United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Health, 

Committee on Energy and Commerce, 

House of Representatives 

CHILDREN’S HEALTH 

INSURANCE 

States’ SCHIP Enrollment 

and Spending Experiences 

and Considerations for 

Reauthorization 

Statement of Kathryn G. Allen 

Director, Health Care 

For Release on Delivery

Expected at 10:00 a.m. EST 

Thursday, February 15, 2007

On March 12, 2007, table 3 on page 24 was revised, primarily to 

eliminate the state of Utah, which does not use SCHIP funds for adult 

coverage. Removing Utah from this table resulted in changes to the 

text on the Highlights page, as well as pages 3, 13, 23, 24, 33, 35, and 37. 

See next page for more details. 

GAO-07-501T 
Children’s Health Insurance: State SCHIP Enrollment and Spending 

Experiences and Considerations for Reauthorization (GAO-07-501T) 

Changes by Line Number 

Page Line no. Change 

Highlights 

(under “What GAO Found”) 

18 Replace “January” with “February” and “15” with “14” 

p. 3 5 Replace “January” with “February” 

6 Replace “15” with “14” 

p. 13 28 Replace “January” with “February” 

29 Replace “15” with “14” 

p. 23 24 Replace “January” with “February” 

25 Replace “15” with “14” 

p. 24 (table 3) 

 Arkansas 

6 In the Childless Adults, remove checkmark 

 Illinois 11 Under Percentage of FPL, delete “200 (parents);” and 

(childless” 

 Illinois 12 Under Percentage of FPL, delete “adults)” 

 Oregon 19 Under Pregnant Women, remove checkmark; Under 

Childless Adults, add checkmark 

 Utah 22 Delete this row from the table 

 Virginia 23 Replace “200” with “166” 

25 Replace “GAO analysis of waiver documents and 

correspondence” with “CMS”; and replace “January” with 

“February” 

p. 33 

 Footnote 50 

1 Replace “January” with “February” and “15” with “14” 

 Footnote 50 2-3 Delete “One state, Utah, had an approved waiver but had 

not yet implemented it.” 

 Footnote 50 3 Replace “additional” with “of the 14” 

p. 35 23 Replace “January” with “February” and “15” with “14” 

24 Replace “Six” with “Five” and “15” with “14” 

26 Replace “three” with “two” 

28 Delete “, while Utah had not implemented its approved 

waiver” 

p. 37 24 Replace “15” with “14” 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 15, 2007

CHILDREN’S HEALTH INSURANCE

States’ SCHIP Enrollment and Spending 

Experiences and Considerations for 

Reauthorization 

Highlights of GAO-07-501T, a testimony 

before the Subcommittee on Health, 

Committee on Energy and Commerce, 

House of Representatives

In August 1997, Congress created 

the State Children’s Health

Insurance Program (SCHIP) with

the goal of significantly reducing

the number of low-income

uninsured children, especially

those who lived in families with 

incomes exceeding Medicaid

eligibility requirements. Unlike

Medicaid, SCHIP is not an

entitlement to services for

beneficiaries but a capped 

allotment to states. Congress 

provided a fixed amount—

approximately $40 billion from 

fiscal years 1998 through 2007—to 

states with approved SCHIP plans. 

Funds are allocated to states 

annually. Subject to certain 

exceptions, states have 3 years to 

use each year’s allocation, after 

which unspent funds may be

redistributed to states that have

already spent all of that year’s 

allocation. 

GAO’s testimony addresses trends

in SCHIP enrollment and the

current composition of SCHIP

programs across the states, states’ 

spending experiences under 

SCHIP, and considerations GAO 

has identified for SCHIP

reauthorization. 

GAO’s testimony is based on its

prior work, particularly testimony 

before the Senate Finance 

Committee on February 1, 2007

(see GAO-07-447T). GAO updated 

this work with the Centers for 

Medicare & Medicaid Services’ 

(CMS) January 2007 approval of

Tennessee’s SCHIP program. 

SCHIP enrollment increased rapidly during the program’s early years but has

stabilized over the past several years. As of fiscal year 2005, the latest year 

for which data are available, SCHIP covered approximately 6 million 

enrollees, including about 639,000 adults, with about 4 million enrollees in 

June of that year. Many states adopted innovative outreach strategies and 

simplified and streamlined their enrollment processes in order to reach as 

many eligible children as possible. States’ SCHIP programs reflect the 

flexibility federal law allows in structuring approaches to providing health 

care coverage. As of July 2006, states had opted for the following from 

among their choices of program structures allowed: a separate child health 

program (18 states), an expansion of a state’s Medicaid program (11), or a 

combination of the two (21). In addition, 41 states opted to cover children in 

families with incomes at 200 percent of the federal poverty level (FPL) or 

higher, with 7 of these states covering children in families with incomes at 

300 percent of FPL or higher. Thirty-nine states required families to 

contribute to the cost of their children’s care in SCHIP programs through a 

cost-sharing requirement, such as a premium or copayment; 11 states 

charged no cost-sharing. As of February 2007, GAO identified 14 states that 

had waivers in place to cover adults in their programs; these included 

parents and caretaker relatives of eligible Medicaid and SCHIP children, 

pregnant women, and childless adults. 

SCHIP spending was initially low, but now threatens to exceed available

funding. Since 1998, some states have consistently spent more than their 

allotments, while others spent consistently less. States that earlier overspent

their annual allotments over the 3-year period of availability could rely on 

other states’ unspent SCHIP funds, a portion of which were redistributed to 

cover other states’ excess expenditures. By fiscal year 2002, however, states’ 

aggregate annual spending began to exceed annual allotments. As spending 

has grown, the pool of funds available for redistribution has shrunk. As a 

result, 18 states were projected to have “shortfalls” of SCHIP funds—

meaning they had exhausted all available funds—in at least one of the final 

3 years of the program. To cover projected shortfalls faced by several states,

Congress appropriated an additional $283 million for fiscal year 2006. 

SCHIP reauthorization occurs in the context of debate on broader national 

health care reform and competing budgetary priorities, highlighting the 

tension between the desire to provide affordable health insurance coverage

to uninsured individuals, including low-income children, and the recognition 

of the growing strain of health care coverage on federal and state budgets. 

As Congress addresses reauthorization, issues to consider include 

(1) maintaining flexibility within the program without compromising the 

primary goal to cover children, (2) considering the program’s financing

strategy, including the financial sustainability of public commitments, and 

(3) assessing issues associated with equity, including better targeting SCHIP 

funds to achieve certain policy goals more consistently nationwide. 

www.gao.gov/cgi-bin/getrpt?GAO-07-501T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Kathryn G. 

Allen at (202) 512-7118 or allenk@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today as you address the reauthorization of the 

State Children’s Health Insurance Program (SCHIP). In August 1997, 

Congress created SCHIP with the goal of significantly reducing the 

number of low-income uninsured children.1

 Prior to SCHIP, approximately 

19 million Medicaid beneficiaries were children, and combined federal and 

state expenditures on their behalf totaled $32 billion. However, there 

remained an estimated 9 million to 11.6 million children who were 

uninsured at some time during 1997. SCHIP was established to provide 

health coverage to uninsured children in families whose incomes 

exceeded the eligibility requirements for Medicaid. Without health 

insurance coverage, children are less likely to obtain routine medical or 

dental care, establish a relationship with a primary care physician, and 

receive immunizations or treatment for injuries and chronic illnesses. 

SCHIP offers states flexibility in how they provide health insurance 

coverage to children. States implementing SCHIP have three choices in 

designing their programs: (1) a Medicaid expansion, which affords SCHIPeligible children the same benefits and services that a state’s Medicaid 

program provides; (2) a separate child health program distinct from 

Medicaid that uses, for example, specified public or private insurance 

plans; or (3) a combination program, which has a Medicaid expansion and 

a separate child health program. At the time of enactment, Congress 

appropriated a fixed amount of funds—approximately $40 billion from 

fiscal years 1998 through 2007—to be distributed among states with 

approved SCHIP plans. Unlike Medicaid, SCHIP is not an entitlement to 

services for beneficiaries, but a capped grant—or allotment—to states. 

SCHIP funds are allocated annually to the 50 states, the District of 

Columbia, and the U.S. commonwealths and territories.2

 Each state’s 

annual SCHIP allotment is available as a federal match based on state 

expenditures and is available for 3 years, after which time any unspent 

 1

Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, § 4901, 111 Stat. 251, 552-570 

(Aug. 5, 1997) (adding Title XXI and new sections 2101-2110 to the Social Security Act, 

codified, as amended, at 42 U.S.C. §§ 1397aa-1397jj). For the remainder of this testimony, 

we will only refer to provisions of the U.S. Code when referencing SCHIP requirements.

2

This testimony focuses on SCHIP programs in the 50 states and the District of Columbia. 

While Tennessee has not had a SCHIP program since October 2002, in January 2007, the

Centers for Medicare & Medicaid Services (CMS) approved the state’s plan for a separate

child health program under SCHIP. According to state information, the program will be 

implemented in early 2007. 

Page 1 GAO-07-501T
funds may be redistributed to states that have already spent their 

allotments.3

As Congress considers reauthorization of the SCHIP program, my remarks 

will address (1) recent data regarding trends in SCHIP enrollment and the 

estimated number of children who remain uninsured, (2) the current 

composition of SCHIP programs—including their overall design—across 

the states, (3) states’ spending experiences under SCHIP, and (4) issues 

we have identified for consideration during SCHIP reauthorization. My 

testimony is based on prior GAO work, particularly testimony before the 

Senate Finance Committee on February 1, 2007.4

 We updated this work 

based on the Centers for Medicare & Medicaid Services’ (CMS) January 

2007 approval of Tennessee’s new SCHIP program. We conducted our 

work in February 2007 in accordance with generally accepted government 

auditing standards. 

In summary, SCHIP enrollment increased rapidly during the program’s 

early years but has stabilized over the past several years. SCHIP programs 

reported total enrollment of approximately 6 million individuals—

including about 639,000 adults—as of fiscal year 2005, the latest year for 

which data were available, with about 4 million individuals enrolled in 

June of that year. Many states adopted innovative outreach strategies, and 

simplified and streamlined their enrollment processes in order to reach as 

many eligible children as possible. Nevertheless, about 11.7 percent of 

children nationwide remain uninsured, many of whom are eligible for 

SCHIP or Medicaid. The rate of uninsured children varies widely across 

states, ranging from a low of 5.6 percent to a high of 20.4 percent. 

States’ SCHIP programs reflect the flexibility allowed in structuring 

approaches to providing health care coverage through a Medicaid 

expansion or a separate child health program. In fiscal year 2005, 41 states

had opted to cover children in families with incomes at 200 percent of the 

federal poverty level (FPL) or higher, including 7 states that covered 

children in families with incomes at 300 percent of FPL or higher. In 

addition, 39 states required families to contribute to the cost of their 

children’s care in SCHIP programs through some type of cost-sharing 

 3

In some cases, states have been allowed to retain a portion of unspent allotments. 

4

See GAO, Children’s Health Insurance: State Experiences in Implementing SCHIP and

Considerations for Reauthorization, GAO-07-447T (Washington, D.C.: February 1, 2007).

Related GAO Products are included at the end of this statement. 

