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55–851—PDF 2008

S. HRG. 110–1030

COVERING UNINSURED CHILDREN: THE IMPACT

OF THE AUGUST 17th CHIP DIRECTIVE

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

APRIL 9, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

SUBCOMMITTEE ON HEALTH CARE

JOHN D. ROCKEFELLER IV, West Virginia, Chairman

JOHN F. KERRY, Massachusetts

JEFF BINGAMAN, New Mexico

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

ORRIN G. HATCH, Utah

CHUCK GRASSLEY, Iowa

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

PAT ROBERTS, Kansas

JIM BUNNING, Kentucky

JOHN ENSIGN, Nevada

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

Rockefeller, Hon. John D., IV, a U.S. Senator from West Virginia, chairman,

Subcommittee on Health Care, Committee on Finance .................................... 5

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 6

WITNESSES

Smith, Dennis, Director, Center for Medicaid and State Operations, Centers

for Medicare and Medicaid Services, Washington, DC ..................................... 8

Orszag, Dr. Peter, Director, Congressional Budget Office, Washington, DC ...... 10

Peterson, Chris L., Specialist in Health Care Financing, Domestic Social

Policy Division, Congressional Research Service, Washington, DC ................. 12

Novak, Paula, Lebanon, OH ................................................................................... 31

Weil, Alan, executive director, National Academy for State Health Policy,

Washington, DC ................................................................................................... 33

Owcharenko, Nina, senior policy analyst, The Heritage Foundation, Washington, DC ............................................................................................................. 35

Mann, Cindy, executive director, Center for Children and Families, Health

Policy Institute, Georgetown University, Washington, DC .............................. 37

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Hatch, Hon. Orrin G.:

Opening statement ........................................................................................... 6

Mann, Cindy:

Testimony .......................................................................................................... 37

Prepared statement with attachments ........................................................... 49

Novak, Paula:

Testimony .......................................................................................................... 31

Prepared statement .......................................................................................... 59

Orszag, Dr. Peter:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 62

Responses to questions from subcommittee members ................................... 80

Owcharenko, Nina:

Testimony .......................................................................................................... 35

Prepared statement .......................................................................................... 88

Peterson, Chris L.:

Testimony .......................................................................................................... 12

Prepared statement with attachments ........................................................... 92

Rockefeller, Hon. John D., IV:

Opening statement ........................................................................................... 5

Smith, Dennis:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 109

Responses to questions from subcommittee members ................................... 121

Page

IV

Snowe, Hon. Olympia J.:

Prepared statement .......................................................................................... 132

Weil, Alan:

Testimony .......................................................................................................... 33

Prepared statement .......................................................................................... 134

(1)

COVERING UNINSURED CHILDREN:

THE IMPACT OF THE

AUGUST 17th CHIP DIRECTIVE

WEDNESDAY, APRIL 9, 2008

U.S. SENATE,

SUBCOMMITTEE ON HEALTH CARE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 2:30 p.m., in

room SD–215, Dirksen Senate Office Building, Hon. John D. Rockefeller IV (chairman of the subcommittee) presiding.

Present: Senators Baucus, Lincoln, Wyden, Stabenow, Salazar,

Grassley, and Hatch.

Also present: Democratic staff: Bill Dauster, Deputy Staff Director and General Counsel; and David Schwartz, Health Counsel. Republican staff: Becky Shipp, Health Policy Advisor; Jocelyn Moore,

Legislative Assistant; and Patricia DeLoatche, Legislative Health

Assistant.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

Senator Rockefeller, the chairman of the subcommittee, was momentarily detained. He will be here very soon and asked me to

begin the hearing, and I will do so. As soon as he arrives, then he

will certainly take over.

The poet Maya Angelou wrote: ‘‘Children’s talent to endure stems

from their ignorance of alternatives.’’ For better or worse, we

grownups have often known alternatives. We seek a better future

for our kids, and that is what the State Children’s Health Insurance Program, CHIP, is all about.

I am pleased that the Subcommittee on Health Care has convened this hearing to talk about CHIP. The CHIP program provides access to health care for poor kids. At 11 years, CHIP is a

relatively young program. Despite its youth, CHIP has achieved

great success. It has cut the number of kids without health insurance by over one-third and has given millions of kids a better future.

Kids without health insurance often do not get the care they

need. Kids who do not get medical care are more likely to miss

school or to do poorly in school. This makes it harder for these kids

to get good jobs if, and when, they finish school.

2

The effects of kids going without health care are significant and

far-reaching. After 10 successful years of providing poor kids with

health insurance, CHIP came up for reauthorization last year.

There was a great deal of interest and excitement at the opportunity to expand on the success of the program.

I made reauthorization of the program the committee’s top

health care priority last year and was glad to work with colleagues

from both sides of the aisle, and Senators Grassley, Rockefeller,

Hatch and I together crafted a bill that would strengthen and

renew this vital program and we brought it to the committee. I can

tell you here parenthetically, I do not ever remember working as

hard on any subject as we did then. Senators Rockefeller, Hatch,

myself, and Senator Grassley were time and time again in my office, and the staffs, the same. Boy, we worked hard to get the result that we finally got.

We then went to the Senate floor. Then we negotiated with the

House. The whole time, we were fighting to cover more kids. We

sought to give millions of kids a better future.

Congress agreed that it wanted to cover more kids. Congress

passed two reauthorization bills that had strong support from both

parties. Unfortunately, the President did not agree. The President

apparently did not feel that expanding access to health care for

poor kids was the right goal. He, therefore, vetoed both of the reauthorization bills that Congress sent him.

Rather than let this important program lapse, Congress extended

the program as it currently exists through March of next year. But

our fight to cover more kids is not over. Senators Grassley, Rockefeller, Hatch, and I, and many other members of the Congress continue to care a great deal about the future success of CHIP.

We remain committed to reauthorize the program in a way that

will increase the number of kids covered. We still seek to give millions of kids a better future. That commitment is at the heart of

my concerns about the letter that CMS sent to the States on August 17, 2007. The so-called CHIP directive will limit enrollment,

and that is the wrong direction. It will limit States’ ability to provide their poor kids with access to health care, and that is the

wrong approach.

The restrictive nature of the policies in the directive will leave

States little flexibility to expand CHIP coverage in the ways Congress intended when it created the program in 1997 or in ways that

CMS has approved since then. Quite simply, proposing hurdles to

CHIP coverage means that fewer kids will get the health care that

they need. It denies millions of kids that better future.

Now, some may think that the August 17th directive will not

have much of an impact. For them, let me tell you about the situation in my home State of Montana. Folks in Montana would like

to expand CHIP eligibility as a way to provide more kids with access to health care. There is a ballot initiative under development

that would raise CHIP eligibility to 250 percent of poverty. That

would be an expansion from Montana’s current level of 185 percent

of poverty. Such an increase would add nearly 30,000 kids to the

rolls in Montana. Last month, Montana’s CHIP enrollment was

just over 16,000. Montana is poised to almost double its CHIP enrollment. Montana is poised to dramatically decrease the number

3

of uninsured Montana kids. Montana is poised to give thousands

of kids a better future.

But the August 17th directive has Montanans nervous. Montanans are worried that the directive will prevent the expansion.

Montanans are nervous that the administration will keep almost

30,000 kids in our State uninsured. I cannot understand why the

administration issued the CHIP directive. There are questions

about the process by which it was issued, and there are also questions about which data are right. I just want to know why covering

more kids, whether it is 30,000 Montana kids or kids anywhere in

the country, is not a good idea.

I hope that this hearing can help us to understand the CHIP directive. I believe that we should help our poor kids by providing

them access to health care. A clear majority of Congress believes

that, and the clear majority of American people believe that. The

CHIP directive goes in the wrong direction. It restricts coverage

when we should insure as many kids as we can. We need to provide—not prevent—access to health care.

So let us try to figure out how we can get back to the idea of

covering more kids. Let us try to get back to the idea of giving millions of kids a better future because, as we all should know, there

really should be no alternative.

Our illustrious subcommittee chairman has arrived.

Senator ROCKEFELLER. Thank you, Senator Baucus.

I need a few minutes to get organized. Why don’t you go ahead,

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Thank you. The subject matter of this hearing is perfectly legitimate and appropriate, and I am glad to discuss the issues that need to be discussed. I am a little disappointed

in the detraction from the bipartisan way that we approach most

things on this committee. I am not going to dwell on that, except

to say it is disappointing. I know it is not characteristic of everything this committee does.

That being said, I am supportive of the efforts of any member of

Congress—particularly members of this committee—to have questions answered. I am hopeful that this hearing will result in members getting answers to questions that they have about the State

Health Official letter that was sent by the Centers for Medicare

and Medicaid Services on August 17th last year.

I do not have fundamental disagreements with the goal of the

August 17th directive. While I do have some questions about how

the policy would work, I think the intent of the letter is laudable.

Before a State can expand to cover kids with higher incomes, they

have to cover their poor kids first. It makes absolutely no sense to

me that a State that is not covering poor kids should expand their

program to cover higher-income kids. States should be covering

their lower-income kids first. Now, that is just common sense to

me. Beyond just being common sense, we also know that coverage

of higher-income kids leads to what we call crowd-out for kids with

private insurance.

4

Now, think about that for a second. If we do not require States

to cover their low-income kids first, a State can cover higherincome kids while lower-income kids still go without coverage. Such

a State would be devoting resources then to finding and covering

those higher-income kids, and then another higher-income kid

could lose private coverage through the crowd-out effect.

When tax dollars are spent to provide coverage to someone who

was already covered, that does not make any sense either. It is not

an effective use then of scare Federal dollars. Letting that continue

makes no sense whatsoever. I am pleased that this hearing includes witnesses then who will testify on the underlying issue at

the core of the August 17th directive, that is, the issue of ‘‘crowdout.’’

Crowd-out occurs when families give up, or do not take, private

health insurance in lieu of enrolling in public coverage. As we

learned from the excellent report from the Congressional Budget

Office, crowd-out is a particularly acute problem in the SCHIP program because crowd-out occurs more frequently at higher income

levels.

The report also concludes that, ‘‘in general, expanding the program to children in higher-income families is likely to generate

more than an offsetting reduction in private coverage than expanding the programs to more children in low-income families.’’

CBO estimates that ‘‘the reduction in private coverage among

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

coverage resulting from SCHIP. In other words, for every 100 children who enroll as a result of SCHIP, there is a corresponding reduction in private coverage of between 20 and 50 children.’’

This high incidence of crowd-out is problematic for many reasons.

It makes it more difficult for employers to offer health insurance

coverage, and it inappropriately uses tax dollars to fund coverage

that could have been provided by, or from, an employer.

