—raising some issues because, at 

that time, some states’ programs had been in place for 

only a short period. Therefore, an option would be to use 

a more recent year as the base year for calculating floors 

and ceilings so that all programs will have been operational for longer periods of time. In addition, more recent 

state shares are based on expanded Current Population 

Surveys, yielding more precise estimates.

Modify the Rules for the Redistribution of Unspent 

Funds. In altering SCHIP, another option is to shorten 

the length of time that states have to spend their allotments (as the National Institutes of Health Reform Act of 

2006 did for allotments that were unspent in 2005). 

Shortening the length of time that states can spend their 

allotments would increase the amount of funds available 

for redistribution and more effectively target funds to 

states with higher spending.

Reexamine the Matching Rate. The enhanced matching 

rate was originally put in place to encourage states’ participation in SCHIP. At the time, the incentive was perceived as necessary because only a few states had taken 

advantage of the existing flexibility to expand their Medicaid programs. Reducing the matching rate for SCHIP 

would increase the states’ share of spending for the program and could cause some states to reduce the size of 

their program. But having a uniform matching rate—

for both SCHIP and Medicaid—may be more equitable, 

especially for states that expanded their Medicaid programs before the establishment of SCHIP and are reimbursed at the lower Medicaid rate for children who would 

otherwise qualify for the higher SCHIP rate. In addition, 

a uniform matching rate would overcome the criticism 

that the current enhanced matching formula for SCHIP 

disproportionately favors states with the lowest Medicaid

47. Under that approach, the total number of low-income children in 

the state would no longer appear in the formula. See Czajka and 

Jabine, “Using Survey Data to Allocate Federal Funds for the State 

Children’s Health Insurance Program (SCHIP),” pp. 409–427.

48. States could be required to include in the administrative data submitted to the federal government information on family income 

and family size that could be used to compute the number of children enrolled in SCHIP whose family income was less than 200 

percent of the poverty level, which would make that measure 

more comparable with the measures used in the current allocation 

formula. 
THE STATE CHILDREN’S HEALTH INSURANCE PROGRAM 17

matching rates.49 Still, the federal government could 

make use of an enhanced matching rate as a financial 

incentive in order to elicit certain behavior from states.

Augment Required Benefits. States that expanded Medicaid are required to provide a wide range of services under 

Medicaid’s Early and Periodic Screening, Diagnosis, and 

Treatment (EPSDT) program. That program includes 

various screening services and mandates treatment for 

diagnosed conditions. States with a separate program 

under SCHIP must cover some basic benefits. Some of 

them have included optional benefits, but the generosity 

of those benefits varies. One option, then, to even out the 

benefits provided under SCHIP, and perhaps attract more 

enrollees, would be to require states to provide the services in the EPSDT program. Alternatively, requirements 

could target specific benefits, such as dental services.

49. A state with the lowest Medicaid matching rate of 50 percent 

receives SCHIP’s enhanced matching rate of 65 percent (a gain of 

15 percentage points), whereas a state with a Medicaid matching 

rate of 76 percent receives an enhanced matching rate of 83 percent (a gain of 7 percentage points).

Appendix:

Studies Reviewed by the

Congressional Budget Office

for This Analysis

Cynthia Bansak and Steven Raphael, “The Effects of 

State Policy Design Features on Take-up and Crowdout Rates for the State Children’s Health Insurance 

Program,” Journal of Policy Analysis and Management, 

vol. 26, no. 1 (2006), pp. 149–175. 

Thomas Buchmueller and others, “The Effect of SCHIP 

Expansions on Health Insurance Decisions by 

Employers,” Inquiry, vol. 42, no. 3 (Fall 2005), 

pp. 218–231.

Peter J. Cunningham, Jack Hadley, and James 

Reschovsky, “The Effects of SCHIP on Children’s 

Health Insurance Coverage: Early Evidence from the 

Community Tracking Study,” Medical Care Research 

and Review, vol. 59, no. 4 (December 2002), pp. 

359–383; and an update on the Web site of the Center for Studying Health System Change, available at 

www.hschange.com.

Lisa Dubay and Genevieve Kenney, The Impact of SCHIP 

on Children’s Insurance Coverage: An Analysis Using the 

National Survey of America’s Families (working paper, 

Washington, D.C.: Urban Institute, May 2007). 

Lisa Dubay and Linda Blumberg, “The Impact of SCHIP 

on Insurance Coverage of Children in Its Infancy: An 

Analysis Using the SIPP” (draft working paper, 

Washington, D.C.: Urban Institute, April 2007).

Jonathan Gruber and Kosali Simon, Crowd-Out Ten Years 

Later: Have Recent Public Insurance Expansions 

Crowded Out Private Health Insurance? Working 

Paper No. 12858 (Cambridge, Mass.: National 

Bureau of Economic Research, January 2007).

Julie L. Hudson, Thomas M. Selden, and Jessica S. 

Banthin, “The Impact of SCHIP on Insurance 

Coverage of Children,” Inquiry, vol. 42, no. 3 

(Fall 2005), pp. 232–254.

Anthony T. Lo Sasso and Thomas C. Buchmueller, 

“The Effect of the State Children’s Health Insurance 

Program on Health Insurance Coverage,” Journal of 

Health Economics, vol. 23, no. 5 (2004), pp. 1059–

1082.

Anna Sommers and others, “Substitution of SCHIP for 

Private Coverage: Results from a 2002 Evaluation in 

Ten States,” Health Affairs, vol. 26, no. 2 (March/

April 2007), pp. 529–537.

Judith Wooldridge and others, Congressionally Mandated 

Evaluation of the State Children’s Health Insurance 

Program (report submitted by Mathematica Policy 

Research, Inc., and the Urban Institute to the U.S. 

Department of Health and Human Services, Office 

of the Assistant Secretary for Planning and Evaluation, October 26, 2005).




INSIDE MAIL

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

WASHINGTON, DC 20515