Page 2 GAO-07-501T
requirement, such as premiums or copayments; 11 states charged no costsharing. Few states (9) reported operating premium assistance programs, 

which allow states to use SCHIP funds to help pay premiums for available 

employer-based health plan coverage, in part because states often find 

these programs are difficult to administer. As of February 2007, we 

identified 14 states that had approved waivers to cover one or more of 

three categories of adults: parents and caretaker relatives of eligible 

Medicaid and SCHIP children, pregnant women, and childless adults. 

SCHIP program spending was low initially but now threatens to exceed 

available funding. Since 1998, some states have consistently spent more 

than their allotments, while others have consistently spent less. In the first 

years of the program, states that overspent their annual allotments over 

the 3-year period of availability could rely on other states’ unspent SCHIP 

funds, which were redistributed to cover excess expenditures. Over time, 

however, spending has grown, and the pool of funds available for 

redistribution has shrunk. As a result, in at least one of the final 3 years of

the program, 18 states were projected to have “shortfalls” of SCHIP 

funding—that is, they were expected to exhaust available funds, including 

current and prior-year allotments. To cover projected shortfalls faced by

states, Congress appropriated an additional $283 million for fiscal year 

2006. As of February 2007, 14 states were projected to exhaust their 

allotments in fiscal year 2007. 

SCHIP reauthorization is occurring within the context of consideration of 

broader national health care reform and competing budgetary priorities. 

There is an obvious tension between the desire to provide affordable 

health insurance coverage for uninsured individuals, including low-income 

children, and the recognition of the high cost that health care coverage 

exerts as a growing share of federal and state budgets. As Congress 

addresses SCHIP reauthorization, issues that may be considered include 

(1) maintaining flexibility within the program without compromising the 

primary goal to cover children, (2) considering the program’s financing 

strategy, including the financial sustainability of public commitments, and 

(3) assessing issues including better targeting SCHIP funds to achieve 

certain policy goals more consistently nationwide.

Page 3 GAO-07-501T
In general, SCHIP funds are targeted to uninsured children in families 

whose incomes are too high to qualify for Medicaid but are at or below 

200 percent of FPL.5

 Recognizing the variability in state Medicaid 

programs, federal SCHIP law allows a state to cover children in families 

with incomes up to 200 percent of FPL or 50 percentage points above its 

existing Medicaid eligibility standard as of March 31, 1997.6

 Additional 

flexibility regarding eligibility levels is available, however, as Medicaid and 

SCHIP provide some flexibility in how a state defines income for purposes 

of eligibility determinations.7

 Congress appropriated approximately 

$40 billion over 10 years (from fiscal years 1998 through 2007) for 

distribution among states with approved SCHIP plans. Allocations to 

states are based on a formula that takes into account the number of lowincome children in a state. In general, states that choose to expand 

Medicaid to enroll eligible children under SCHIP must follow Medicaid 

rules, while separate child health programs have additional flexibilities in

benefits, cost-sharing, and other program elements. Under certain 

circumstances, states may also cover adults under SCHIP. 

Background 

SCHIP Allotments to 

States 

SCHIP allotments to states are based on an allocation formula that uses

(1) the number of children, which is expressed as a combination of two 

estimates—the number of low-income children without health insurance 

and the number of all low-income children, and (2) a factor representing 

state variation in health care costs. Under federal SCHIP law and subject 

to certain exceptions, states have 3 years to use each fiscal year’s 

allocation, after which any remaining funds are redistributed among the 

states that had used all of that fiscal year’s allocation.8

 Federal law does 

 5

FPL refers to the federal poverty guidelines, which are used to establish eligibility for 

certain federal assistance programs. The guidelines are updated annually to reflect changes

in the cost of living and vary according to family size. For example, in 1998, 200 percent of

FPL for a family of four was $32,900, compared with $41,300 in 2007. 

6

42 U.S.C. § 1397jj(b). For example, Alabama covered children aged 15 to 18 up to 

15 percent of FPL, while Washington covered this same group up to 200 percent of FPL. 

Therefore, Alabama would be allowed to establish SCHIP eligibility for children in families 

with incomes up to 200 percent of FPL, while Washington would be allowed to go as high

as 250 percent of FPL. 

7

Some states have expanded income eligibility levels for families through “income 

disregards,” which ignore certain types of family income for purposes of determining 

eligibility. Such disregards have been imposed as high as 100 percent of FPL, which means

that a family with an income equal to 300 percent of FPL is treated as if its income were 

200 percent of FPL. 

8

42 U.S.C. § 1397dd(e),(f). 

Page 4 GAO-07-501T
not specify a redistribution formula but leaves it to the Secretary of Health

and Human Services (HHS) to determine an appropriate procedure for 

redistribution of unused allocations.9

 Absent congressional action, states 

are generally provided 1 year to spend any redistributed funds, after which 

time funds may revert to the U.S. Treasury. Each state’s SCHIP allotment 

is available as a federal match based on state expenditures. SCHIP offers a 

strong incentive for states to participate by providing an enhanced federal

matching rate that is based on the federal matching rate for a state’s 

Medicaid program—for example, the federal government will reimburse at 

a 65 percent match under SCHIP for a state receiving a 50 percent match 

under Medicaid. 

There are different formulas for allocating funds to states, depending on 

the fiscal year. For fiscal years 1998 and 1999, the formula used estimates 

of the number of low-income uninsured children to allocate funds to 

states. For fiscal year 2000, the formula changed to include estimates of 

the total number of low-income children as well.10

SCHIP Design Choices SCHIP gives the states the choice of three design approaches: (1) a 

Medicaid expansion program, (2) a separate child health program with 

more flexible rules and increased financial control over expenditures, or 

(3) a combination program, which has both a Medicaid expansion program 

and a separate child health program. Initially, states had until 

September 30, 1998, to select a design approach, submit their SCHIP plans, 

and obtain HHS approval in order to qualify for their fiscal year 1998 

allotment.11 With an approved state child health plan, a state could begin to

enroll children and draw down its SCHIP funds. 

 9

42 U.S.C. § 1397dd(f). 

10For fiscal year 2000, the allocation formula used 75 percent of the number of uninsured 

low-income children plus 25 percent of the number of all low-income children. For fiscal 

year 2001 and subsequent fiscal years, the allocation formula evenly weighted the number 

of uninsured low-income children (50 percent) and the total number of low-income 

children (50 percent). 42 U.S.C. § 1397dd(b). See also Congressional Research Service 

(CRS), SCHIP Original Allotments: Funding Formula Issues and Options (Washington, 

D.C.: Apr. 18, 2006). 

11In May 1998, Congress extended this deadline, allowing states to receive fiscal year 1998

funding if they had submitted and received approval of a state child health plan by

September 30, 1999. 1998 Supplemental Appropriations and Rescissions Act, Pub. L. 

No. 105-174, § 4001, 112 Stat. 1500 (May 1, 1998). 

Page 5 GAO-07-501T
The design approach a state chooses has important financial and 

programmatic consequences, as shown below. 

• Expenditures. In separate child health programs, federal matching funds

cease after a state expends its allotment, and non-benefit-related expenses

(for administration, direct services, and outreach) are limited to 10 percent 

of claims for services delivered to beneficiaries. In contrast, Medicaid 

expansion programs may continue to receive federal funds for benefits 

and for non-benefit-related expenses at the Medicaid matching rate after 

states exhaust their SCHIP allotments. 

• Enrollment. Separate child health programs may establish separate 

eligibility rules and establish enrollment caps. In addition, a separate child 

health program may limit its own annual contribution, create waiting lists, 

or stop enrollment once the funds it budgeted for SCHIP are exhausted. A 

Medicaid expansion must follow Medicaid eligibility rules regarding 

income, residency, and disability status, and thus generally cannot limit 

enrollment. 

• Benefits. Separate child health programs must use, for example, 

benchmark benefit standards that use specified private or public insurance 

plans as the basis for coverage. However, Medicaid—and therefore a 

Medicaid expansion—must provide coverage of all benefits available to 

the Medicaid population, including certain services for children. In 

particular, Early and Periodic Screening, Diagnosis, and Treatment 

(EPSDT) requires states to cover treatments or stabilize conditions 

diagnosed during routine screenings—regardless of whether the benefit 

would otherwise be covered under the state’s Medicaid program.12 A 

separate child health program does not require EPSDT coverage. 

• Beneficiary cost-sharing. Separate child health programs may impose 

limited cost-sharing—through premiums, copayments, or enrollment 

fees—for children in families with incomes above 150 percent of FPL up to

5 percent of family income annually. Since the Medicaid program did not 

 12While coverage of EPSDT is difficult to measure, federal studies have generally found

state efforts to be inadequate. See GAO, Medicaid: Stronger Efforts Needed to Ensure

Children’s Access to Health Screening Services, GAO-01-749 (Washington, D.C.: July 13,

2001). 

Page 6 GAO-07-501T
previously allow cost-sharing for children, a Medicaid expansion program 

under SCHIP would have followed this rule.13

In general, states may cover adults under the SCHIP program under two

key approaches. 

SCHIP Coverage of Adults 

• First, federal SCHIP law allows the purchase of coverage for adults in 

families with children eligible for SCHIP under a waiver if a state can show 

that it is cost-effective to do so and demonstrates that such coverage does 

not result in “crowd-out”—a phenomenon in which new public programs 

or expansions of existing public programs designed to extend coverage to

the uninsured prompt some privately insured persons to drop their private 

coverage and take advantage of the expanded public subsidy.14 The costeffectiveness test requires the states to demonstrate that covering both 

adults and children in a family under SCHIP is no more expensive than 

covering only the children. The states may also elect to cover children 

whose parents have access to employer-based or private health insurance

coverage by using SCHIP funding to subsidize the cost. 

• Second, under section 1115 of the Social Security Act, states may receive 

approval to waive certain Medicaid or SCHIP requirements or authorize 

Medicaid or SCHIP expenditures. The Secretary of Health and Human 

Services may approve waivers of statutory requirements or authorize 

expenditures in the case of experimental, pilot, or demonstration projects 

that are likely to promote program objectives.15 In August 2001, HHS 

indicated that it would allow states greater latitude in using section 1115 

demonstration projects (or waivers) to modify their Medicaid and SCHIP 

programs and that it would expedite consideration of state proposals. One 

initiative, the Health Insurance Flexibility and Accountability Initiative 

(HIFA), focuses on proposals for covering more uninsured people while at 

the same time not raising program costs. States have received approval of 

 13As of March 31, 2006, states may impose cost-sharing for children whom the state has 

chosen to cover under Medicaid. 42 U.S.C. § 1396o-1. If a state imposes cost-sharing for 

Medicaid, a Medicaid expansion program for SCHIP-eligible children would follow this

rule. 

14See 42 U.S.C. § 1397ee(c)(3). 

1542 U.S.C. § 1315. 

Page 7 GAO-07-501T
section 1115 waivers that provide coverage of adults using SCHIP 

funding.16

SCHIP enrollment increased rapidly over the first years of the program, 

and has stabilized for the past several years. In 2005, the most recent year 

for which data are available, 4.0 million individuals were enrolled during 

the month of June, while the total enrollment count—which represents a 

cumulative count of individuals enrolled at any time during fiscal year 

2005—was 6.1 million. Of these 6.1 million enrollees, 639,000 were adults. 

Because SCHIP requires that applicants are first screened for Medicaid 

eligibility, some states have experienced increases in their Medicaid 

programs as well, further contributing to public health insurance coverage 

of low-income children during this same period. Based on a 3-year average 

of 2003 through 2005 Current Population Survey (CPS) data, the 

percentage of uninsured children varied considerably by state, with a 

national average of 11.7 percent. 