Concern about crowd-out is not a new issue, and it is certainly

not a new subject of a directive letter from an administration. I

have here, Mr. Chairman, a ‘‘Dear State Official’’ letter sent out

February 13, 1998 by, obviously, the Clinton administration. I

would like to read some excerpts from this letter. The purpose of

this letter is ‘‘to provide guidance on the standards that the Department of Health and Human Services will use to evaluate State

strategies to prevent this type of substitution of coverage.’’

The letter also states, quoting again from the 1998 letter, ‘‘The

crowd-out concerns increase at higher levels of poverty and the Department will be applying greater scrutiny in these cases.’’ And an

additional quote: ‘‘After a reasonable period of time the Department will review States’ procedure to limit substitution. If this review shows that they have not adequately addressed substitution,

the Department may require States to alter their plans.’’ That is

from that 1998 letter.

Therefore, under the criteria established during the Clinton administration, it is appropriate for issues of crowd-out to be addressed by the administration, and States were put on notice that

they could expect further efforts to address crowd-out should current policies and procedures prove inadequate.

5

I hope this will be a constructive and informative hearing. I hope

that members will not be drawn into protracted discussion about

what did or did not happen last year during consideration of

SCHIP. I worked on that. I am sorry we did not get a bill to the

President for signature, or even the overriding of a veto, but we did

not, so going back on that will not be productive. I hope that members will focus on moving forward in a positive, bipartisan manner

to cover eligible but uninsured kids.

Thank you, Mr. Chairman.

Senator ROCKEFELLER. Thank you, Senator Grassley. I want to

respond on that crowd-out, but not now. We will wait until we get

into the discussion.

Senator GRASSLEY. I am going to have to leave in 15 minutes, so,

if you want me to hear something, I would appreciate hearing it

from you right now, or I will listen on television.

Senator ROCKEFELLER. I have a 35-minute speech.

Senator GRASSLEY. All right. Then I will wait and talk to you privately.

Senator ROCKEFELLER. All right.

Senator HATCH. Could I leave while you give your 35-minute

speech? [Laughter.]

Senator ROCKEFELLER. No. No. No.

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,

A U.S. SENATOR FROM WEST VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON HEALTH CARE, COMMITTEE ON FINANCE

Senator ROCKEFELLER. I am very grateful, obviously, to each of

our witnesses and those who will follow, but I would especially like

to thank Mr. and Mrs. Novak, who are here, who came all the way

from Lebanon, OH. CHIP was created for people like the Novaks,

hardworking Americans who cannot afford health insurance for

their children. I thank them for coming here to share their family’s

experience, which they will do.

When it comes to reducing the number of uninsured children,

States are on the front lines of delivering comprehensive and affordable health care. They know what works best in their individual States and have developed innovative, and for the most part

laudable, proposals for guaranteeing coverage for children.

A cornerstone of the Children’s Health Insurance Program has

always been State flexibility. In a time of growing economic uncertainty—putting it mildly—we should be making it easier, not harder, for States to cover these working families who are in need of

assistance.

This is particularly true since many employers may be reducing

private coverage because of those same declining economic circumstances. That is why I am so frustrated with the administration’s August 17th directive that has placed an unattainable mandate on States, a flat-out unattainable mandate on the States,

knowingly so.

In my judgment, its aim is simple: to make it virtually impossible to provide greater access to health insurance for children.

This is repugnant. To be blunt, the August 17th directive is a solution to a problem that does not exist except in the minds of Washington bureaucrats or those who are ideologically inclined.

6

It is clear to this Senator, and a great many others on this committee, that the real genesis for the directive can be found in last

year’s CHIP reauthorization negotiations. When the Bush administration realized it was not going to get its way because both Houses

had passed this bill, because of the overwhelming bipartisan majority, they resorted to the only options left open to them, and that

was the veto, which is a very clear option, and an administrative

fiat which would take effect, the veto notwithstanding. With the stroke of a pen and for less than $100 in postage, the

administration has unleashed a tidal wave of financial uncertainty

that will be measured in the loss of billions of dollars in State aid,

and hundreds of thousands of children will be denied access to

health insurance.

Now, how one lives with that, I am not sure. But they decided

that they could, and they put out the August 17th directive. That

is not right. It is not fair. It represents the worst kind of partisanship there is in Washington, and it is no wonder that the American

people, who overwhelmingly believe that we should be applying

health insurance to children who do not have it, think so little of

government.

No other voluntary Federal—I will say this slowly: no other voluntary Federal means-tested program has enrollment of 95 percent

as some kind of a formula. None other. This one alone.

Participation in the Food Stamp program is approximately 50

percent, roughly 30 percent below the participation rate for CHIP.

Only in Medicare Part B, where seniors are automatically enrolled

unless they specifically opt out by their own choice, is there a higher than 95 percent participation rate, and that is 95.5 percent.

My State of West Virginia has proposed an initiative to cover uninsured children up to 300 percent of the Federal Poverty Level,

which is $52,800 a year for a family of three. The State phased in

coverage at 220 percent of the Federal Poverty Level, FPL, in January of 2007, but has not taken any further steps to implement the

planned expansion, which they cannot afford because of the August

17th directive.

The August 17th CHIP directive will mean that my State will

not be able to move forward with this expanded coverage, and approximately 4,000 more children will remain uninsured. This committee will hear testimony today from a number of witnesses. Some

will discuss the deeply personal impact that this directive has had

on families across the country. The administration will attempt to

explain why it believes it has the legal authority to issue this regulation, and I will be quoting law, which I have never done before,

so I am kind of looking forward to that.

CBO and CRS will testify as well, along with the National Academy of State Health Policy and The Heritage Foundation, and I

look forward to hearing from all the witnesses.

I now look forward to hearing from Senator Hatch.

OPENING STATEMENT OF HON. ORRIN G. HATCH,

A U.S. SENATOR FROM UTAH

Senator HATCH. Well, thank you, Mr. Chairman.

The State Children’s Health Insurance Program, CHIP, is one of

the few programs that many of us on both sides of the aisle put

7

in the category of motherhood and apple pie. In 1997, Senator Kennedy, the late Senator Chafee, and you and I were able to put together a health care bill that provided care to children of the working poor, basically, people who worked, but just did not earn

enough money to get family health insurance. Today, 6 million children have health coverage because of the CHIP program.

The Balanced Budget Act of 1997 created CHIP and it became

the glue that put that deal together. Republicans could not vote

against it because it had the balanced budget aspect, and the

Democrats could not vote against it because we had CHIP in there.

But this is a new title 21 of the Social Security Act.

Now, this program provides States with Federal matching funds

to cover uninsured low-income children in families with incomes

that are above the Medicaid eligibility levels, in other words, children of the working poor, by and large.

When designing their CHIP programs, States may expand their

State Medicaid programs, create separate State programs, or use

a combination approach. All 50 States and the District of Columbia

have CHIP programs.

Chairman Rockefeller, when I was chairman of this subcommittee, I think you will agree that we had two well-balanced

and thoughtful hearings on the CHIP program. Let me be clear: I

strongly believe that you as chairman, and others, have every right

to get answers to your questions regarding the August 17th CHIP

guidance letter. In fact, I have some questions about it as well.

However, I do agree with the thrust of the letter. Low-income uninsured children below 200 percent of poverty should have health

coverage before State CHIP programs are allowed to raise their

CHIP income eligibility levels over 250 percent of the Federal Poverty Level. Two hundred percent of the Federal Poverty Level is $42,400, the

last time I checked. For a poor family of four, 250 percent of the

Federal Poverty Level would be $53,000.

Now, I want to turn to the CMS guidance letter on CHIP that

went to State health officials last August. First and foremost, when

we were writing the original CHIP legislation back in 1997, we all

agreed that the purpose of the CHIP program was to cover lowincome uninsured children. I still believe that providing coverage

of these children has to be our first priority.

Mr. Chairman, after spending way too much time with you last

year—I know you agree with that—as you recall, during last year’s

deliberations, we found that, while 6 million children were covered

by the CHIP program, another 6 million low-income children who

were either eligible for CHIP or Medicaid were still uninsured. It

is my feeling that these 6 million low-income uninsured children

should receive health care coverage first before States expand their

CHIP income eligibility levels any higher. Again, I know you agree

with that.

In my opinion, CMS attempts to achieve this goal through its August 17th, 2007 guidance letter. Do I believe that some of the parameters laid out in this letter make it difficult for States to

achieve this goal? I have to admit that I do. I hope our witnesses

will shed some light on some of the issues that have been raised.

For example, the 95-percent threshold for States and the five criVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
8

teria that States must meet on crowd-out. But in the end, do I believe that we need to provide this coverage in a way that is coordinated with other sources of health benefits coverage, as stated in

the CMS letter? Of course I do.

I firmly believe that families, especially those with higher incomes who have other health care options, should be encouraged to

pursue them. I also believe that Congress must do everything possible to discourage crowd-out, especially when there are low-income

uninsured children who have no other private coverage options.

Again, the number-one goal of the August 17th CMS guidance

letter was to provide health care coverage to poor, uninsured children first, something that I strongly support.

One of the most compelling points that has been made over and

over again is that the incidence of crowd-out increases from 25 percent to 50 percent when higher-income families are covered by

CHIP. So it is my hope that today’s hearing will explore ways to

lower crowd-out and at the same time increase the number of lowincome uninsured children who are covered by CHIP.

Now, I look forward to hearing the testimony of today’s witnesses, and am especially interested in all of your views here today

on how this guidance will impact crowd-out.

I know several of our witnesses today, especially Mr. Peterson

and Ms. Owcharenko, made special arrangements to be with us

today. I want you to please know that we are very appreciative of

that, and we greatly appreciate your efforts to be here today.

Thank you, Mr. Chairman.

Senator ROCKEFELLER. Thank you, Senator Hatch.

And I have to apologize because I failed to recognize that Ms.

Cindy Mann, who is executive director of the Center for Children

and Families, Health Policy Institute, Georgetown University,

Washington, DC, is also going to be testifying, and I apologize to

her.

I think we should hear, first, from Mr. Dennis Smith, who is the

Director for Medicaid and State Operations, Centers for Medicare

and Medicaid Services.

STATEMENT OF DENNIS SMITH, DIRECTOR, CENTER FOR MEDICAID AND STATE OPERATIONS, CENTERS FOR MEDICARE

AND MEDICAID SERVICES, WASHINGTON, DC

Mr. SMITH. Thank you, Mr. Chairman, for inviting me today.

Again, it is a great pleasure to appear with the Finance Committee. I do look back with great fondness on my time with the Finance Committee, and specifically their work 10 years ago with

your leadership, the leadership of Senator Hatch, and others to create SCHIP, which has been, I think, an outstanding success.