SCHIP annual enrollment grew quickly from program inception through 

2002 and then stabilized at about 4 million from 2003 through 2005, on the 

basis of a point-in-time enrollment count. Total enrollment, which counts 

individuals enrolled at any time during a particular fiscal year, showed a 

similar pattern of growth and was over 6 million as of June 2005 (see 

fig. 1).17 Generally, point-in-time enrollment is a subset of total enrollment, 

as it represents the number of individuals enrolled during a particular 

month. In contrast, total enrollment includes an unduplicated count of any 

individual enrolled at any time during the fiscal year; thus the data are

cumulative, with new enrollments occurring monthly. 

SCHIP Enrollment 

Has Grown Rapidly; 

States’ Rates of 

Uninsured Children 

Vary Significantly 

 16As of October 1, 2005, the Secretary of Health and Human Services was prohibited from 

approving new section 1115 waivers that use SCHIP funds to provide coverage of 

nonpregnant childless adults. See Deficit Reduction Act of 2005 (DRA), Pub. L. No. 109-171, 

§ 6102, 120 Stat. 131-132 (Feb. 8, 2006) (codified, as amended, at 42 U.S.C. § 1397gg). 

17The 4 million enrollment count is based on “point-in-time enrollment,” representing the 

number of enrollees in states’ SCHIP programs for the month of December for 1999 

through 2004; for 2005, data for the month of June were used. See Vernon K. Smith, David

Rousseau, and Caryn Marks, SCHIP Program Enrollment: June 2005 Update (Washington, 

D.C.: Kaiser Commission on Medicaid and the Uninsured, December 2006). The total 

enrollment count reflects all enrollees in the SCHIP program for a fiscal year from 1999 

through 2005. See, for example, the 2005 annual enrollment report, at

http://www.cms.hhs.gov/NationalSCHIPPolicy/06_SCHIPAnnualReports.asp (downloaded

Jan. 28, 2007). 

Page 8 GAO-07-501T
Figure 1: SCHIP Enrollment, 1999-2005 

Note: Point-in-time enrollment represents the number of enrollees in states’ SCHIP programs for the 

month of December for 1999 through 2004; for 2005, data for the month of June were used. Total 

enrollment represents the cumulative number of individuals who enrolled in the program at any time 

during the fiscal year. We obtained enrollment data from Vernon K. Smith, David Rousseau, and 

Caryn Marks, SCHIP Program Enrollment: June 2005 Update (Washington, D.C.: The Kaiser 

Commission on Medicaid and the Uninsured, December 2006); Vernon K. Smith and David M. 

Rousseau, SCHIP Enrollment in 50 States: December 2004 Data Update (Washington, D.C.: The 

Kaiser Commission on Medicaid and the Uninsured, September 2005); and Vernon K. Smith, David 

M. Rousseau, and Molly O’Malley, SCHIP Program Enrollment: December 2003 Update

(Washington, D.C.: The Kaiser Commission on Medicaid and the Uninsured, July 2004). 

Our prior work has shown that certain obstacles can prevent low-income 

families from enrolling their children into public programs such as 

Medicaid or SCHIP.18 Primary obstacles included families’ lack of 

knowledge about program availability and that, even when children were 

0

1

2

3

4

5

6

7

1999 2000 2001 2002 2003 2004 2005

Enrollment in millions

Source: CMS and state enrollment data.

Year

Point-in-time enrollment

Total enrollment

1.8 1.9

2.7

3.3 3.4

4.6

3.8

5.4

4.0

6.0

4.0

6.1

4.0

6.1

 18GAO-03-191; GAO, Children’s Health Insurance Program: State Implementation 

Approaches Are Evolving, GAO/HEHS-99-65 (Washington, D.C.: May 14, 1999); and GAO, 

Medicaid: Demographics of Nonenrolled Children Suggest State Outreach Strategies, 

GAO/HEHS-98-93 (Washington, D.C.: Mar. 20, 1998). 

Page 9 GAO-07-501T
eligible to participate, complex eligibility rules and documentation 

requirements complicated the application process. 

During the early years of SCHIP program operation, we found that many 

states developed and deployed outreach strategies in an effort to 

overcome these enrollment barriers. Many states adopted innovative 

outreach strategies and simplified and streamlined their enrollment 

processes in order to reach as many eligible children as possible.19

Examples follow. 

• States launched ambitious public education campaigns that included 

multimedia campaigns, direct mailings, and the widespread distribution of 

applications. 

• To overcome the barrier of a long, complicated SCHIP eligibility 

determination process, states reduced verification and documentation 

requirements that exceeded federal requirements, shortened the length of 

applications, and used joint SCHIP-Medicaid applications. 

• States also located eligibility workers in places other than welfare 

offices—schools, child care centers, churches, local tribal organizations, 

and Social Security offices—to help families with the initial processing of 

applications. 

• States eased the process by which applicants reapplied for SCHIP at the 

end of their coverage period. For example, one state mailed families a 

summary of the information on their last application, and asked families to 

update any changes to the information. 

Because states must also screen for Medicaid eligibility before enrolling 

children into SCHIP, some states have noted increased enrollment in 

Medicaid as a result of SCHIP. For example, Alabama reported a net

increase of approximately 121,000 children in Medicaid since its SCHIP 

program began in 1998. New York reported that, for fiscal year 2005, 

approximately 204,000 children were enrolled in Medicaid as a result of 

outreach activities, compared with 618,973 children enrolled in SCHIP. In 

contrast, not all states found that their Medicaid enrollment was 

 19See GAO, Medicaid and SCHIP: States’ Enrollment and Payment Policies Can Affect

Children’s Access to Care, GAO-01-883 (Washington, D.C.: Sept. 10, 2001); Medicaid and 

SCHIP: Comparisons of Outreach, Enrollment Practices, and Benefits, GAO/HEHS-00-86

(Washington, D.C.: Apr. 14, 2000); and GAO/HEHS-99-65. 

Page 10 GAO-07-501T
significantly affected by SCHIP. For example, Idaho reported that a 

negligible number of children were found eligible for Medicaid as a result

of outreach related to its SCHIP program. Maryland identified an increase 

of 0.2 percent between June 2004 and June 2005.

Based on a 3-year average of 2003 through 2005 CPS data, the percentage

of uninsured children varied considerably by state and had a national 

average of 11.7 percent.20 The percentage of uninsured children ranged 

from 5.6 percent in Vermont to 20.4 percent in Texas (see fig. 2).21

According to the Congressional Research Service (CRS) analysis of 2005 

CPS data, the percentage of uninsured children was higher in the southern 

(13.7 percent) and western (13.8 percent) regions of the United States 

compared with children living in northeastern (8.5 percent) and 

midwestern (8.2 percent) regions.22 Nearly 40 percent of the nation’s 

uninsured children lived in three of the most populous states—California, 

Florida, and Texas—each of which had percentages of uninsured children 

above the national average. 

 20Estimates of the number of uninsured children are derived from the annual health 

insurance supplement to the CPS. Health insurance information is collected through the 

Annual Social and Economic Supplement, formerly termed the March supplement. 

21Because sample sizes can be relatively small in less populous states, state estimates are 

developed using a 3-year average, which is the same method used in the formula to allocate

funds to states for SCHIP. Since the authorization of SCHIP in 1997, there have been

changes to the CPS. In March 2001, the CPS sample was expanded, which was expected to

result in more precise state estimates of individuals’ health insurance status for all states. 

22CRS, Health Insurance Coverage of Children, 2005 (Washington, D.C.: Sept. 6, 2006). 

Page 11 GAO-07-501T
Figure 2: Percentage of Uninsured Children, by State, 2003-2005 

State

Percentage of children uninsured

Source: GAO analysis of CPS data, 3-year average (2003 through 2005).

0 5 10 15 20 25

Texas

Florida

New Mexico

Nevada

Montana

Arizona

Oklahoma

Colorado

California

Mississippi

Georgia

North Carolina

Idaho

United States

Wyoming

Oregon

New Jersey

Delaware

Louisiana

Utah

Illinois

Alaska

Tennessee

Arkansas

Indiana

South Carolina

Pennsylvania

North Dakota

Maryland

New York

Virginia

Kentucky

District of Columbia

West Virginia

South Dakota

Connecticut

Washington

Ohio

Missouri

Alabama

Wisconsin

Rhode Island

Iowa

Maine

Kansas

Massachusetts

Nebraska

Minnesota

Hawaii

New Hampshire

Michigan

Vermont

17.0

16.7

16.4

16.2

16.1

16.1

14.4

13.5

12.9

12.6

12.2

11.7

11.7

11.6

11.6

11.5

11.3

11.3

11.0

11.0

10.7

10.2

10.2

9.7

9.5

9.3

9.2

9.1

9.1

8.9

8.9

8.9

8.8

8.8

8.6

8.4

8.3

8.2

7.4

7.3

7.0

7.0

6.9

6.8

6.7

6.6

6.6

6.4

6.4

6.4

5.6

20.4

Page 12 GAO-07-501T
Variations across states in rates of uninsured children may be linked to a 

number of factors, including the availability of employer-sponsored 

coverage.23 We have previously reported that certain types of workers 

were less likely to have had access to employer-sponsored insurance and

thus were more likely to be uninsured.24 In particular, those working parttime, for small firms, or in certain industries such as agriculture or 

construction, were among the most likely to be uninsured. Additionally, 

states with high uninsured rates and those with low rates often were 

distinct with regard to several characteristics. For example, states with 

higher than average uninsured rates tended to have higher unemployment 

and proportionally fewer employers offering coverage to their workers. 

Small employers—those with less than 10 employees—were much less 

likely to offer health insurance to their employees than larger employers. 

States’ SCHIP programs reflect the flexibility allowed in structuring 

approaches to providing health care coverage, including their choice

among three program designs—Medicaid expansions, separate child 

health programs, and combination programs, which have both a Medicaid

expansion and a separate child health program component. As of fiscal 

year 2005, 41 state SCHIP programs covered children in families whose 

incomes are up to 200 percent of FPL or higher, with 7 of the 41 states 

covering children in families whose incomes are at 300 percent of FPL or 

higher. States generally imposed some type of cost-sharing in their 

programs, with 39 states charging some combination of premiums, 

copayments, or enrollment fees, compared with 11 states that did not 

charge cost-sharing. Nine states reported operating premium assistance 

programs that use SCHIP funding to subsidize the cost of premiums for 

private health insurance coverage. As of February 2007, we identified 

14 states with approved section 1115 waivers to cover adults, including 

parents and caretaker relatives, pregnant women, and, in some cases, 

childless adults. 

States’ SCHIP 

Programs Reflect a 

Variety of Approaches 

to Providing Health 

Care Coverage 

 23Genevieve Kenney and Allison Cook, “Coverage Patterns among SCHIP-Eligible Children 

and Their Parents,” Health Policy Online, no. 15 (February 2007), downloaded on 2/12/2007 

from http://www.urban.org/url.cfm?ID=311420; and Linda J. Blumberg, Amy J. Davidoff,

Exploring State Variation in Uninsurance Rates among Low-Income Workers

(Washington, D.C.: Urban Institute, Oct. 8, 2003). 

24See GAO, Health Insurance: States’ Protections and Programs Benefit Some 

Unemployed Individuals, GAO-03-191 (Washington, D.C.: Oct. 25, 2002). 

Page 13 GAO-07-501T
As of July 2006, of the 50 states currently operating SCHIP programs, 

11 states had Medicaid expansion programs, 18 states had separate child

health programs, and 21 states had a combination of both approaches (see 

fig. 3).25 When the states initially designed their SCHIP programs, 27 states 

opted for expansions to their Medicaid programs.26 Many of these initial 

Medicaid expansion programs served as “placeholders” for the state—that 

is, minimal expansions in Medicaid eligibility were used to guarantee the 

1998 fiscal year SCHIP allocation while allowing time for the state to plan

a separate child health program. Other initial Medicaid expansions—

whether placeholders or part of a combination program—also accelerated

the expansion of coverage for children aged 14 to 18 up to 100 percent of 

FPL, which states are already required to cover under federal Medicaid 

law.27

States Employ All Three 

Design Approaches, with 

Coverage Generally 

Extending to 200 Percent 

of FPL 

 25The 50 states include the District of Columbia. In January 2007, CMS approved 

Tennessee’s plan for a separate child health program under SCHIP. According to state 

information, the program will be implemented in early 2007. 

26GAO/HEHS-99-65. 

2742 U.S.C. § 1396a(a)(10)(A)(i)(vii) requires states to provide Medicaid coverage to 

children born after September 30, 1983, aged 6 to 18. 

Page 14 GAO-07-501T
Figure 3: State SCHIP Design Choices as of July 2006 

Note: In January 2007, CMS approved Tennessee’s plan for a separate child health program under 

SCHIP. According to state information, the program will be implemented in early 2007. 

A state’s starting point for SCHIP eligibility is dependent upon the 

eligibility levels previously established in its Medicaid program. Under 

federal Medicaid law, all state Medicaid programs must cover children 

aged 5 and under if their family incomes are at or below 133 percent of 

FPL and children aged 6 through 18 if their family incomes are at or below 

100 percent of FPL.28 Some states have chosen to cover children in families 

Source: Copyright © Corel Corp. All rights reserved (map); GAO analysis of CMS data.

State did not have a SCHIP program (1 state) 

Separate child health program (18 states)

Medicaid expansion program (11 states)

Combination of programs (21 states)

HI

CT

NJ

DE

MD

DC

AK

PA

OR

NV

ID

MT

WY

UT

AZ NM

CO

ND

SD

NE

TX

KS

OK

MN

IA

MO

AR

LA

IL

MS

IN

KY

AL

FL

GA

SC

NC

VA

OH

NH

MA

MI RI

CA

WA

WI NY

ME

VT

WV

TN

 2842 U.S.C. § 1396a(a)(10)(A)(i), (iv), (vi), (vii). 

Page 15 GAO-07-501T
with higher income levels in their Medicaid programs.29 Each state’s 

starting point essentially creates a “corridor”—generally, SCHIP coverage 

begins where Medicaid ends and then continues upward, depending on 

each state’s eligibility policy.30

In fiscal year 2005, 41 states used SCHIP funding to cover children in 

families with incomes up to 200 percent of FPL or higher, including 

7 states that covered children in families with incomes up to 300 percent 

of FPL or higher.31 In total, 27 states provided SCHIP coverage for children 

in families with incomes up to 200 percent of FPL, which was $38,700 for a 

family of four in 2005. Another 14 states covered children in families with 

incomes above 200 percent of FPL, with New Jersey reaching as high as 

350 percent of FPL in its separate child health program. Finally, 9 states 

set SCHIP eligibility levels for children in families with incomes below 

200 percent of FPL. For example, North Dakota covered children in its 

separate child health program up to 140 percent of FPL. (See fig. 4.) (See

app. I for the SCHIP upper income eligibility levels by state, as a 

percentage of FPL.) 

 29States also have the option under federal Medicaid law to extend coverage of children in 

families with incomes at or below 185 percent of FPL, or even at higher income levels 

under a section 1115 waiver. 42 U.S.C. §§ 1315, 1396a(a)(10)(A)(ii)(ix). 

30The corridor represents the FPL levels in states’ SCHIP programs above the levels offered 

by their Medicaid programs. A state’s starting point for SCHIP eligibility is dependent on 

the eligibility levels previously established in its Medicaid program. However, states’ SCHIP 

programs may provide coverage to individuals who have incomes at the Medicaid level if 

they cannot qualify for Medicaid. For example, states may offer SCHIP coverage to 

individuals whose incomes are at the Medicaid level, but who cannot qualify for Medicaid 

because they cannot meet citizenship or other Medicaid eligibility requirements. 

31In January 2007, CMS approved Tennessee’s SCHIP plan, which covers pregnant women 

and children in families with incomes up to 250 percent of FPL. According to state 

information, the program will be implemented in early 2007.

Page 16 GAO-07-501T
Figure 4: Corridor of SCHIP Eligibility for Children Aged 6 through 18 Years, Fiscal Year 2005 

Percentage of FPL

State

Source: GAO analysis of states’ annual SCHIP reports for 2005 and the National Academy for State Health Policy.

0

100

125

150

175

200

225

250

275

300

325

350

375

TNb

S

MT

ND

C

NE

OK

OR

WI

AK

MI

ID

AR

MA

ME

OH

a

VA

CO

IL

IA

M

NC

PA

TX

UT

S

S

WV

WY

AZ

DC

IN

LA

D

K

KY

NV

FL

S

MN

CA

RI

NY

WA

GA

NM

AL

DE

a

NJ

MD

MO

HI

NH

CT

VT

Note: In some cases, we obtained data from Neva Kaye, Cynthia Pernice, and Ann Cullen, Charting 

SCHIP III: An Analysis of the Third Comprehensive Survey of State Children’s Health Insurance 

Programs (Portland, Me.: National Academy for State Health Policy, September 2006). 

The corridor represents the FPL levels in states’ SCHIP programs above the levels offered by their 

Medicaid programs. A state’s starting point for SCHIP eligibility is dependent on the eligibility levels 

previously established in its Medicaid programs. However, states’ SCHIP programs may provide 

coverage to individuals who have incomes at the Medicaid level if they cannot qualify for Medicaid. 

For example, states may offer SCHIP coverage to individuals whose incomes are at the Medicaid 

level, but who cannot qualify for Medicaid because they cannot meet citizenship or other Medicaid 

eligibility requirements. 

a

State did not have an FPL eligibility level for SCHIP that was above its Medicaid eligibility level for

this age group because its Medicaid program also covered children up to this FPL level. The state 

provided SCHIP coverage to individuals whose incomes are at the Medicaid level but who cannot 

qualify for Medicaid because of citizenship or other requirements. 

b

In January 2007, CMS approved Tennessee’s SCHIP plan, which covers pregnant women and 

children in families with incomes up to 250 percent of FPL. According to state information, the 

program will be implemented in early 2007. 

Separate Child Health 

Program Benefit Packages 

Reflect the Full Range of 

SCHIP Options 

Under federal SCHIP law, states with separate child health programs have 

the option of using different bases for establishing their benefit packages. 

Separate child health programs can choose to base their benefit packages 

on (1) one of several benchmarks specified in federal SCHIP law, such as 

the Federal Employees Health Benefits Program (FEHBP) or state 

employee coverage; (2) a benchmark-equivalent set of services, as defined

under federal law; (3) coverage equivalent to state-funded child health 

Page 17 GAO-07-501T
programs in Florida, New York, or Pennsylvania; or (4) a benefit package 

approved by the Secretary of Health and Human Services (see table 1). 

Table 1: Basis for Required Scope of Health Insurance Coverage for States with Separate Child Health Programs 

Basis of coverage Description State

Benchmark 

(14 states) 

Federal Employees Health Benefits Program 

(FEHBP) Blue Cross Blue Shield standard 

option, or coverage generally available to 

state employees, or coverage under the 

states’ health maintenance organization with

the largest insured commercial non-Medicaid 

enrollment. 

Alabama, California, Connecticut, Delaware, 

Iowa,a

 Kansas, Maryland, Massachusetts, 

Michigan, Mississippi, New Hampshire, New

Jersey, North Carolina, Texas 

Benchmark-equivalent 

(12 states) 

Basic coverage for inpatient and outpatient 

hospital, physicians’ surgical and medical, 

laboratory and x-ray, and well-baby and wellchild care, including age-appropriate 

immunizations. Coverage must be equal to 

the value of benchmark coverage.

Colorado, Georgia, Illinois, Indiana, Iowa,a

Kentucky, Montana, North Dakota, Rhode 

Island, Utah, Virginia, West Virginia 

Existing comprehensive state coverage 

(3 states) 

Coverage equivalent to state-funded child 

health programs in Florida, New York, or 

Pennsylvania. 

Florida, New York, Pennsylvania 

Secretary-approved 

(8 states)b

Coverage determined appropriate for 

targeted low-income children. 

Arizona, Arkansas, Idaho, Maine, Nevada, 

Oregon, Vermont, Wyoming 

Source: Assistant Secretary for Planning and Evaluation SCHIP Database, 2001; states’ annual SCHIP reports for 2002 through 2005; 

and GAO, Children’s Health Insurance Program: State Implementation Approaches Are Evolving, GAO/HEHS-99-65 (Washington, D.C.:

May 14, 1999). 

a

State’s SCHIP program reports using two bases of coverage—benchmark and benchmarkequivalent. 

b

In January 2007, CMS approved Tennessee’s SCHIP plan, which has a Secretary-approved benefits 

package. According to state information, the program will be implemented in early 2007. 

In some cases, separate child health programs have changed their benefit 

packages, adding and removing benefits over time, as follows. 

• In 2003, Texas discontinued dental services, hospice services, skilled 

nursing facilities coverage, tobacco cessation programs, vision services, 

and chiropractic services. In 2005, the state added many of these services 

(chiropractic services, hospice services, skilled nursing facilities, tobacco 

cessation services, and vision care) back into the SCHIP benefit package 

and increased coverage of mental health and substance abuse services. 

Page 18 GAO-07-501T
• In January 2002, Utah changed its benefit structure for dental services, 

reducing coverage for preventive (cleanings, examinations, and x-rays) 

and emergency dental services in order to cover as many children as 

possible with limited funding. In September 2002, the dental benefit 

package was further restructured to include dental coverage for accidents,

as well as fluoride treatments and sealants. 

In 2005, most states’ SCHIP programs required families to contribute to the 

cost of care with some kind of cost-sharing requirement. The two major 

types of cost-sharing—premiums and copayments—can have different 

behavioral effects on an individual’s participation in a health plan.32

Generally, premiums are seen as restricting entry into a program, whereas 

copayments affect the use of services within the program. There is 

research indicating that if cost-sharing is too high, or imposed on families 

whose income is too low, it can impede access to care and create financial 

burdens for families.33

In 2005, states’ annual SCHIP reports showed that 39 states had some type 

of cost-sharing—premiums, copayments, or enrollment fees—while 

11 states reported no cost-sharing in their SCHIP programs.34 Overall, 

16 states charged premiums and copayments, 14 states charged premiums 

only, and 9 states charged copayments only (see fig. 5). 

Most SCHIP Programs 

Require Cost-Sharing, but 

Amounts Charged Vary 

Considerably 

 32Opinions differ over the extent to which different types of cost-sharing are appropriate 

and useful tools for managing health care utilization among low-income populations.