We have added now 7 million children in 2007 who were enrolled, at least for some point in time, in the SCHIP program.

Moreover, another 10 million children have been added to Medicaid, compared to what the enrollment numbers were 10 years

ago. This is done while the number of children in the United States

living in families below 200 percent of poverty has actually declined, so the number of children has gone down while we have

added to the ranks of Medicaid and SCHIP.

9

As mentioned, SCHIP was a great bipartisan compromise. In addition to defining whom the special enhanced match rate is for,

Congress created a special match rate, which now averages 70 percent nationally compared to the 57 percent match rate of Medicaid.

Congress wanted to create an incentive to make certain States

would take up the SCHIP program, and time has certainly proven

that to be the case.

The Congress appropriated $40 billion over 10 years within the

initial program reauthorization, but SCHIP was never designed,

nor funded, to serve all 78 million children in the United States at

all income levels. In addition to the discussions on income eligibility, Congress identified at that time and discussed the issue of

crowd-out, or the substitution of new public coverage for existing

coverage.

Ultimately, the SCHIP legislation did not adopt specific Federal

standards for preventing substitution, but it did require States to

prevent crowd-out and provided a mechanism through the State

plan review process for the Secretary to protect the Federal interest in preserving existing sources of coverage.

Initially in the first few years, as States took off very quickly,

there were a handful of States that also went to higher income levels. After June of 2001, basically no State expanded coverage above

the definition of the target low-income child until, again, in 2006.

After this 5-year period from 2001 to 2006 in which no State

raised its Medicaid or SCHIP eligibility level above 250 percent,

there were clearly new interests or pressures among additional

States to expand eligibility beyond the statutory definition.

Over time, it became apparent that further action was necessary

to remind States of their obligation for preventing crowd-out. An

essential question of the original debate—for whom is the enhanced

matched rate intended—reappeared for the Federal Government

over the past 2 years and is now with us today. We certainly believe we had both the authority and the obligation to act on this

matter of crowd-out.

On the SCHIP, the crowd-out data has certainly appeared to

have occurred. As 16 million children have been added to Medicaid

and SCHIP over the past decade, the percentage of children in families between 100 and 200 percent of the Federal poverty level with

private insurance has declined. In 1997, according to the 2006 National Health Interview Survey, 55 percent of children in families

with income at this level had private insurance; by 2006, the percentage had declined to 36 percent.

At a minimum, we believe that we should not accept substitution

as inevitable and simply be indifferent to potential ways to reduce

it. I posed a number of questions in my testimony which I think

are important, to talk about crowd-out, and, with the jurisdiction

of the Finance Committee certainly over the Social Security Act

and the Internal Revenue Code, it is uniquely positioned to be having that discussion, and again, who that 70 percent match rate is

for.

The 95-percent threshold that we set in the State Health Official

(SHO) letter of last August, we believed that that was aggressive

but, in fact, achievable. In our discussions with the States, currently there are 16 States and the District of Columbia above 250

10

percent of the Federal Poverty Level. Based on our discussions

with them, at least nine of those States, based on their data and

the guidance that we have provided, will in fact meet that 95-percent threshold. So, we believe it is aggressive but achievable.

Finally, I think it is also important to remember there are also

options for States. States can extend—thanks to the leadership of

Senator Grassley, particularly in the Deficit Reduction Act that

created a new eligibility group for families up to 300 percent of the

Federal Poverty Level—coverage to children with disabilities, for

example, in Medicaid. The State of New York, I think, is a very appropriate example to discuss.

Again, as you realize, in New York there is no upper income

limit on children at income levels from New York. Families in New

York today, and last year before the SCHIP SHO letter came out,

were buying into the State program. The State per-member, permonth is about $154 on average per month. So with the family contribution for private coverage, the additional amount is about

$1,800, a little over $1,800 in New York, the difference between

family coverage and single coverage. That works out to about $152 on average. So, if the State alone

were to provide just its State contribution which would have been

provided by bringing those families in to SCHIP, that State’s share,

if a family had two people, the State would be paying roughly the

same amount of money using only State dollars to buy the same

amount of coverage, and the family share itself would drop to about

$46.

So there are options for the States to consider, I believe. Certainly our work in the SHO letter, the intent is not to prevent.

Again, States can go to higher income levels if we are able to protect the integrity of the program to cover those low-income children

first before States expand to higher income levels.

Thank you, Mr. Chairman. I look forward to your questions.

Senator ROCKEFELLER. Thank you.

[The prepared statement of Mr. Smith appears in the appendix.]

Senator ROCKEFELLER. Dr. Orszag?

STATEMENT OF DR. PETER ORSZAG, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC

Dr. ORSZAG. Thank you very much, Mr. Chairman, Senator

Hatch, members of the subcommittee.

I am going to be brief, and I will make three main points. First,

SCHIP has significantly reduced the number of children who are

uninsured in the United States. If you look, for example, between

100 and 200 percent of poverty, that uninsurance rate fell by about

25 percent between 1996 and 2006. That is the population that was

most affected by the introduction of SCHIP, and that is where

uninsurance rates fell the most. At higher income levels, that

uninsurance rate remained roughly stable. There was also some reduction in uninsurance rates below 100 percent of poverty, likely

attributed to the increased take-up of Medicaid that was associated

with outreach efforts and other steps that were introduced as part

of SCHIP. So, that is the first point.

The second point is, the enrollment of children in public coverage

did not correspond to a one-for-one reduction in the number of unVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
11

insured kids, however, because some of the newly enrolled children

did have coverage or would have had coverage even in the absence

of the public program. Let me emphasize, almost any effort to expand government spending or to provide a tax expenditure to expand coverage will inevitably involve displacing private coverage to

some degree. In the case of SCHIP, the program provides a source

of coverage that is less expensive to enrollees and often provides

a broader range of benefits than alternative coverage, and therefore

may be more attractive to them. Our estimates suggest that, as has

already been said, of every 100 kids added to the program, somewhere between 25 and 50 would otherwise have had private coverage.

My final point has to do with the August 17th directive. Let me

make a few subpoints there. First, it is important to look at the

distribution of children covered under the program. Survey and administrative data suggest that something like 80 percent of enrollees are under 200 percent of poverty, about 15 percent are between

200 and 250 percent, and perhaps 5 percent or so of beneficiaries

under SCHIP are currently above 250 percent of the poverty

threshold. So that provides some indication that, at least with regard to current enrollees, the directive may not have an overwhelming effect because it is such a small share of beneficiaries.

Second, and perhaps more importantly, our official baseline involves very constrained funding levels for the program under which

the number of enrollees would actually decline over time. Against

that official baseline, the directive has little effect. Against an alternative approach or against an expansion of the program if the

program were expanded, however, the directive could have a much

more significant effect. As States had the ability to expand their

programs, the directive would have more ‘‘kick’’ to it, as it were.

Finally, let me just comment very briefly on two aspects of the

test itself, or the directive itself. With regard to the 95-percent test,

which I know Mr. Peterson will talk about in more detail, my understanding is that Mr. Smith and CMS intend to apply that test

using a methodology that is consistent with administration estimates of the number of uninsured children in the United States.

CBO has already written a letter to this committee, to Senator

Baucus, in July of 2007 in which we stated that we regarded the

more conventional estimates of the number of uninsured children

as ‘‘more appropriate for considering policies aimed at enrolling

more eligible children in those programs,’’ that is to say, Medicaid

and SCHIP. But be that as it may, we also have to just take the

methodology as given.

The second point that I want to make is, with regard to the specific provisions to reduce crowd-out, there is new research suggesting that it is not clear that things like increased cost sharing

and expanded waiting periods actually reduce crowd-out rates. So,

I would just urge a little bit of caution in jumping to the conclusion

that some of the provisions that are proposed to reduce crowd-out

rates will actually succeed in doing so, given that the existing research is raising questions about whether they are effective.

Thank you very much, Mr. Chairman.

Senator ROCKEFELLER. Thank you, Dr. Orszag.

12

[The prepared statement of Dr. Orszag appears in the appendix.]

Senator ROCKEFELLER. Mr. Peterson?

STATEMENT OF CHRIS L. PETERSON, SPECIALIST IN HEALTH

CARE FINANCING, DOMESTIC SOCIAL POLICY DIVISION,

CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, DC

Mr. PETERSON. Chairman Rockefeller, Senator Hatch.

Senator ROCKEFELLER. I apologize. Dr. Orszag is Director of the

Congressional Budget Office. Dennis Smith, we already know, is

from CMS. And you, sir, are a specialist in Health Care Financing,

Democratic Social Policy Division, Congressional Research Service.

Mr. PETERSON. Domestic Social Policy, not Democratic. [Laughter.] I will leave that alone.

Senator ROCKEFELLER. It must be the season. [Laughter.] My

apologies.

Mr. PETERSON. Thank you.

The August 17th letter being discussed today lists six requirements for States seeking to enroll children with income above 250

percent of poverty. Four of these require States to make substantive changes to their SCHIP programs or to comply with new

administrative mandates. The other two require States to assure

they meet certain program impact measurements. My testimony focuses exclusively on one of those two, what I will call the 95-

percent test, which has been alluded to earlier.

This test is that the State must make assurances that it has ‘‘enrolled at least 95 percent of children below 200 percent of poverty

who are eligible for CHIP or Medicaid.’’ The policy goal of the test

appears to be that States should ensure adequate coverage of eligible low-income children before permitting coverage of higherincome children. Although this may be a desirable goal, sound program evaluation also requires the use of measurement standards

that are clear and valid.

If the standards are clear, then States would know generally

what methods and sources of data are or are not acceptable. It

would also help ensure a transparent, equitable review process

with less potential for arbitrary approvals or disapprovals. However, such standards have not yet been made clear by CMS.

Nevertheless, CRS has provided two examples in the written testimony of attempts States might make to demonstrate they are

meeting the 95-percent test. Although it is unclear whether CMS

would approve them, or indeed whether they should, these analyses

are based on the Census Bureau’s Current Population Survey, the

only source of data providing State-level estimates for all 50 States

on children’s health insurance and family income.

The CPS estimates of uninsurance among low-income kids are

currently used to determine States’ SCHIP allotment. Although the

published estimates indicate that no State covers 95 percent, if one

factors in the survey’s margins of error, as in Table 1 of my testimony, 18 States could claim that the 95 percent level has been

reached, including 8 of the 17 currently affected States.

Even so, there are fundamental concerns with the CPS’s insurance estimates beyond the typical margins of error. For example,

the CPS is known to under-count Medicaid and CHIP enrollment

by several million people. Moreover, CMS said in the letter that the

13

95-percent test is to be calculated among low-income children who

are eligible for CHIP or Medicaid.

Now, no national survey asks respondents whether they are eligible for Medicaid or CHIP. For example, the CPS does not ask noncitizens whether they are in the country legally, which is a factor

in determining one’s eligibility. Thus, to estimate how many uninsured children are eligible for public coverage, analysts have to

make adjustments to the data. Not surprisingly, different adjustments yield different results.

For meeting the 95-percent test, CMS correctly noted that with

data adjustments for individuals’ immigration status and the Medicaid under-count, ‘‘a number of States are likely to meet the 95-

percent threshold.’’ So, as shown in Table 2 of my testimony, CRS

did an analysis to adjust for these two factors as a State might do.

The results were that nearly every State appeared to have enrolled

more than 100 percent of eligible low-income children. Obviously,

this result lacks face validity, although it is not clear whether CMS

would accept or reject such a result.

Although additional—and arguably justifiable—adjustments

could be made until every State is between 95 percent and 100 percent, all these adjustments raise questions about the final validity

of such results.

I hope my testimony has been useful in framing some of the

issues about whether the 95-percent test is a valid absolute standard and, if it is appropriate, about the transparency and clarity

that should be provided to States having to perform such tests, especially given the existing data and methods.

Thank you.

Senator ROCKEFELLER. Thank you very much. Again, my apologies.

[The prepared statement of Mr. Peterson appears in the appendix.]

Senator ROCKEFELLER. I would like to start off with a question

for Dr. Orszag.

Dr. ORSZAG. All right.

Senator ROCKEFELLER. The title of my question is ‘‘fuzzy math.’’

Dr. ORSZAG. Not mine, right?

Senator ROCKEFELLER. Not on your part.

Dr. ORSZAG. All right.

Senator ROCKEFELLER. The purpose of the question is to point

out how the administration uses data inconsistently in order to fit

whatever point they want to make. If I recall correctly, did CBO

not issue a letter to Congress explaining why the administration’s

estimates were not an appropriate measure of the number of eligible, but unenrolled, children? What were some of the problems with

those estimates?

Dr. ORSZAG. This refers to the July 2007 letter that we did send.

I think perhaps the biggest issue involved the concept behind the

figure. In particular, take two kids, one of them is insured for the

first half of the year, and the second of whom is insured for the

second half of the year.

Under the administration’s approach, both of those kids are sort

of counted as fully covered for the whole year, even though one

might think that, since they are each uninsured half the year, that

14

there would be some policy interest, perhaps, in picking those kids

up during the uninsured period. That is a big difference between

the more traditional estimates in the literature and the roughly

one million estimate that the administration issued. There are also

some other methodological differences. So the ever-insured versus

insured-during-a-month is a big conceptual difference and, in our

judgment, for the purposes of evaluating programs like SCHIP and

Medicaid, the figures that are at a point in time or are interpreted

at a point in time are more appropriate.

Senator ROCKEFELLER. Thank you.

Now, to follow up with a point that Mr. Peterson made, the administration is claiming that States can, in fact, meet the 95-

percent participation rate standard, citing estimates that many

States have participation rates in excess of 95 percent.

I would like, before I complete the question, to make a point

there. There is no way on earth—and I was a Governor for 8

years—that I could possibly conceive of getting 95 percent of West

Virginians below the level of 200 percent of poverty signed up for

this program. It just cannot happen. We have tried every single approach. This came in after I was Governor, obviously, but we tried

everything. School Lunch programs, all the ways we could outreach. You cannot do it.

Some of them may not want it because their parents may be

afraid of what they are getting into, because a lot of people are

afraid of health care and often turn down opportunities for health

care for fear that, although they have enough bad news in their

life, they may have to take a chance on something new. So, I just

want to sort of stipulate that.

Are you familiar with the methodology that CMS is using, and

do you find their methodology reasonable, and do you find any

methodology to be credible that produces a participation rate in excess of 100 percent? That does seem to be a galactic goal.

Dr. ORSZAG. Are you asking me?

Senator ROCKEFELLER. I am asking you.

Dr. ORSZAG. As CBO has already said, our view is that, for the

purposes of evaluating programs like SCHIP and Medicaid, that

more traditional estimates, which would not in general generate results anywhere close to 95 percent for the majority of States, would

be more appropriate. That having been said, we are in the position

of, for purposes of evaluating the impact of the directive, having to

simply look at what the administration is intending to do.

It reminds me of the joke about the guy who won a lottery by

picking the number 36. Someone said, why did you pick 36? He

said, well, I have six grandkids and their average age is seven, and

six times seven is 36. I do not know what to do with that, other

than to say he won the lottery. [Laughter.]

Similarly, if the administration is going to apply a standard,

however defined, in which the 95-percent test in general does not

bind, we have to predict basically what the administration intends

to do and how it will be applied. It is not up to us to evaluate

whether it is or is not a reasonable interpretation.

Senator ROCKEFELLER. I thank you, sir. My time is up.

Senator Hatch is not here. Senator Wyden is.

Senator WYDEN. Here is Senator Hatch.

15

Senator ROCKEFELLER. Senator Hatch comes first. Good timing,

sir.

Senator HATCH. I apologize for slipping out on everybody. I want

to apologize for the noisy phone.

Mr. Smith, let me just start with you. Would you like to respond

to Dr. Orszag’s comments regarding the five strategies to reduce

crowd-out included in the guidance letter? How did CMS develop

these five strategies and determine their effectiveness? And I will

ask an additional question. Are there other areas that CMS could

consider to reduce the crowd-out?

Mr. SMITH. Thank you, Senator Hatch. A couple of things. One,

to first stress that we believe we have the authority to act, even

without doing the August 17th letter. We could have simply disapproved it and moved on from there.

We believed it would have been more beneficial, though, to

States to actually issue the guidance for what we would be expecting and to evaluate how we would act, and furthermore giving

States a year to come into compliance, to give them time to make

adjustments, to do things, as we have been discussing, to be able

to demonstrate they meet the 95-percent level, for example.

The 95-percent threshold. Again, we talked about the Medicaid

under-count. That Medicaid under-count is not a trivial amount.

The CPS data for the last year and the most recent ever-enrolled

data counted 20.7 million kids in Medicaid. They do not even count

SCHIP. They do not have an indicator for SCHIP.

Our administrative data, two sources of the administrative data

backed both by the statistical enrollment data and by the statistical information survey, show we have 36 million kids in the most

recent count. So, there is a difference of 16 million right off the bat.

Why we believed 95 percent was achievable also was the work

that the Urban Institute did for us last summer. Again, those researchers did, I think, the most rigorous research that has been

done, looking at these numbers and where they came from. They

not only took CPS data, but our data. They looked at specific

States, a sample of them. I think they have the most sophisticated

simulation model that anybody has been able to use.

So again, we based it on what we believed to be good, solid research and data. The difference between ever-enrolled and a point

in time, people can say, well, we should have picked point in time

rather than ever-enrolled. I think CRS actually produced a paper

last year, again saying the Urban Institute study was invalid,

using ever-enrolled.

We believed ever-enrolled was the right one to do, because,

again, the obligation is for the State to do outreach to find that

child. So the State, from our perspective, if they went and found

the child, did their job. They went and enrolled that child. They did

the outreach work. Meeting the ever-enrolled target, I thought, was

the most important one.

In terms of the other criteria on uninsurance, the States that we

have talked about, making certain there had not been a decline in

private insurance, again, the States in our sample in these first 17

States, more than half of those States are indicating that that is

not an issue for them, that they can demonstrate that that decline

has not occurred in their State.

16

The issue of cost sharing, I think, again, is very important. Have

you created an incentive that the difference between the costs of

private insurance and public insurance is so vast, are you actually

creating an incentive to drop the care? I mentioned in my New York example, again, $154 a month for

a family at 400 percent of poverty, and many families are already

signing up. They already believed that that was a good deal. So the

issue is, does that 70 percent, or in this case in New York, did the

Federal dollars start replacing those dollars for something someone

already believed was a good investment?

The period of uninsurance. That clearly has been probably the

most controversial. The waiting period, again, was based on—in

1998 the Clinton administration had identified that as a strategy.

I think that strategy had been used by individual States as well.

At least five States, at least some point in time, have used a period

of uninsurance of 12 months.

That is not meant to be punitive, it was meant to be preventative, again to say, if you have private insurance—and what we are

talking about also, Senator, is group insurance. We are not talking

about coverage purchased in the individual market, which tends to

be even higher yet, from group insurance. Those crowd-out provisions are about group insurance.

We believe that, if you have that available to you, families typically pay a somewhat higher percentage of the cost of family coverage rather than the single coverage of the employer. But again,

we believed that those higher income levels—again, we are talking

about families making in excess of $53,000, now—are reasonable

criteria to, again, protect, who is that enhanced match rate for?

Senator HATCH. My time is up. That was a very good answer, but

you took up all my time. [Laughter.]

Mr. SMITH. Is that why it was a good answer?

Senator HATCH. Sure. I would love to hear you.

Mr. PETERSON. Could I just respond? Because he mentioned our

memo. The CRS did not, on that memo, say they did the right, best

thing here. What we said, and Peter alluded to this, we were asked

to explain some of these differences. Look, the administration is

saying 1.1 million, we are hearing 6 million. What is going on here?

In our memo, we simply explained why these differences occur.

Peter alluded to one, and that is that we are talking about different

time periods, different lengths of uninsurance.

In addition, and as I alluded to in my testimony, if you make different adjustments to the data, you are going to get different results. That is also what occurred. The 6 million number you hear

is adjusting a little bit for the Medicaid under-count, but the 1.1

million comes from eliminating the Medicaid under-count.

That means you are turning, in the data, Medicaid coverage on

for everybody until you match the administrative totals. The result

of that is you get nearly 100-percent coverage, which, Senator

Rockefeller, you mentioned that, even though this might be possible on paper, it may be unrealistic to think that this is really occurring on the ground.

Senator ROCKEFELLER. Thank you, sir.

Senator Wyden?

Senator WYDEN. Thank you very much, Mr. Chairman.

17

Mr. Smith, as much as anybody, I believe in a strong role for the

private sector in American health care. I have legislation with

seven Democrats and seven Republicans to do that. Until we have

reform, I am just very concerned that vulnerable kids are going to

fall between the cracks, and that is going to happen particularly

with this waiting period that you all have imposed.

So what I want to do is sort of unpack how this might work in

the real world. I know, Dr. Orszag, you have done a lot of research

into economic incentives as they relate to the uninsured. I think

my first question to you is, what is going to happen during this

waiting period, because it would seem to me that this could result

in a cost shift so that kids who might otherwise have been covered

with the Children’s Health Insurance Program could end up going

to hospital emergency rooms.