Premiums are sometimes viewed as promoting personal responsibility by having the 

beneficiary participate in the cost of coverage. Proponents of cost-sharing believe that 

copayments can make individuals more price-conscious consumers of health care services, 

which may reduce the use of unnecessary services. Others believe that cost-sharing 

requirements may limit service use, such as physician visits, causing individuals to defer 

necessary treatment, resulting in more severe conditions and potentially higher expenses. 

See GAO, Medicaid and SCHIP: States’ Premium and Cost Sharing Requirements for 

Beneficiaries, GAO-04-491 (Washington, D.C.: Mar. 31, 2004). 

33See Tricia Johnson, Mary Rimsza, and William G. Johnson, “The Effects of Cost-Shifting in 

the State Children’s Health Insurance Program,” American Journal of Public Health (April 

2006); Leighton Ku and Teresa A. Coughlin, The Use of Sliding Scale Premiums in

Subsidized Insurance Programs (Washington, D.C.: The Urban Institute, Mar. 1, 1997); and 

Samantha Artiga and Molly O’Malley, Increasing Premiums and Cost Sharing in 

Medicaid and SCHIP: Recent State Experiences (Washington, D.C.: The Kaiser 

Commission on Medicaid and the Uninsured, May 2005). 

34In January 2007, CMS approved Tennessee’s SCHIP plan, which allows the state to impose 

copayments on services. According to state information, the program will be implemented 

in early 2007. 

Page 19 GAO-07-501T
Figure 5: Types of Cost-Sharing under SCHIP, Fiscal Year 2005 

Note: In January 2007, CMS approved Tennessee’s SCHIP plan, which allows the state to impose 

copayments on services. According to state information, the program will be implemented in early

2007. 

a

State charged an enrollment fee.

Cost-sharing occurred more frequently in the separate child health 

programs than in Medicaid expansion programs. For example, 8 states 

with Medicaid expansion programs had cost-sharing requirements, 

compared with 34 states operating separate child health program 

Source: Copyright © Corel Corp. All rights reserved (map); GAO analysis of states’ annual SCHIP reports.

State did not have a SCHIP program (1 state) 

No cost-sharing (11 states)

Charged premiums only (14 states)

Charged copayments only (9 states)

Charged premiums and copayments (16 states)

HI

CT

NJ

DE

MD

DC

AK

PA

OR

NV

ID

MT

WY

UT

AZ NM

COa

ND

SD

NE

TXa

KS

OK

MN

IA

MO

AR

LA

IL

MS

IN

KY

TN

AL

FL

GA

SC

NCa

VA

OH

NH

MA

MI RI

CA

WA

WI NY

ME

VT

WV

Page 20 GAO-07-501T
components.35 The amount of premiums charged varied considerably 

among the states that charged cost-sharing. For example, premiums 

ranged from $5.00 per family per month for children in families with 

incomes from 150 to 200 percent of FPL in Michigan to $117 per family per 

month for children in families with incomes from 300 to 350 percent of 

FPL in New Jersey. Federal SCHIP law prohibits states from imposing 

cost-sharing on SCHIP-eligible children that totals more than 5 percent of 

family income annually.36 In addition, cost-sharing for children may be 

imposed on the basis of family income. For example, we earlier reported 

that in 2003, Virginia SCHIP copayments for children in families with 

incomes from 133 percent to below 150 percent of FPL were $2 per 

physician visit or per prescription and $5 for services for children in 

families with higher incomes.37

In fiscal year 2005, nine states reported operating premium assistance 

programs (see table 2), but implementation remains a challenge. 

Enrollment in these programs varied across the states. For example, 

Louisiana reported having under 200 enrollees and Oregon reported having

nearly 6,000 enrollees.38 To be eligible for SCHIP, a child must not be 

covered under any other health coverage program or have private health 

insurance. However, some uninsured children may live in families with 

access to employer-sponsored health insurance coverage. Therefore, 

states may choose to establish premium assistance programs, where the 

state uses SCHIP funds to contribute to health insurance premium 

Few States Offer Premium 

Assistance Programs 

 35States that opt for Medicaid expansions must follow Medicaid rules—and cost-sharing for 

children is generally not allowed. 

3642 U.S.C. § 1397cc(e). Federal SCHIP regulations include other limits on cost-sharing. For

example, states with separate child health programs are not permitted to impose any costsharing on covered well-baby and well-child care services. Additionally, states may require 

cost-sharing for children in families with incomes at or below 150 percent of FPL, but

premium amounts cannot exceed the maximum charges that are permitted under Medicaid. 

States are also prohibited from charging cost-sharing to American Indians or Alaska 

Natives. 42 C.F.R. §§ 457.520, et. seq. 

37GAO-04-491. 

38Data for premium assistance program enrollment for Louisiana were obtained from CMS’s 

2005 annual SCHIP report and for Oregon from Neva Kaye, Cynthia Pernice, and Ann 

Cullen, Charting SCHIP III: An Analysis of the Third Comprehensive Survey of State 

Children’s Health Insurance Programs (Portland, Me.: National Academy for State Health 

Policy, September 2006). 

Page 21 GAO-07-501T
payments.39 To the extent that such coverage is not equivalent to the 

states’ Medicaid or SCHIP level of benefits, including limited cost-sharing, 

states are required to pay for supplemental benefits and cost-sharing to 

make up this difference. Under certain section 1115 waivers, however, 

states have not been required to provide this supplemental coverage to 

participants. 

Table 2: Premium Assistance Programs in Nine States, Fiscal Year 2005 

Population covered

under authority 

State 

Design of SCHIP 

program

Authority for premium 

assistance program Children Adults

Supplemental coverage 

for benefits or costsharing 

Idaho Combination Section 1906 D

Section 1115 HIFA D D

No 

Illinois Combination Section 1115 HIFA D aNo 

Louisiana Medicaid expansion Section 1906 D D Yes, for benefits and costsharing 

Premium assistance under SCHIP 

plan 

Massachusetts Combination D

Section 1115 non-HIFA D

No 

New Jersey Combination Section 1115 non-HIFA D D Yes, for benefits and costsharing 

Oregon Separate program Section 1115 HIFA D D No

Premium assistance under SCHIP 

plan 

D

Family coverage under SCHIP plan D D

Section 1115 non-HIFA D D

Rhode Island Combination 

Section 1906 D

Yes, for benefits and costsharing 

Premium assistance under SCHIP 

plan 

D

Section 1115 HIFA D

VirginiabCombination 

Section 1906 D D

Yes, for benefits

c

Wisconsin Medicaid expansion Section 1115 non-HIFA D D Yes, for benefits and costsharing 

Source: CMS; states’ Annual SCHIP Reports for 2005; and Neva Kaye, Cynthia Pernice, and Ann Cullen, Charting SCHIP III: An

Analysis of the Third Comprehensive Survey of State Children’s Health Insurance Programs (Portland, Me.: National Academy for State 

Health Policy, September 2006). 

a

Coverage of adults under Illinois’ program became effective January 1, 2006. 

 39States may establish premium assistance programs under separate child health programs 

or under Medicaid programs, including as part of a section 1115 waiver. See 42 U.S.C. §§ 

1315, 1396e; 42 C.F.R. § 457.810. 

Page 22 GAO-07-501T
b

Virginia offered a SCHIP premium assistance program from October 2001 until July 31, 2005, 

entitled the Employer Sponsored Health Insurance (ESHI) program. On August 1, 2005, the ESHI 

program was replaced by a new SCHIP premium assistance program entitled Family Access to 

Medical Insurance Security (FAMIS) Select. CMS approved this program on July 1, 2005, as part of a 

section 1115 waiver. 

c

Virginia’s supplemental payments were limited to immunizations not covered by the employer/private 

health plan. 

Several states reported facing challenges implementing their premium 

assistance programs. Louisiana, Massachusetts, New Jersey, and Virginia 

cited administration of the program as labor intensive. For example, 

Massachusetts noted that it is a challenge to maintain current information 

on program participants’ employment status, choice of health plan, and

employer contributions, but such information is needed to ensure accurate 

premium payments. Two states—Rhode Island and Wisconsin—noted the 

challenges of operating premium assistance programs, given changes in 

employer-sponsored health plans and accompanying costs. For example, 

Rhode Island indicated that increases in premiums are being passed to 

employees, which makes it more difficult to meet cost-effectiveness tests 

applicable to the purchase of family coverage.40

Adult Coverage in SCHIP 

Is Primarily Accomplished 

through Waivers 

States opting to cover adult populations using SCHIP funding may do so 

under an approved section 1115 waiver. As of February 2007, we identified 

14 states with approved waivers to cover at least one of three categories of

adults: parents of eligible Medicaid and SCHIP children, pregnant women, 

and childless adults. (See table 3.) The Deficit Reduction Act of 2005 

(DRA), however, has prohibited the use of SCHIP funds to cover 

nonpregnant childless adults.41 Effective October 1, 2005, the Secretary of 

Health and Human Services may not approve new section 1115 waivers 

that use SCHIP funds for covering nonpregnant childless adults. However, 

waivers for covering these adults that were approved prior to this date are

allowed to continue until the end of the waiver. Additionally, the Secretary 

may continue to approve section 1115 waivers that extend SCHIP coverage 

to pregnant adults, as well as parents and other caretaker relatives of 

children eligible for Medicaid or SCHIP. 

 40The cost-effectiveness test requires the states to demonstrate that covering both adults 

and children in a family under SCHIP is not more expensive than covering only the 

children. 42 U.S.C. §1397ee(c). 

41DRA, Pub. L. No. 109-171, § 6102, 120 Stat. 131-132 (Feb. 8, 2006) (codified as amended at 

42 U.S.C. § 1397gg). 

Page 23 GAO-07-501T
Table 3: States Covering Adults in SCHIP under Section 1115 Waivers, Categories

of Covered Adults, and Upper Income Eligibility Thresholds as a Percentage of FPL

Covered adults

State Parents

Pregnant 

women

Childless

adultsa Percentage of FPL 

Arkansas D 200

Arizona D D 200 (parents); 100 (childless 

adults)

Colorado D 200

Idaho D D D 185

Illinois D D 185

Michigan D 35

Minnesota D 200

Nevada D D 200 (parents); 185 (pregnant 

women)

New Jersey D D 200

New Mexico D D 200

Oregon D D 185

Rhode Island D D 185 (parents); 250 (pregnant 

women)

Virginia D 166

Wisconsin D 200

Source: CMS, as of February 2007. 

a

The DRA prohibited the use of SCHIP funds to cover nonpregnant childless adults. Effective 

October 1, 2005, the Secretary of Health and Human Services may not approve new section 1115 

waivers that use SCHIP funds for covering nonpregnant childless adults. However, waivers approved 

prior to that date are allowed to continue until the end of the waiver.

SCHIP program spending was low initially, as many states did not 

implement their programs or report expenditures until 1999 or later, but 

spending was much higher in the program’s later years and now threatens 

to exceed available funding. Beginning in fiscal year 2002, states together 

spent more federal dollars than they were allotted for the year and thus 

relied on the 3-year availability of SCHIP allotments or on redistributed 

SCHIP funds to cover additional expenditures. But as spending has grown, 

the pool of funds available for redistribution has shrunk. Some states 

consistently spent more than their allotted funds, while other states 

consistently spent less. Overall, 18 states were projected to have 

shortfalls—that is, they were expected to exhaust available funds, 

including current and prior-year allotments—in at least 1 year from 2005 

States’ SCHIP 

Spending Was Initially 

Low but Now 

Threatens to Exceed 

Available Funding 

Page 24 GAO-07-501T
through 2007. To cover projected shortfalls that several states faced, 

Congress appropriated an additional $283 million for fiscal year 2006. As 

of January 2007, 14 states are projected to exhaust their allotments in 

fiscal year 2007. 

Program Spending, Low in 

SCHIP’s Early Years, 

Exceeded Allotments by 

2002 

SCHIP program spending began low, but by fiscal year 2002, states’ 

aggregate annual spending from their federal allotments exceeded their 

annual allotments. Spending was low in the program’s first 2 years because 

many states did not implement their programs or report expenditures until 

fiscal year 1999 or later. Combined federal and state spending was 

$180 million in 1998 and $1.3 billion in 1999. However, by the end of the 

program’s third fiscal year (2000), all 50 states and the District of 

Columbia had implemented their programs and were drawing down their 

federal allotments. Since fiscal year 2002, SCHIP spending has grown by 

an average of about 10 percent per year. (See fig. 6.) 

Page 25 GAO-07-501T
Figure 6: Combined State and Federal SCHIP Expenditures, Fiscal Years 1998-2006

Dollars in billions

Fiscal year

Expenditures (state)

Expenditures (federal)

Source: GAO analysis of CMS data.

0

1

2

3

4

5

6

7

8

9

1998 1999 2000 2001 2002 2003 2004 2005 2006

655%

increase

$0.18

$1.33

$2.78

$5.42

$6.12

$6.63

$7.93

$3.83 109%

increase

38%

increase

42%

increase

13%

increase

8%

increase

10%

increase

9%

increase

$7.30

From fiscal year 1998 through 2001, annual federal SCHIP expenditures 

were well below annual allotments, ranging from 3 percent of allotments 

in fiscal year 1998 to 63 percent in fiscal year 2001. In fiscal year 2002, the

states together spent more federal dollars than they were allotted for the 

year, in part because total allotments dropped from $4.25 billion in fiscal 

year 2001 to $3.12 billion in fiscal year 2002, marking the beginning of the 

so-called “SCHIP dip.”42 However, even after annual SCHIP appropriations 

increased in fiscal year 2005, expenditures continued to exceed allotments 

(see fig. 7). Generally, states were able to draw on unused funds from prior 

years’ allotments to cover expenditures incurred in a given year that were 

in excess of their allotment for that year, because, as discussed earlier, the 

federal SCHIP law gave states 3 years to spend each annual allotment. In 

certain circumstances, states also retained a portion of unused allotments. 

 42The SCHIP dip refers to the decrease in SCHIP appropriations for fiscal years 2002 

through 2004, which was necessary to address budgetary constraints applicable at the time 

the BBA was enacted. 

Page 26 GAO-07-501T
Figure 7: SCHIP Allotments and Federal Expenditures, Fiscal Years 1998-2007 

Dollars in billions

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: GAO analysis of CMS data.

Fiscal year

Allotments

Expenditures

4.24

0.12 

4.25 

0.92

4.25

1.93 

4.25

2.67

3.12 

3.78 

3.18

4.28

3.18 

4.64

4.08 

5.09 

4.08 

5.48

5.04 

6.40 

Notes: Fiscal year 2007 expenditures are estimates based on budgets submitted by the states to 

CMS in November 2006. Expenditures may exceed allotments in any single year because allotments 

are available for 3 years and may be expended in years later than allotted. 

States that have outspent their annual allotments over the 3-year period of

availability have also relied on redistributed SCHIP funds to cover excess 

expenditures. But as overall spending has grown, the pool of funds 

available for redistribution has shrunk from a high of $2.82 billion in 

unused funds from fiscal year 1999 to $0.17 billion in unused funds from 

fiscal year 2003. Meanwhile, the number of states eligible for 

redistributions has grown from 12 states in fiscal year 2001 to 40 states in 

fiscal year 2006. (See fig. 8.) 

Page 27 GAO-07-501T
Figure 8: Unused SCHIP Allotments from Fiscal Year 1998 through 2003 and Number of States Eligible for Redistribution,

Fiscal Years 2001-2006 

Source: GAO analysis of CMS data.

$1.75 billion 

in unused

allotments

from 2001,

as of 2004

19 states

eligible for 

redistribution

$0.64 billion 

in unused

allotments

from 2002,

as of 2005

28 states

eligible for 

redistribution

$0.17 billion 

in unused

allotments

from 2003,

as of 2006

40 states

eligible for 

redistribution

$2.21 billion 

in unused

allotments

from 2000,

as of 2003

14 states

eligible for 

redistribution

$2.82 billion 

in unused

allotments

from 1999,

as of 2002

13 states

eligible for 

redistribution

$2.03 billion 

in unused

allotments

from 1998,

as of 2001

12 states

eligible for 

redistribution

Note: States are eligible to receive redistribution in a particular fiscal year if they have expended all of 

their allotment for that year. 

Congress has acted on several occasions to change the way SCHIP funds 

are redistributed. In fiscal years 2000 and 2003, Congress amended 

statutory provisions for the redistribution and availability of unused 

Page 28 GAO-07-501T
SCHIP allotments from fiscal years 1998 through 2001,43 reducing the 

amounts available for redistribution and allowing states that had not 

exhausted their allotments by the end of the 3-year period of availability to 

retain some of these funds for additional years. Despite these steps, 

$1.4 billion in unused SCHIP funds reverted to the U.S. Treasury by the 

end of fiscal year 2005. 

Congress has also appropriated additional funds to cover states’ projected 

SCHIP program shortfalls. The DRA included a $283 million appropriation 

to cover projected shortfalls for fiscal year 2006.

44 CMS divided these funds 

among 12 states as well as the territories. 

In the beginning of fiscal year 2007, Congress acted to redistribute unused 

SCHIP allotments from fiscal year 2004 to states projected to face 

shortfalls in fiscal year 2007.45 The National Institutes of Health Reform Act 

of 2006 makes these funds available to states in the order in which they 

experience shortfalls. In January 2007, CRS projected that although 

14 states will face shortfalls, the $147 million in unused fiscal year 2004 

allotments will be redistributed to the five states that are expected to 

experience shortfalls first. The NIH Reform Act also created a

redistribution pool of funds by redirecting fiscal year 2005 allotments from 

 43The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000

(BIPA) allowed states that used their fiscal year 1998 and 1999 allotments to receive 

redistributed funds and allowed states that had not used these allotments to retain a 

portion of remaining funds. BIPA also extended the availability of all redistributed and 

retained funds through the end of fiscal year 2002. BIPA, Pub. L. No. 106-554, § 1(a)(6), 114

Stat. 2763, 2763A-578—580 (Dec. 21, 2000) (codified, as amended, at 42 U.S.C. § 1397dd(g)). 

The State Children’s Health Insurance Program Allotments Extension Act (SCHIP 

Extension Act) further extended the availability of redistributed and retained allotments 

from fiscal years 1998 and 1999 another 2 years, to the end of fiscal year 2004. The law also 

established a new method for reallocating unspent allotments from fiscal years 2000 and 

2001, allowing states that did not expend these funds to retain 50 percent of the funds and

redistributing the remaining 50 percent to states that had spent their allotments. In 

addition, the law established authority for certain states—generally, states that covered at

least one category of children other than infants in families with incomes up to at least 

185 percent of FPL ⎯to use up to 20 percent of original fiscal year allotments for 1998

through 2001 for Medicaid eligible children with family income over 150 percent of FPL. 

SCHIP Extensions Act, Pub. L. No. 108-74, §§ 1(a)(4), 1(b), 117 Stat. 895-896 (Aug. 15, 2003)

(codified, as amended, at 42 U.S.C. § 1397dd(g), 1397ee(g)). 

44DRA, Pub. L. No. 109-171, § 6101(a), 120 Stat. 130 (Feb. 8, 2006) (codified, as amended, at

42 U.S.C. § 1397dd(d)). 

45National Institutes of Health Reform Act of 2006 (NIH Reform Act), Pub. L. No. 109-482, §

201, 120 Stat. 3675 (Jan. 15, 2007) (to be codified at 42 U.S.C. § 1397dd(h)). 

Page 29 GAO-07-501T
states that at midyear (March 31, 2007) have more than twice the SCHIP 

funds they are projected to need for the year.46

Some States Consistently 

Spent More than Their 

Allotted Funds 

Some states consistently spent more than their allotted funds, while other 

states consistently spent less. From fiscal years 2001 through 2006, 

40 states spent their entire allotments at least once, thereby qualifying for 

redistributions of other states’ unused allotments; 11 states spent their 

entire allotments in at least 5 of the 6 years that funds were redistributed. 

Moreover, 18 states were projected to face shortfalls—that is, they were 

expected to exhaust available funds, including current and prior-year 

allotments—in at least 1 of the final 3 years of the program.47 (See fig. 9.) 

As of January 2007, 14 states were projected to exhaust their allotments in 

fiscal year 2007. 

 46These states are required to contribute half of their remaining 2005 allotments, up to a

maximum of $20 million, to the redistribution pool. NIH Reform Act, Pub. L. No. 109-482, §

201, 120 Stat. 3675 (Jan. 15, 2007) (to be codified at 42 U.S.C. § 1397dd(h)). CRS estimates 

the redistribution pool to have $125 million available. According to CMS projections, as of 

January 2007, these funds will be distributed to seven states, including the five projected to 

receive redistributed 2004 allotments. 

47In fiscal years 2005 and 2006, CMS projected that 13 states would face shortfalls of SCHIP 

funds in one or both of those years, and in October 2006, CRS projected that 17 states

would face shortfalls in fiscal year 2007. The 17 states CRS identified include 12 of the 

13 states CMS identified, for a total of 18 states identified as facing shortfalls in fiscal years 

2005, 2006, and/or 2007. 

Page 30 GAO-07-501T
Figure 9: States that Did or Did Not Spend Allotments and/or Were Projected to

Have Shortfalls

Source: GAO analysis of data obtained from CMS and Congressional Research Service (CRS).

Did not spend allotment within 3-year period of availability

Spent allotment within 3-year period of availability

Projected to have shortfall

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Dist. of Columbia

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisianaa

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolinaa

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakotaa

Tennesseeb

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

FY FY 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007

Note: The years refer to the fiscal years in which unspent allotments from 3 years prior became

available for redistribution. Under federal SCHIP law, subject to certain exceptions, states were given 

3 years to spend each allotment, after which any unspent funds were to be redistributed among 

states that had spent their entire allotments. States projected to have shortfalls were projected to 

exhaust available funds, including current and prior-year allotments. Shortfalls for 2005 and 2006 

were projected by CMS in those years. Shortfalls for 2007 were projected by CRS in October 2006 on

the basis of states’ budget data from August 2006. States that had spent their entire 2004 allotments 

had not been announced by the Secretary of Health and Human Services as of January 25, 2007. 

a

As of January 2007, CRS was no longer projecting a shortfall for this state for fiscal year 2007. 

b

Although Tennessee did not have a SCHIP program as of October 2002, it continued to be allotted 

SCHIP funds. On September 6, 2006, the state submitted a SCHIP plan that proposes to cover 

pregnant women and children in families with incomes up to 250 percent of FPL. CMS approved this

plan in January 2007; according to state information, the program will be implemented in early 2007. 