In other words, where do they go during that 1-year waiting period? I am sure that you may not have exhaustive analyses of this,

but based on your research in this area, what happens to the kids

in those families during that 1-year waiting period?

Dr. ORSZAG. Well, not based on any specific research, but it will

be the case that some of those kids will wind up in emergency

rooms because they are not covered otherwise in the meantime.

Senator WYDEN. I appreciate that answer. I would like to follow

up with you on the research, because I will tell you, Mr. Smith, as

sure as the night follows the day, those kids are going to get sick.

They are going to have nowhere to turn, and I believe they are

going to go to hospital emergency rooms. That is one of the reasons

that your policy is so flawed and why I strongly support you,

Chairman Rockefeller, in your efforts to turn it around.

One other question for you, Dr. Orszag, and then I will be happy

to go to the folks at CRS. Tell me a bit more about your research

on—I think I copied it down right—increased cost sharing does not

increase the crowd-out rates.

Dr. ORSZAG. It does not reduce it.

Senator WYDEN. It does not reduce it.

Dr. ORSZAG. Yes. Much of the best work that has been done on

crowd-out has been done by an MIT professor by the name of Jonathan Gruber. His most recent evidence on this question does suggest that increased cost sharing does not reduce the crowd-out rate.

The reason is, when you have more cost sharing you discourage enrollment. You are discouraging it for two types of people, the people

who would otherwise be uninsured and the people who would otherwise have private coverage.

It is really the ratio between those two and whether you are affecting one more than the other that will affect the crowd-out rate.

Again, his evidence suggests that you are not having any significant effect in terms of reducing crowd-out rates by imposing more

cost sharing. What you are doing instead is reducing enrollment

rates in the program.

Senator WYDEN. Another area that I am going to want to explore

with you further, and I will do in a couple of minutes because I

think in this area, again, the administration is looking at a flawed

policy. You can hurt poor people because they are going to have

these extra costs, and it does not look to me like you are doing

much to promote the private sector’s role in health care either. So,

18

we are going to want to ask you some more questions about that

as well.

Let me turn to the gentleman from the Congressional Research

Service. I probably use you all in health care as much as anybody,

so you ought to have the last word.

Mr. PETERSON. I would just want to comment on your first question. The folks at the Agency for Healthcare Research and Quality

did a paper where they said, let us just imagine that SCHIP went

away. Of course, that is just a little bit beyond the pale. But the

point was to illustrate that at least a portion of those Federal dollars would still get paid in some way, as you are suggesting. So

these kids are no longer in the program, in an SCHIP program, because of the waiting period, but that does not mean that those Federal dollars are not spent in some way that may be less efficient

in terms of their care as well.

Senator WYDEN. Well, it sounds like you are being too logical,

and heaven forbid that logic break out. That, of course, is something by Federal law that is required. By Federal law, hospitals are

required to take people who show up at the doors. For the reasons

I have outlined, as a result of this administration’s policy, which

I think is contrary to the good work of Senator Rockefeller and

Senator Hatch—this has been a bipartisan approach from the very

beginning. It is the only way we ever get anything important done

in health. I hope that the two of you can once again prevail on this

point.

Dr. Orszag, did you want to add anything?

Dr. ORSZAG. I just wanted to add very briefly that, while there

will be those cases, I do not want to leave the impression that Federal costs are the same. Basically there would be some hospital visits and other extreme cases, but when you cover fewer kids under

SCHIP, Federal costs are lower than they otherwise would be.

Senator WYDEN. Fair enough.

Thank you, Mr. Chairman.

Senator ROCKEFELLER. Thank you, Senator Wyden.

Now I believe it is Senator Stabenow.

Senator STABENOW. Thank you, Mr. Chairman. First, also, thank

you to you and Senator Hatch, Senator Baucus, and Senator Grassley for the really excellent work that has been done on SCHIP.

We have been talking a lot about words like ‘‘crowd-out,’’ all

kinds of words. I would like to just bring this down to home. What

this policy does, Mr. Smith, is say to a mom with two children who

makes $33,000 a year, that the State would not have the option of

helping them without going through all this directive and waiting

a year—a year—in a child’s life before being able to get health

care.

So I think we need to bring it down to, first of all, the real numbers about what this means. We also know that for that mom and

two kids, it is reasonable—probably conservative—to say that, if

she were going to go out and buy this insurance in the private sector, just an individual policy, she would spend at least $1,000 a

month. If she has a special needs child, as I know our witnesses

have, $1,500, $1,800 a month. So, let us say conservatively $1,000

a month. That is $12,000 a year that you deduct from the $33,000

income. So that is what we are talking about.

19

We are talking about basically taking more than a third of the

income coming in from a mom with two children. Based on our

Federal Poverty Level numbers, 200 percent of poverty is $32,454,

so anything above that $32,454. That is the situation that a mom

with two kids finds herself in.

Let me go to, Senator Wyden was talked briefly about use of

emergency rooms. Let me just share a real-world experience for us

in Michigan, with a lot of employer-based health care. Employerbased health care has gone down, not because families want it to

go down, it is going down because of the cost of health care, because of global competition, because of a number of things.

More and more families are using the emergency room. When

they use the emergency room they get treated, as they should, by

the hospital, and then those costs get rolled over onto employers

who see their rates go up and then more of them drop people from

insurance, not because they want to but because they are in a terrible situation.

So one of the things that I would like an answer to, you had here

as one of your criteria that States must certify that coverage levels

under employer-sponsored health insurance have not fallen by

more than 2 percentage points over the previous 2 years, when in

fact employer-based coverage has fallen by 5 percent nationally,

more than that, certainly, in my home State where employers, for

years, have done the right thing.

At the same time, uninsured children, the percentages, have

gone up in the last decade. So my question is, what is the rationale

for creating a provision that says, if there is a decline in employerbased health insurance because of the economy, that a State cannot

step in to help the children who have been affected by that decline?

Mr. SMITH. Thank you, Senator. A couple of different things, if

I may. Again, in your example of the mom with two kids, if she

is below 250 percent of poverty, then the policies do not affect her.

If she is above 250 percent of poverty and she had private individual insurance, it does not affect her either. The crowd-out is

about private insurance through the employer market.

In terms of what we were trying to look at, how do the States,

looking at that indicator that you made reference to in terms of private insurance not declining, again, we have looked at it from a

couple of different perspectives. We do believe States do have some

impact on the private market.

I think that you have examples. Governor Schwarzenegger, for

example, in health care reform last year talked about the MediCAL

rates being so low that it was contributing to the cost of private

insurance on everybody else, I think around 17 percent. Everyone

with private insurance was paying that additional amount because

MediCAL was so low. You have other States, New York on the opposite end, where health care is so high it is also having an impact.

So we do believe that States have an impact on their market for

the cost of health insurance, cost of health insurance being a prime

driver in terms of whether or not insurance will be taken up.

Again, this was a criterion that we looked at. In the 17 States that

are involved, as I said, a majority are saying that has no impact.

Private insurance has not gone down in those States, so we have

not believed that to be a factor.

20

Senator STABENOW. So what are you saying to States like mine

where, in fact, private insurance has gone down and our State is

attempting to address that? It is actually looking to CMS for approval to be able to do something to help that. We really have not

answered the question in terms of why the decline in employerbased insurance is relevant to this situation. I mean, if the

employer-based insurance is going down, you are saying it is because they have a Children’s Health Insurance Plan in their State?

Mr. SMITH. Again, what we were trying to look at as an indicator, this impacts the relationship between public coverage and

private coverage. I think there is a relationship. Our criteria that

we placed in there were, again, to help the States to explain to us

what was going on in their market. The States that are currently

at 250 percent or above seem to indicate at this point that that is

not going to be an issue for them.

Senator STABENOW. I would just say—and I am sorry I have gone

over. I am sorry, Mr. Chairman. I just want to say for the record,

though, that I think it is also important to note that the congressionally mandated 10-State evaluation of Children’s Health Insurance, while it found that 28 percent of the newly enrolled children

had had coverage before, half of them had lost private insurance

coverage for involuntary reasons. In other words, the parent lost

their job or they became divorced, or et cetera, et cetera.

Mr. Chairman, I will stop at this point. I find this to be a very

unfortunate discussion in terms of a very unfortunate directive

with no input before it happened, no ability for us to discuss something that makes sense for families, and it is very, very disturbing

to me. Thank you.

Senator ROCKEFELLER. Thank you, Senator Stabenow.

And now, Senator Lincoln.

Senator LINCOLN. Thank you, Mr. Chairman. And thank you for

bringing us together. As Senator Stabenow has mentioned, I think

a lot of us are very concerned and troubled. With all the hard work

that we have tried to put into bringing about a bipartisan resolution to the CHIP extension and the tremendous opportunity we

have to cover more of our hardworking American families and their

children, it just gets more and more frustrating when we continue

to see the number of uninsured growing in our country.

We know how desperate our Nation is to get its arms around

these uninsured and put them into a place where we can get a better handle on providing them a better quality of health care and

better access, and certainly making sure that they can be insured.

So, it is frustrating to us all, I think, to see us stymied in this way.

Mr. Smith, I understand this is your last week at CMS. Is that

correct?

Mr. SMITH. Yes, Senator.

Senator LINCOLN. Well, you have been there since 2001, so that

is quite a stint you have had there. I am sorry. I came in late, Mr.

Chairman. That might have already been brought up. But thank

you for your service there.

Senator ROCKEFELLER. There was a nuanced comment.

Senator LINCOLN. All right. [Laughter.]

On the statutory authority, Mr. Smith, I just was curious because there was quote from you in the New York Times on the AuVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
21

gust 17th directive, to the effect that you were saying, to be consistent and logical, you have to apply the criteria to Medicaid and

SCHIP, or to CHIP. Is that a correct statement? I guess if it is, is

it true that CMS is applying this same directive to Medicaid, I

guess, essentially placing a cap on an entitlement program? Is that

the intent of the comment?

Mr. SMITH. My comment, Senator, was from a policy perspective.

Again, Medicaid being for the lowest-income of all, SCHIP came

along and was built on top of Medicaid. Logically, it does not make

sense—to me, anyway—to put Medicaid back on top of SCHIP. So

from a policy perspective, it does seem to be consistent to apply the

policies evenly.

As well, going back to the original discussion and compromise of

SCHIP, I think in large part we were trying to strike a balance so

States were not necessarily tilted to Medicaid or a separate SCHIP

one way or another, even though you do deal with the entitlement

of Medicaid. There are some reasons some States went Medicaid,

some States went to SCHIP itself. But I think at the time we were

at least trying to, policy-wise, not try to tilt the balance one way

or another.