When we compared the 18 states that were projected to have shortfalls 

with the 32 states that were not, we found that the shortfall states were 

more likely to have a Medicaid component to their SCHIP program, to 

Page 31 GAO-07-501T
have a SCHIP eligibility corridor broader than the median,48 and to cover 

adults in SCHIP under section 1115 waivers (see table 4). It is unclear, 

however, to what extent these characteristics contributed to states’ overall

spending experiences with the program, as many other factors have also 

affected states’ program balances, including prior coverage of children 

under Medicaid, and SCHIP eligibility criteria, benefit packages, 

enrollment policies, outreach efforts, and payment rates to providers. In 

addition, we and others have noted that the formula for allocating funds to

states has flaws that led to underestimates of the number of eligible 

children in some states and thus underfunding.49 Fifteen of the 18 shortfall 

states (83 percent) had Medicaid expansion programs or combination 

programs that included Medicaid expansions, which generally follow 

Medicaid rules, such as providing the full Medicaid benefit package and 

continuing to provide coverage to all eligible individuals even after the 

states’ SCHIP allotments are exhausted. The shortfall states tended to 

have a broader eligibility corridor in their SCHIP programs, indicating that, 

on average, the shortfall states covered children in SCHIP from lower 

income levels, from higher income levels, or both. For example, 

33 percent of the shortfall states covered children in their SCHIP programs 

above 200 percent of FPL, compared with 25 percent of the nonshortfall 

states. Finally, 6 of the 18 shortfall states (33 percent) were covering 

adults in SCHIP under section 1115 waivers by the end of fiscal year 2006, 

compared with 6 of the 32 nonshortfall states (19 percent). 

 48The SCHIP eligibility corridor is defined as the difference between the highest and lowest

income levels (expressed as a percentage of FPL) eligible for SCHIP within a specified age 

group. For example, if a state covers children aged 6 and older with family incomes from 

100 percent to 200 percent of FPL, the eligibility corridor for this age group is 

100 percentage points (200 minus 100). In 2006, the median SCHIP eligibility corridor for 

children aged 6 and older was 100 percentage points. 

49See CRS, SCHIP Original Allotments: Funding Formula Issues and Options; GAO, 

Medicaid: Strategies to Help States Address Increased Expenditures during Economic 

Downturns, GAO-07-97 (Washington, D.C.: October 18, 2006); Genevieve Kenney and 

Debbie I. Chang, “The State Children's Health Insurance Program: Successes, 

Shortcomings, And Challenges,” Health Affairs, vol 23, no. 5 (2004): 51-62.; and 

GAO/HEHS-99-65. 

Page 32 GAO-07-501T
Table 4: Selected SCHIP Program Characteristics of Shortfall and Nonshortfall 

States

Percentage of states

SCHIP program characteristic 

Shortfall states

(n=18) 

Nonshortfall states

(n=32)

Medicaid expansion or combination 

programs 83 53

Eligibility corridor for children aged 

6 and older that is broader than the 

mediana

28 16

Adult coverage in SCHIP under 

section 1115 waivers before 

FY 2007b

33 19

Source: GAO analysis, as of January 29, 2007, of data obtained from CMS, CRS, and NASHP. 

Note: Shortfall states are states that were identified by CMS or CRS as being unable to cover their 

projected SCHIP expenditures with available funds in fiscal years 2005, 2006, and/or 2007 in the 

absence of redistributions or additional appropriations. Nonshortfall states are states that were not 

projected to experience such shortfalls in any of the 3 years. Tennessee did not have a SCHIP 

program as of October 2002. However, on September 6, 2006, the state submitted a SCHIP plan that 

proposes to cover pregnant women and children in families with incomes up to 250 percent of FPL. 

CMS approved this plan in January 2007; according to state information, the program will be 

implemented in early 2007. 

a

The SCHIP eligibility corridor is defined as the difference between the highest and lowest income 

levels (expressed as a percentage of FPL) eligible for SCHIP within a specified age group. For 

example, if a state covers children aged 6 and older with family incomes from 100 percent to 

200 percent of FPL, the eligibility corridor for this age group is 100 percentage points (200 minus

100). In 2006, the median SCHIP eligibility corridor for children aged 6 and older was 100 percentage

points. 

b

In fiscal year 2007, two nonshortfall states implemented SCHIP-funded coverage for 

adults⎯Arkansas on October 1, 2006, and Nevada on December 1, 2006. 

On average, the shortfall states that covered adults began covering them 

earlier than nonshortfall states and enrolled a higher proportion of adults.

At the end of fiscal year 2006, 12 states covered adults under section 1115 

waivers using SCHIP funds.50 Five of these 12 states began covering adults

before fiscal year 2003, and all 5 states faced shortfalls in at least 1 of the 

final 3 years of the program. In contrast, none of the 4 states that began 

covering adults with SCHIP funds in the period from fiscal year 2004 

 50As of February 2007, we had identified 14 states with approved section 1115 waivers to 

cover adults with their SCHIP allotments (see table 3). In fiscal year 2007, two of the 14 

states began covering adults under SCHIP⎯Arkansas on October 1, 2006, and Nevada on

December 1, 2006. 

Page 33 GAO-07-501T
through 2006 faced shortfalls.51 On average, the shortfall states covered

adults more than twice as long as nonshortfall states (5.1 years compared 

with 2.3 years by the end of fiscal year 2006). 

Shortfall states also enrolled a higher proportion of adults. Nine states, 

including six shortfall states, covered adults using SCHIP funds 

throughout fiscal year 2005.52 In these nine states, adults accounted for an 

average of 45 percent of total enrollment. However, in the shortfall states, 

the average proportion was more than twice as high as in nonshortfall 

states. Adults accounted for an average of 55 percent of enrollees in the 

shortfall states, compared with 24 percent in the nonshortfall states. (See 

table 5.) 

 51Three states began covering adults under section 1115 waivers in fiscal year 2003; one

faced shortfalls and two did not. 

52On July 1, 2005, three additional states began using SCHIP funds to cover adults under 

section 1115 waivers. 

Page 34 GAO-07-501T
Table 5: SCHIP Total Enrollment in States Using SCHIP Funds to Cover Adults

under Section 1115 Waivers throughout Fiscal Year 2005

Total enrollment

Statea

Total Children Adults

Adults as a 

percentage of

totalb

Shortfall statesc

Arizona 201,626 88,005 113,621 56

Illinois 457,426 281,432 175,994 38

Minnesota 40,087 5,076 35,011 87

New Jersey 196,418 129,591 66,827 34

Rhode Island 51,313 27,144 24,169 47

Wisconsin 165,973 57,165 108,808 66

Nonshortfall statesd

Colorado 61,105 59,530 1,575 3

Michigan 190,540 89,257 101,283 53

Oregon 64,088 52,722 11,366 18

Summary

Shortfall states (6) 1,112,843 588,413 524,430 55

Nonshortfall states (3) 315,733 201,509 114,224 24

All states (9) 1,428,576 789,922 638,654 45

Source: GAO analysis of CMS data. 

a

As of February 2007, we had identified 14 states with approved section 1115 waivers to cover adults 

with their SCHIP allotments. Five of these 14 states were omitted from the table. Idaho, New Mexico, 

and Virginia implemented section 1115 waivers for adults on July 1, 2005, and are omitted from the 

table because only partial-year data are available for them for fiscal year 2005. The remaining two 

states had not implemented their waivers as of 2005: Arkansas and Nevada implemented section 

1115 coverage for adults in fiscal year 2007. 

b

Summary data shown in this column are averages of the state percentages. 

c

Shortfall states are states that were identified by CMS or the Congressional Research Service (CRS) 

as being unable to cover their projected SCHIP expenditures with available funds in fiscal years 2005, 

2006, and/or 2007. 

d

Nonshortfall states are states that were not projected to experience such shortfalls in any of the 

3 years. 

While analyses of states as a group reveal some broad characteristics of 

states’ programs, examining the experiences of individual states offers 

insights into other factors that have influenced states’ program balances. 

States themselves have offered a variety of reasons for shortfalls and 

surpluses. These examples, while not exhaustive, highlight additional 

factors that have shaped states’ financial circumstances under SCHIP. 

Page 35 GAO-07-501T
• Inaccuracies in the CPS-based estimates on which states’ 

allotments were based. North Carolina, a shortfall state, offers a case in

point. In 2004, the state had more low-income children enrolled in the 

program than CPS estimates indicated were eligible. To curb spending, 

North Carolina shifted children through age 5 from the state’s separate 

child health program to a Medicaid expansion, reduced provider 

payments, and limited enrollment growth. 

• Annual funding levels that did not reflect enrollment growth. Iowa, 

another shortfall state, noted that annual allocations provided too many 

funds in the early years of the program and too few in the later years. Iowa 

did not use all its allocations in the first 4 years and thus the state’s funds 

were redistributed to other states. Subsequently, however, the state has 

faced shortfalls as its program matured. 

• Impact of policies designed to curb or expand program growth. 

Some states have attempted to manage program growth through ongoing

adjustments to program parameters and outreach efforts. For example, 

when Florida’s enrollment exceeded a predetermined target in 2003, the 

state implemented a waiting list and eliminated outreach funding. When

enrollment began to decline, the state reinstituted open enrollment and 

outreach. Similarly, Texas⎯commensurate with its budget constraints and 

projected surpluses⎯has tightened and loosened eligibility requirements 

and limited and expanded benefits over time in order to manage 

enrollment and spending.

Children without health insurance are at increased risk of foregoing 

routine medical and dental care, immunizations, treatment for injuries, 

and treatment for chronic illnesses. Yet, the states and the federal 

government face challenges in their efforts to continue to finance health 

care coverage for children. As health care consumes a growing share of 

state general fund or operating budgets, slowdowns in economic growth 

can affect states’ abilities—and efforts—to address the demand for public 

financing of health services. Moreover, without substantive programmatic 

or revenue changes, the federal government faces near- and long-term 

fiscal challenges as the U.S. population ages because spending for 

retirement and health care programs will grow dramatically.53 Given these 

Considerations for 

SCHIP 

Reauthorization 

 53GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005); and GAO, Long-Term Care: Aging Baby

Boom Generation Will Increase Demand and Burden on Federal and State Budgets, 

GAO-02-544T (Washington, D.C.: Mar. 21, 2002). 

Page 36 GAO-07-501T
circumstances, we would like to suggest several issues for consideration 

as Congress addresses the reauthorization of SCHIP. These include the 

following: 

• Maintaining flexibility without compromising the goals of SCHIP. 

The federal-state SCHIP partnership has provided an important 

opportunity for innovation on the part of states for the overall benefit of 

children’s health. Providing three design choices for states—Medicaid 

expansions, separate child health programs, or a combination of both 

approaches—affords them the opportunity to focus on their own unique 

and specific priorities. For example, expansions of Medicaid offer 

Medicaid’s comprehensive benefits and administrative structures and 

ensure children’s coverage if states exhaust their SCHIP allotments. 

However, this entitlement status also increases financial risk to states. In 

contrast, SCHIP separate child health programs offer a “block grant” 

approach to covering children. As long as the states meet statutory 

requirements, they have the flexibility to structure coverage on an 

employer-based health plan model and can better control program 

spending than they can with a Medicaid expansion. 