Senator LINCOLN. So what I am hearing you say, I am assuming,

is that you do not believe that placing a cap on Medicaid is a

statutorily——

Mr. SMITH. Medicaid has its own distinct rules in title 19 that

do distinguish it in some respects from a separate SCHIP.

Senator LINCOLN. Well, I am operating under the assumption

that it does require congressional approval to put caps on Medicaid

as a mandatory program. Would you agree with me on that?

Mr. SMITH. To put in an upper income limit on Medicaid, the

statute works—I mean, there is an interaction between SCHIP and

Medicaid. If you are SCHIP-level, you cannot be Medicaid. There

is the definition of an optional target low-income child within Medicaid, so we carried over part of the definition of the target lowincome child to the Medicaid side.

As I said, from a policy perspective, if you allow Medicaid to go

higher, or again with no cap at all on eligibility, then you have created a pathway around what I believe the intent was, again, the

enhanced match of SCHIP, which was supposed to be for a specific

population. So, if you allow Medicaid to go around SCHIP, then in

effect you are going around that relationship.

Senator LINCOLN. I am not sure you and I agree on that, but I

am not sure exactly what you are saying. So, I may come back to

it. [Laughter.]

Let me see here. I had another question for you.

With Secretary Leavitt’s admission that HHS did not have the

authority to stop proposed expansion, he sent a letter to Senator

Grassley saying that, under those current relations, we have no authority to disapprove them, and that is solely based on income disregards.

The Secretary indicated that he wanted to change the policy, but

he acknowledged that the law gives States great flexibility to define income. Is that what you are trying to say to me? I mean, in

light of those statements, I guess—I do not know. I am confused

here. It seems like just a few weeks short of that, or maybe a few

22

weeks later, CMS discovered it really could reject States’ requests

to cover children above 250 percent of the Federal Poverty Level.

So was there confusion there?

Mr. SMITH. I hope not, but if there is, I will try to explain. I

think that the discussion at the time and the inquiry at the time

was specifically about the Secretary’s authority to disapprove a

plan amendment just based on the Secretary’s authority. The response was, because family income was left to the States and there

had not been regulations promulgated limiting that, that the overall authority had been delegated to the States. Again, history had

told us, States in fact had already been approved at those higher

income levels.

As I mentioned in response to another question, we could have

made potentially a different policy choice of simply taking the theory that the Secretary could have disapproved it and simply disapproved it based on income, taking a theory that, again, the Secretary had the authority to enforce on substitution and simply use

that authority, but we believed that this issue was so important

that, in fact, we should go and put out a guidance out there for the

States and for the Congress to be able to look at this issue of substitution.

Senator LINCOLN. Do you think that was because we were not

clear enough about the intent of what we wanted to happen?

Mr. SMITH. Well, again, I think there were a number of members

who were very clear that said the Secretary has absolute authority

to stop it at 200 or 250 percent of poverty. There were members

who said that very absolutely to us, and this was all sort of a moot

issue because the Secretary had the authority to act in that way.

We thought a better approach was the approach that we took.

Senator LINCOLN. Well, thanks again for your service. We appreciate that.

Mr. SMITH. Thank you very much, Senator.

Senator LINCOLN. Good luck in your next endeavor.

Mr. SMITH. That is very kind of you, Senator.

Senator LINCOLN. Can I ask Dr. Orszag one question, please? No,

I will wait.

Senator ROCKEFELLER. Do you want to get to 10 minutes, or 15

minutes?

Senator LINCOLN. No, I will wait. Thank you, Mr. Chairman.

Senator ROCKEFELLER. You can come right back.

Senator LINCOLN. I will come back.

Senator ROCKEFELLER. Just do not go. There are just the two of

us here.

That was called a signing statement, the answer. When you pass

law, you give it to the President, then he interprets what he is

going to do with the law that is the law. So, you got a very good

example of that, in my judgment.

I was going to use the same quote. Then I was going to do a further thing, which is to say that the purpose of this question, I

would say, Mr. Smith, is again to highlight the fact that the administration does not have the administrative authority to limit CHIP

coverage to children at or below 250 percent of poverty. I really do

question—more than question—the legality of the policy.

23

Federal law does not authorize CMS—in spite of your words,

which were also nuanced but came to no hard conclusion, in my

mind—to effectively impose an income eligibility cap on CHIP or

Medicaid, nor does it require States wanting to cover children at

levels higher than 250 percent, or to use 100-percent State-only

funds, to do so.

I also question the process. Such a dramatic policy change should

have been handled through the formal rulemaking process. Now,

this will seem to some like bureaucratic talk, but it is what makes

the government work and which holds everybody accountable.

There was no public notice. There were no comments. It was just

a unilateral, subregulatory fatwa, just a decision that was made.

I think it is very interesting that HHS is coming to Congress seeking legislative permission to expand this August 17th proposal to

States wanting to cover children at levels higher than 200 percent

of poverty, when you did not come to Congress the first time

around.

This little bit about crowd-out. Nobody ever talks about crowdout except when Medicaid and the CHIP program are discussed. In

fact, to sort of angle at Dr. Orszag, in the Medicare Prescription

Drug Part D matter, crowd-out comes as high as 72 percent. But

not a word was said. I have never heard a word about crowd-out

except on this subject of children and Medicaid, CHIP and Medicaid.

Now, do you believe that the August 17th guideline has the force

of law or is it interpretive? Let me tell you why I am asking that

question. The Justice Department just argued on your behalf in the

State of New Jersey v. U.S. Department of Health and Human Services case, and they came to the conclusion that ‘‘the language of the

State Health Organization letter itself demonstrates that CMS

does not intend the policy guidelines to have the force of law.’’ The

high court is saying something.

Could you respond to that?

Mr. SMITH. Yes, Mr. Chairman. Again, certainly I am very familiar with the lawsuits themselves and have participated in the description of what our authority is. You do correctly state how we

have characterized our authority in that manner, that this is guidance to the States. It is saying this is what you can expect from

us in terms of how we will act when you put a matter before us.

So the Justice Department’s—I do not know the legal term—declaration or position, certainly that is my understanding as well as

what the authority for these letters—and again, numerous administrations have used this type of guidance to the States. But that

authority is what has been described in the Justice Department

memo. But again, I think the importance of that, as I said, we

could have also chosen a route to simply disapprove it and let that

go to the courts as well. Any time the Secretary disapproves a

State plan amendment on either Medicaid or SCHIP, the States

have a right to appeal that decision, and appeal it to the courts as

well.

Senator ROCKEFELLER. Let me just close here, because my time

is out. I thought that was not a very compelling answer. In other

words, the law is the law. The Federal court rules, that is the law.

You are saying, yes, that is the law, but there are these other cirVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
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cumstances which mitigate somehow that law. I cannot live with

that.

President Bush himself has given his statement early on that he

did not think this was the right thing to do. I do not have it in

front of me to quote.

So my final question is, given that CMS already has issued detailed regulations on how States must address the crowd-out issue,

why did CMS decide to disregard the Administrative Procedures

Act and issue a new policy without modifying its existing relations

and going through appropriate public notice and rulemaking procedures, which is what we do in a democracy?

Mr. SMITH. Yes, Mr. Chairman. Again, we already had a regulation in place regarding the substitution of private coverage. The

guidance itself underneath was trying to fill in the blanks further,

to say where the Federal Government had previously said, States,

it is your responsibility but we are not setting out any particular

criteria—that regulation was already there.

As I said, we could have taken the position, we will just rely on

that alone and disapprove State plan amendments without doing

anything else. We thought it important to do something else in addition to being able to tell the States in advance, this is what we

will be looking at for you to fulfill your obligation.

Senator ROCKEFELLER. So going around the Administrative Procedures Act was not that important?

Mr. SMITH. Senator, again——

Senator ROCKEFELLER. I mean, I am trying to put words in your

mouth. [Laughter.] Frankly, you deserve it because you have fundamentally not answered any question that has been asked of you,

in my humble judgment. And Orrin Hatch can attack me right

after I finish my questions, because he is next up. But I really believe it. I think this happens sometimes when either you do or do

not believe in what CMS was doing.

If you do not believe in it but you have to uphold it, just like

when you are before Congress, when you can testify before Congress, this is not your testimony, this is testimony which has been

vetted, your original statement, by OMB. That is the law. I mean,

so-called, the law. It is always practice. So, you are not free to give

your own opinion. I hope that that was clear to me, because I want

to see your better angels on your shoulder.

But I am finished. I call on Senator Hatch.

Senator HATCH. Well, thank you again, Mr. Chairman. As if I

would ever jump on you. But if I do, you will know it. [Laughter.]

Mr. Smith, let me just say, a little later we are going to hear testimony from Paula Novak about her family’s struggles to cover

their child who was born with Down Syndrome. I have a great deal

of sympathy for families struggling with children with disabilities,

which is why I have worked so hard over the past years with my

friends, Senators Grassley and Kennedy, to pass the Family Opportunity Act, or the FOA. The FOA would allow families with disabled children, making up to 300 percent of poverty, to buy into

Medicaid, as I view it. We successfully included the FOA in the

Deficit Reduction Act.

Now, has the State of Ohio offered to take up the FOA?

Mr. SMITH. No, Senator, it has not.

25

Senator HATCH. All right.

But do you believe that anything in the August 17th directive

would give you the authority to disallow a State plan amendment

to expand Medicaid through the FOA?

Mr. SMITH. The FOA stands on its own, and it would not apply

to the FOA.

Senator HATCH. All right.

Mr. Peterson, how reliable is the data available through the Census Bureau’s Current Population Survey, or CPS, with regard to

the number of uninsured, low-income children who are eligible for

CHIP coverage?

Mr. PETERSON. Well, as I mentioned in my testimony, the data

do not actually tell you who is eligible. You have to make adjustments. I think one of the points in my testimony is that these data

can be used to give you a sense of where things are. That is one

issue, versus trying to tie public dollars or some sort of threshold

that affects what States can do on the ground.

Senator HATCH. Is there a State-to-State survey that basically

under-counts Medicaid and SCHIP enrollment by several million

individuals? Would you agree with that?

Mr. PETERSON. Yes.

Senator HATCH. All right.

Now, as I understand it—and you tell me if I am wrong—I do

not think there is a survey which collects national data on

Medicaid- or CHIP-eligible individuals, is there?

Mr. PETERSON. Not on eligibility, no.

Senator HATCH. All right.

Now, is there one reliable data source that will help States determine whether or not they have covered 95 percent of their lowincome children?

Mr. PETERSON. It would have to be data that goes through certain adjustments.

Senator HATCH. As a result, it may raise the CHIP income eligibility level.

Mr. PETERSON. I am sorry?

Senator HATCH. Where, as a result, it may raise their income eligibility up a level.

Mr. PETERSON. So are you saying that you are trying to tie the

results?

Senator HATCH. What I am saying is, do you have any reliable

data source that will help the States to determine whether or not

they have hit the 95 percent of low-income children and, as a result, may raise their CHIP income eligibility levels? I may not have

stated it very well.

Mr. PETERSON. Yes. It might be the kind of thing where you can

do it on paper, which was what we tried to demonstrate. But that

raises the fundamental questions of, is this really happening on the

ground?

Senator HATCH. All right. So, therefore, as far as the 95-percent

threshold, you believe that CMS got it right, once data adjustments

are made for individuals’ immigration and documentation status

and the Medicaid under-count. Am I correct in that assertion?

Mr. PETERSON. We do not say they got it right.

Senator HATCH. What do you say? [Laughter.]

26

Mr. PETERSON. We were merely trying to demonstrate what can

or cannot be done with this data. I tried to say in my testimony,

this gets back to laying down standards that are clear and measures that are valid.

Senator HATCH. Yes.

Mr. PETERSON. And that has not been made clear in their guidance.

Senator HATCH. All right.

Dr. Orszag, we appreciate you always. You always give intelligent testimony. I may not always agree with it, but you do a good

job, is all I can say.

In your testimony for today’s hearing and CBO’s report on the

CHIP program, the point is raised that the CHIP program provides

a source of coverage that is less expensive and offers a broader

range of benefits than other types of private health coverage.

Now, if I read it correctly, you concluded that SCHIP coverage

replaces or crowds out private health coverage, and that for every

100 children who have received health coverage through CHIP,

there is a reduction in private coverage of between 25 to 50 children.

Dr. ORSZAG. Correct.

Senator HATCH. Now, could you talk about this maybe in just a

little bit more detail? Is it possible that the reduction in private

health insurance can be even higher if the CHIP eligibility level

goes beyond 300 percent of the Federal Poverty Level?

Dr. ORSZAG. As you move up the income distribution, this problem becomes more severe simply because a larger share of those

children have private coverage, so the potential substitution is a

more salient factor.

Again, I want to emphasize, any expansion in public insurance,

whether it is the prescription drug benefit or it is trying to cover

more kids, is going to displace private coverage in the United

States to some degree, unless you impose mandates and other

things.

So to some degree this is an inevitable problem, and the question

is how well you manage the various trade-offs. That really is up to

you all to evaluate whether the effects are worth what you are paying for.

Senator HATCH. All right. It is obvious that you and your staff

have had the opportunity to review the CMS CHIP guidance letter

of August 17, 2007. Do you believe that the goals of this guidance

letter are realistic? Would crowd-out be reduced if States were required to cover 95 percent of their uninsured children at 200 percent of poverty and below before raising the income eligibility for

the CHIP program over 250 percent of poverty?

Dr. ORSZAG. Well, that really, again, depends on how the 95-

percent threshold is evaluated.

Senator HATCH. It is my understanding—and maybe I am wrong,

but I think it is so—that crowd-out numbers only go up if higher

income children who typically have a choice between public and

private coverage decide to receive their health coverage through a

public health program like CHIP as opposed to private coverage.

Am I right in thinking that?

27

Dr. ORSZAG. Yes, that is correct. The difficulty I am having in answering the question is simply that there is ambiguity about

whether the 95-percent threshold or test will actually bind to any

significant degree or not because of the way that it is apparently

being interpreted, and, according to Mr. Peterson’s numbers, many

States are well above 100 percent.

So, 95 percent is an easy thing to meet, and therefore it does not

have any significant effect. There are other interpretations of the

95-percent test where it would have a bigger effect and then it

would limit the enrollment of kids above 250 percent to a much

more significant degree.

Senator HATCH. Well, you state in your testimony that ‘‘the administration’s CHIP guidance will have a modest impact on enrollment due to the way that the administration is implementing it.’’

Does CBO have any suggestions for the administration on how this

guidance could have a larger impact on enrollment?

Dr. ORSZAG. Again, I do not really feel like it is up to us to tell

the administration how to——

Senator HATCH. I do not want you to do that. I just want you

to tell us. [Laughter.]

Dr. ORSZAG. And they are not listening. Everyone close their

ears.

Senator HATCH. No, they are not listening at all, I can tell you.

[Laughter.]

Dr. ORSZAG. I do want to emphasize, again, that the statement

that the effect would be modest, given the way the administration

appears to be implementing the directive, depends very sensitively

on that being evaluated relative to our official baseline in which

the funding levels are constrained.

If you were to significantly expand the program so that States

had the opportunity to do a lot more, the directive, even the way

the administration is interpreting it, could have a much more significant effect. I would rather stay away from making normative

statements about how the administration should interpret its own

statements.

Senator HATCH. I think the chairman is going to let me ask a

couple other questions, even though my time is up. It is very gracious of him.

Senator ROCKEFELLER. I thought I raised one finger.

Senator HATCH. You thought you what?

Senator ROCKEFELLER. Raised one finger.

Senator HATCH. You raised one finger?

Senator ROCKEFELLER. Right. One question.

Senator HATCH. Just one finger?

Senator ROCKEFELLER. One finger.

Senator HATCH. I only have five more. My goodness. Let me just

ask you one more.

I read with great interest your comments on the effect of CHIP

on private coverage. Now, you state that, even in the majority of

States where CHIP covers only children, the program could reduce

private coverage among adults as well as children.

Could you please explain how private health coverage would be

reduced for both adults and children, and why is there limited inVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
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formation on how CHIP has impacted employers’ decisions on

whether or not to offer health coverage?

Dr. ORSZAG. First, to answer the second question, there just has

been very limited analytical and data survey work done on that

question. But the way that this could arise is if, take a firm that

had disproportionate numbers of low-income workers. If the firm

decided for whatever reason that because of the availability of more

public insurance it was not going to offer a plan or it was going

to have very high cost-sharing requirements on the plan, it is possible that some parents will say, I will not take coverage through

that firm, or it may not be offered in the first place because my

children will be able to sign up for SCHIP, and the parents, or the

adults, may be uninsured as a result.

The evidence to date—and it is very limited—suggests that most

of the effect is not through employer dropping, which is where that

channel would be most salient, but rather through households,

families deciding that SCHIP was a better deal for them, was a

more attractive package for them than some alternative private

coverage would be, to the extent that this occurs at all. So we do

point out that it is not known, but the limited evidence that we

have suggests that that is not the major thing going on.

Senator HATCH. Well, thank you.

Mr. Chairman, I took more time than I should have, but I appreciate the answers.

Senator ROCKEFELLER. Thank you for your forbearance.

Senator Lincoln?

Senator LINCOLN. Just quickly, from my previous question to Director Smith, I was trying really hard to follow you through that

maze in your answer. So I think maybe if I just simply ask you,

do you think CMS has the authority to place a cap on Medicaid,

yes or no, maybe that will make it black or white for me.

Mr. SMITH. To place an income cap on Medicaid?

Senator LINCOLN. Yes.

Mr. SMITH. We do not have that authority. The issue, though, is

for whom is the enhanced match rate, not what is the relationship

between a Medicaid expansion versus a separate SCHIP. What are

the relationships between the two of those? Medicaid itself, title 19,

does not have a specific income threshold, but there is a relationship between Medicaid and SCHIP through the optional targeted

low-income child issue.

Senator LINCOLN. As long as I know that what your answer is

to whether or not you have the authority to place an income cap

on Medicaid, and I am taking it as, no, you do not feel like CMS

has that authority.

Mr. SMITH. That is correct.

Senator LINCOLN. All right. Great. Thank you. It takes a little

while to get things straight for me.

Dr. Orszag, this is kind of along the lines of what you have been

talking about and Senator Stabenow brought up. When you talk

about that displacement, or I guess on the State’s ability to control

the trends in employer-based coverage, you may estimate that the

availability of SCHIP coverage may affect the provisions of the ESI

in a State. You said that there are declines. I mean, I think there

are. Maybe you will disagree with me on that.

29

But there are overall declines in the employer-sponsored insurance for both children and adults. But that has nothing to do with

SCHIP, I do not think. I guess I am asking you, is that not because

of the rising cost of health care? Maybe it is transition in the workplace, and other things like that. But do you believe that States exercise significant control over ESI in their States, or is that all a

product of other larger market forces in health care? I mean, to

that effect, I guess, the answer you gave earlier, it seems as if that

is very minimal in terms of the shift of those who will leave private

insurance to go to SCHIP. I mean, those numbers were relatively

minimal, were they not?

Dr. ORSZAG. Again, I think most of the crowd-out that does occur

appears not to be because employers are dropping coverage, but

rather because families are deciding that the public coverage is a

better alternative for them, whether because of lower cost sharing

or because of expanded benefits, and I would agree that——

Senator LINCOLN. What about continuity?

Dr. ORSZAG. The whole package, as it were. I would agree that

most of what is happening in the employer-sponsored insurance

world, which is a very important topic, is driven by other forces

than the one that we are talking about today.

Senator LINCOLN. Great. Thank you.

Thank you, Mr. Chairman, for your indulgence.

Senator ROCKEFELLER. Thank you, Senator Lincoln.

One final question, Dr. Orszag, for you, and then we will go on

to the next panel.

You are not, I hope, suggesting that because we offer very generous subsidies to private plans, many of which have dropped private coverage anyway, that crowd-out was non-existent in Medicare

Part D.

Dr. ORSZAG. I do not think I came anywhere close to suggesting

that. Again, I am going to repeat it: crowd-out is an issue that

arises whenever you expand public insurance, and the creation of

Medicare Part D did involve significant crowding-out of preexisting

private coverage. In other words, you are buying out the base to

some significant degree.

Senator ROCKEFELLER. Some range?

Dr. ORSZAG. I would put it in about the same range as the

SCHIP program, so somewhere between a quarter and a half, depending on how you do the calculation.

Senator ROCKEFELLER. All right.

I would just end by saying it is just very interesting to me that

we never heard this argument when Medicare Part D was being

discussed. It is kind of a large program, and it never comes up. Except somehow when we get to children, we get absolutely zealous

on crowd-out. I tend to agree with Dr. Gruber of MIT.

Mr. Peterson, you were going to say something, and I did not call

on you. You wanted to say something?

Mr. PETERSON. Well, I was just going to respond, Senator, just

to explain to help out, because that seems to be what we often do

as CRS staff, trying to explain these things as best as we can. CMS

has said that they have no ability legally to restrict how States

count income either for under Medicaid or separate SCHIP programs, and I think you would find that the statute and the regulaVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
30

tions bear that out. So it does seem schizophrenic on the one hand,

where SCHIP says 200 percent of poverty plus 50 percentage

points, but then States can count income however they want. So,

that is where that tension comes in.