However, flexibility within the SCHIP program, such as that available 

through section 1115 waivers, may also result in consequences that can

run counter to SCHIP’s goal—covering children. For example, we 

identified 14 states that have authority to cover adults with their federal 

SCHIP funds, with several states covering more adults than children. 

States’ rationale is that covering low-income parents in public programs 

such as SCHIP and Medicaid increases the enrollment of eligible children 

as well, with the result that fewer children go uninsured.54 Federal SCHIP 

law provides that families may be covered only if such coverage is costeffective; that is, covering families costs no more than covering the SCHIPeligible children. We earlier reported that HHS had approved state 

proposals for section 1115 waivers to use SCHIP funds to cover parents of 

SCHIP- and Medicaid-eligible children without regard to costeffectiveness.55 We also reported that HHS approved state proposals for 

section 1115 waivers to use SCHIP funds to cover childless adults, which 

in our view was inconsistent with federal SCHIP law and allowed SCHIP 

 54See Leighton Ku and Matthew Broaddus, Coverage of Parents Helps Children, Too 

(Washington, D.C.: Center on Budget and Policy Priorities, Oct. 20, 2006). 

55GAO, Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects

Raise Concerns, GAO-02-817 (Washington, D.C.: July 12, 2002). 

Page 37 GAO-07-501T
funds to be diverted from the needs of low-income children.56 We 

suggested that Congress consider amending the SCHIP statute to specify 

that SCHIP funds were not available to provide health insurance coverage 

for childless adults. Under the DRA, Congress prohibited the Secretary of 

Health and Human Services from approving any new section 1115 waivers 

to cover nonpregnant childless adults after October 1, 2005, but allowed 

waivers approved prior to that date to continue.57

It is important to consider the implications of states’ use of allowable 

flexibility for other aspects of their programs. For example, what 

assurances exist that SCHIP funds are being spent in the most costeffective manner, as required under federal law? In view of current federal 

fiscal constraints, to what extent should SCHIP funds be available for 

adult coverage? How has states’ use of available flexibility to establish 

expanded financial eligibility categories and covered populations affected 

their ability to operate their SCHIP programs within the original 

allotments provided to them? 

• Considering the federal financing strategy, including the financial 

sustainability of public commitments. As SCHIP programs have 

matured, states’ spending experience can help inform future federal 

financing decisions. CRS testified in July 2006 that 40 states were now 

spending more annually than they received in their annual original SCHIP 

allotments.58 While many of them did not face shortfalls in 2006 because of

available prior-year balances, redistributed funds, and the supplemental 

DRA appropriation, 14 states are currently projected to face shortfalls in 

2007. With the pool of funds available for redistribution virtually 

exhausted, the continued potential for funding shortfalls for many states 

raises some fundamental questions about SCHIP financing. If SCHIP is 

indeed a capped grant program, to what extent does the federal 

government have a responsibility to address shortfalls in individual states, 

especially those that have chosen to expand their programs beyond 

certain parameters? In contrast, if the policy goal is to ensure that states 

do not exhaust their federal SCHIP allotments, by providing for the 

 56See GAO-02-817 and GAO, SCHIP: HHS Continues to Approve Waivers That Are 

Inconsistent with Program Goals, GAO-04-166R (Washington, D.C.: Jan. 5, 2004). 

57DRA, Pub. L. No. 109-171, § 6102, 120 Stat. 131-132 (Feb. 8, 2006) (codified, as amended, at

42 U.S.C. § 1397gg). 

58Federal SCHIP Financing, Hearing Before the Subcomm. on Health Care of the Senate

Finance Comm., 109th Cong., 2nd Sess. (Jul. 25, 2006) (statement of the Congressional 

Research Service). 

Page 38 GAO-07-501T
continuing redistribution of funds or additional federal appropriations, 

does the program begin to take on the characteristics of an entitlement 

similar to Medicaid? What overall implications does this have for the 

federal budget? 

• Assessing issues associated with equity. The 10 years of SCHIP 

experience that states now have could help inform any policy decisions 

with respect to equity as part of the SCHIP reauthorization process. 

Although SCHIP generally targets children in families with incomes at or 

below 200 percent of FPL, 9 states are relatively more restrictive with their 

eligibility levels, while 14 states are more expansive, ranging as high as 

350 percent of FPL. Given the policy goal of reducing the rate of uninsured 

among the nation’s children, to what extent should SCHIP funds be 

targeted to those states that have not yet achieved certain minimum 

coverage levels? Given current and future federal fiscal constraints, to 

what extent should the federal government provide federal financial 

participation above certain thresholds? What broader implications might 

this have for flexibility, choice, and equity across state programs? 

Another consideration is whether the formulas used in SCHIP—both the 

formula to determine the federal matching rate and the formula to allocate 

funds to states—could be refined to better target funding to certain states 

for the benefit of covering uninsured children. Because the SCHIP formula 

is based on the Medicaid formula for federal matching funds, it has some 

inherent shortcomings that are likely beyond the scope of consideration 

for SCHIP reauthorization.59

For the allocation formula that determines the amount of funds a state will 

receive each year, several analysts, including CRS, have noted alternatives 

that could be considered. These include altering the methods for 

estimating the number of children at the state level, adjusting the extent to

which the SCHIP formula for allocating funds to states includes the 

number of uninsured versus low-income children, and incorporating 

 59The Medicaid formula uses a state’s per capita income (PCI) in relation to national PCI to 

determine the federal share of matching funds for a state’s allowable Medicaid spending. 

We earlier reported, however, that the use of PCI as a measure of states’ funding ability is 

problematic because it does not accurately represent states’ funding ability or account for 

the size and cost of serving states’ poverty populations. See GAO, Medicaid Formula:

Differences in Funding Ability among States Often Are Widened, GAO-03-620 

(Washington, D.C.: July 10, 2003). We also recently reported on potential strategies to help 

make the Medicaid formula more responsive to economic downturns, which could have

implications for the SCHIP formula. See GAO-07-97. 

Page 39 GAO-07-501T
states’ actual spending experiences to date into the formula. Considering 

the effects of any one or combination of these—or other—policy options 

would likely entail iterative analysis and thoughtful consideration of 

relevant trade-offs. 

Mr. Chairman, this concludes my prepared remarks. I would be pleased to 

respond to any questions that you or other members of the Subcommittee 

may have. 

For future contacts regarding this testimony, please contact 

Kathryn G. Allen at (202) 512-7118 or at allenk@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found on

the last page of this testimony. Carolyn L. Yocom, Assistant Director; 

Nancy Fasciano; Kaycee M. Glavich; Paul B. Gold; JoAnn Martinez-Shriver; 

and Elizabeth T. Morrison made key contributions to this statement. 

GAO Contacts and 

Acknowledgments 

Page 40 GAO-07-501T
Appendix I: SCHIP Upper Income Eligibility 

by State, Fiscal Year 2005 

Page 41 GAO-07-501T

State 

Upper income eligibility,

expressed as a percentage of FPL 

Alabama 200

Alaska 168

Arizona 200

Arkansas 200

California 250

Colorado 200

Connecticut 300

Delaware 200

District of Columbia 200

Florida 200

Georgia 235

Hawaii 300

Idaho 185

Illinois 200

Indiana 200

Iowa 200

Kansas 200

Kentucky 200

Louisiana 200

Maine 200

Maryland 300

Massachusetts 200

Michigan 200

Minnesota 280

Mississippi 200

Missouri 300

Montana 150

Nebraska 185

Nevada 200

New Hampshire 300

New Jersey 350

New Mexico 235

New York 250

North Carolina 200

Appendix I: SCHIP Upper Income Eligibility 

by State, Fiscal Year 2005 
Appendix I: SCHIP Upper Income Eligibility 

by State, Fiscal Year 2005 

State 

Upper income eligibility,

expressed as a percentage of FPL 

North Dakota 140

Ohio 200

Oklahoma 185

Oregon 185

Pennsylvania 200

Rhode Island 250

South Carolina 150

South Dakota 200

Tennessee a

Texas 200

Utah 200

Vermont 300

Virginia 200

Washington 250

West Virginia 200

Wisconsin 185

Wyoming 200

Source: GAO analysis of states’ annual SCHIP reports for 2005 and the National Academy for State Health Policy.

Note: In some cases, we obtained data from Neva Kaye, Cynthia Pernice, and Ann Cullen, Charting 

SCHIP III: An Analysis of the Third Comprehensive Survey of State Children’s Health Insurance 

Programs (Portland, Me.: National Academy for State Health Policy, September 2006). 

a

While Tennessee has not had a SCHIP program since October 2002, in January 2007, CMS 

approved Tennessee’s SCHIP plan, which covers pregnant women and children in families with 

incomes up to 250 percent of FPL. According to state information, the program will be implemented in 

early 2007. 

Page 42 GAO-07-501T
Related GAO Products 

Page 43 GAO-07-501T

Related GAO Products 

Children’s Health Insurance: State Experiences in Implementing SCHIP 

and Considerations for Reauthorization. GAO-07-447T. Washington, D.C.: 

February 1, 2007. 

Children’s Health Insurance: Recent HHS-OIG Reviews Inform the 

Congress on Improper Enrollment and Reductions in Low-Income, 

Uninsured Children. GAO-06-457R. Washington, D.C.: March 9, 2006. 

21st Century Challenges: Reexamining the Base of the Federal 

Government. GAO-05-325SP. Washington, D.C.: February 2005. 

Medicaid and SCHIP: States’ Premium and Cost Sharing Requirements 

for Beneficiaries. GAO-04-491. Washington, D.C.: March 31, 2004. 

SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with 

Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004. 

Medicaid Formula: Differences in Funding Ability among States Often 

Are Widened. GAO-03-620. Washington, D.C.: July 10, 2003. 

Medicaid and SCHIP: States Use Varying Approaches to Monitor 

Children’s Access to Care. GAO-03-222. Washington, D.C.: January 14,

2003. 

Health Insurance: States’ Protections and Programs Benefit Some 

Unemployed Individuals. GAO-03-191. Washington, D.C.: October 25, 

2002. 

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002. 

Children’s Health Insurance: Inspector General Reviews Should Be 

Expanded to Further Inform the Congress. GAO-02-512. Washington, D.C.: 

March 29, 2002. 

Long-Term Care: Aging Baby Boom Generation Will Increase Demand 

and Burden on Federal and State Budgets. GAO-02-544T. Washington, 

D.C.: March 21, 2002. 

Medicaid and SCHIP: States' Enrollment and Payment Policies Can 

Affect Children's Access to Care. GAO-01-883. Washington, D.C.: 

September 10, 2001. 
Related GAO Products 

Children’s Health Insurance: SCHIP Enrollment and Expenditure 

Information. GAO-01-993R. Washington, D.C.: July 25, 2001. 

Medicaid: Stronger Efforts Needed to Ensure Children’s Access to Health

Screening Services. GAO-01-749. Washington, D.C.: July 13, 2001. 

Medicaid and SCHIP: Comparisons of Outreach, Enrollment Practices,

and Benefits. GAO/HEHS-00-86. Washington, D.C.: April 14, 2000. 

Children’s Health Insurance Program: State Implementation Approaches 

Are Evolving. GAO/HEHS-99-65. Washington, D.C.: May 14, 1999. 

Medicaid: Demographics of Nonenrolled Children Suggest State Outreach 

Strategies. GAO/HEHS-98-93. Washington, D.C.: March 20, 1998. 

(290609) Page 44 GAO-07-501T
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