That is why this guidance did not use income, per se, as the criteria for limiting eligibility. It was the crowd-out provisions. Then

back to Senator Lincoln’s question on Medicaid. What I was going

to tell her was that the crowd-out provisions that are in the SCHIP

statute do not apply to Medicaid, so it would appear that Medicaid

expansion SCHIP programs would not be subject to the August

17th letter based on the current regulations. I can just read it to

you; I happen to have printed it off. This is under the substitution

of coverage in the regulations. It says, ‘‘The requirements in this

subpart apply to separate child health programs,’’ not Medicaid.

Senator ROCKEFELLER. A question I did not ask. There was a

question of Ohio. How does what you say apply to Ohio?

Mr. PETERSON. Well, I would like to hear Mr. Smith’s take on

this, but Ohio is a Medicaid expansion State, so it would appear

that these regulations regarding substitution of coverage would not

apply to such a State.

Senator ROCKEFELLER. Mr. Smith?

Mr. SMITH. Senator, the disapproval for Ohio was for a different

reason not related to substitution. That is correct.

Senator ROCKEFELLER. For a different reason?

Mr. SMITH. The Ohio plan amendment itself was asking for a different match rate than what was applicable, so it was disapproved

for that reason rather than substitution.

Senator ROCKEFELLER. All right.

I thank all of you very, very much. It is always a pleasure to appear before the Finance Committee, and I know that, so you do not

have to thank us. [Laughter.] But we thank you for your expertise

that you have built up over the years and that you have to work

very hard at every day.

Are you like Alan Greenspan? Do you work off four computers at

the same time, Dr. Orszag?

Dr. ORSZAG. I believe I have three screens in my office.

Senator ROCKEFELLER. Three screens in your office.

Dr. ORSZAG. Yes.

Senator ROCKEFELLER. Simultaneously running?

Dr. ORSZAG. There you go.

Senator HATCH. Mr. Chairman?

Senator ROCKEFELLER. Yes?

Senator HATCH. I understand Mr. Smith is leaving the administration at the end of this week. Is that correct?

Mr. SMITH. Yes, Senator.

Senator HATCH. Well, if that is so, we want to thank you for the

hard work you have done and the good service you have given to

our country, and I just want to express my gratitude to you as well.

Even though you are one hard-nosed dude. [Laughter.]

Mr. SMITH. You are very kind, Senator. I appreciate it, again,

and recall my time with the Finance Committee and serving with

the both of you with great affection. I appreciate your very kind remarks.

31

Senator HATCH. Well, you have served well here. I just want to

thank you for your service.

Mr. SMITH. Thank you.

Senator ROCKEFELLER. I join Senator Hatch.

Mr. SMITH. Thank you, Mr. Chairman.

Senator HATCH. We thank you other two for your service, too.

[Laughter.] We sometimes even agree with you, you know. [Laughter.]

Senator ROCKEFELLER. All right.

Now, the next panel, the last panel, and there are not many of

us here, but for those of us who are here——

Mrs. Paula Novak from Lebanon, OH, whom I spoke about earlier. Mr. Alan Weil, executive director, National Academy for State

Health Policy based in Washington. Nina Owcharenko, senior policy analyst at The Heritage Foundation. And the person I forgot to

introduce, Ms. Cindy Mann, executive director of the Center for

Children and Families, Health Policy Institute, Georgetown University.

Mrs. Novak, because we walked over here together, I want to call

on you first.

STATEMENT OF PAULA NOVAK, LEBANON, OHIO

Mrs. NOVAK. Thank you. Good afternoon, Chairman Rockefeller,

Ranking Member Hatch, and other members of the subcommittee.

My name is Paula Novak. My husband Jeff and I have three children: Cole, Avery, and Seth. We live in Lebanon, OH. Today I represent my family and many others like ours that are self-employed,

hardworking, and yet struggle to maintain adequate health care

coverage. This becomes particularly true when one person in the

family has a chronic illness——

Senator ROCKEFELLER. Just take your time and be comfortable.

Mrs. NOVAK [continuing]. —or disability. In our situation, our

youngest son Seth, who is 4 years old, was born with Down Syndrome and struggles with related health and developmental issues.

I want to share with you the effects the August 17th directive is

having on Seth and the rest of my family.

At this time last year, Ohio was moving to expand its Medicaid

SCHIP program to include children like Seth. The expansion was

stopped, however, by the August 17th directive and now Seth, as

well as his sister and brother, are uninsured. My husband Jeff is

self-employed in the construction industry. He works hard, specializing in church construction and remodeling. I do some work for

the business, though unpaid, but mostly I am needed at home to

care for our children, and particularly our son Seth.

Jeff and I and our two older children have been sporadically covered through private insurance that we purchase ourselves. In January of 2004, our family was covered by Anthem Blue Cross for

about $535 per month. Seth was born January 8, 2004. Medicaid

covered Seth’s birth because we did not have a maternity rider on

our policy.

During that same month, the insurance policy came up for renewal and the premium jumped to $800 per month. Jeff was not

working in early 2004 due to surgery, so we had to drop the policy.

Since we had very little income at that time, we qualified for MedVerDate 11-MAY-2000 14:48 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 55851.000 TIMD PsN: TIMD
32

icaid. When Jeff returned to work, the business began to produce

better income and our Medicaid coverage ended. We were able to

pick up a policy with Medical Mutual of Ohio for $444 per month,

but they declined to cover Seth because of his Down Syndrome.

At that time I checked with the top 10 insurance companies and

dozens of agents, trying to find coverage that would include Seth.

But I was told Seth is deemed as ‘‘uninsurable’’ and the only possibility to cover Seth would be to go through open enrollment. Open

enrollment is a requirement of the Ohio law that the insurance

companies will, once a year, take a limited number of individuals

regardless of preexisting conditions. I attempted to enroll Seth during the open enrollment and was quoted premiums ranging from

$1,200 to $1,800 per month just for Seth. We cannot afford this additional premium on our current income.

Seth has been uninsured since August of 2007, when his Medicaid coverage ended. He has now been deemed disabled, but the

catch here is that our spend-down per month was calculated to be

$2,687 which must be spent before Medicaid can help. This amount

is even more unreasonable than the price quoted for the private insurance for Seth under open enrollment.

Our entire family is uninsured. We were forced to drop the Medical Mutual policy coverage for myself, my husband, and our two

older children in January when our carrier raised the premium

from about $450 to almost $600 per month. The policy also had a

high deductible and we could not afford the cost of the insurance,

plus that out-of-pocket requirement.

Our adjusted gross income for 2006 was about 250 percent of the

Federal Poverty Level and it appears that our 2007 gross income

will be approximately the same. We were so privileged to be able

to participate in the signing of Governor Strickland’s budget in

Ohio which included the expansion of Medicaid eligibility to children with family incomes up to 300 percent of the Federal Poverty

Level.

Under the expansion, Seth would have been able to have the

health coverage he so critically needs. Not only Seth, but my other

two children would have been able to be covered under this expansion. In a country as prosperous as America, it is just not acceptable that they do not have access to affordable health coverage. Because of the requirements placed on the States by the August 17th

directive, Ohio has been unable to implement the expansion of the

plan to help children like Seth. We are proud that Ohio made a

commitment to cover Seth and children like him, but were deeply

troubled by the Federal Government’s efforts to block that decision

in Ohio.

Just as an example, please let me tell you the needed care that

Seth has missed due to his lack of coverage. Seth had open-heart

surgery in 2007 and missed his 1-year cardiology follow-up. Seth

has missed appointments for eye exams, thyroid exams, ENT visits

to replace tubes in his ears, genetic doctor appointments to track

his growth and development, fittings for his orthotics, and very importantly, because Seth is still non-verbal, visits to a speech therapist. As the parents of three uninsured children, I implore you to

overturn the August 17th directive and allow States such as Ohio

33

to continue the good they set out to do with the Medicaid expansion.

By virtue of his birth, Seth is not entitled to special privileges;

however, he is entitled to equal privileges which can be provided

by the proposed Medicaid expansion. We are ready and willing to

contribute to Seth’s health care, but the $1,200 premium or the

$2,600 spend-down are simply out of reach for us. We ask you to

help us to help Seth by not adding lack of health care to the already substantial challenges he must face.

I thank you for your time.

Senator ROCKEFELLER. Thank you, Mrs. Novak.

[The prepared statement of Mrs. Novak appears in the appendix.]

Senator ROCKEFELLER. Mr. Weil?

STATEMENT OF ALAN WEIL, EXECUTIVE DIRECTOR, NATIONAL ACADEMY FOR STATE HEALTH POLICY, WASHINGTON, DC

Mr. WEIL. Mr. Chairman, Ranking Member Hatch, my name is

Alan Weil. I am the executive director of the National Academy for

State Health Policy, a nonprofit, nonpartisan organization that

works with State officials to develop and implement effective

health policy. Thank you for the opportunity to appear before you

today to discuss the August 17th directive and its implications for

States.

My organization has served as the unofficial home of the Nation’s

SCHIP directors since the program’s enactment. At their request,

we convened a work group to discuss the directive. While my testimony is informed by the Nation’s SCHIP directors, I do not speak

on their behalf.

The August 17th directive was issued without notice and comment, without consultation with States, and was not part of a formal rulemaking process. Although States have sought additional

information, CMS has not responded in writing to the many questions that have arisen. This makes it difficult to determine the precise effect of the guidance.

I will focus on four particular concerns. First, States that want

to cover children with family income above 250 percent of the Federal Poverty Level must demonstrate that they have enrolled in

SCHIP or Medicaid 95 percent of eligible children from families

with income below 200 percent of the Federal Poverty Level. States

are trying hard to reach and enroll eligible uninsured children, but

there is no rational basis for the 95-percent threshold, and CMS

has not offered one.

That level far exceeds the actual experience of other meanstested programs. There are no reliable data available to determine

whether or not States are complying. While CMS has indicated

that they will negotiate with States over which data they may use,

this is vague and potentially arbitrary as a means for determining

compliance.

But perhaps even more important is that States have found that

higher eligibility levels are an effective means for attracting lowerincome children into the program. For example, while the Illinois

All Kids program has no upper income threshold, 70 percent of the

34

166,000 children enrolled during the first year of the program were

previously eligible for SCHIP or Medicaid. Broadening eligibility

reinforces the message that health insurance programs are not tied

to welfare and that they are designed for working families. If

States follow the CMS directive, they will actually be working

against the stated goal of enrolling low-income children.

Second, the CMS directive requires that children with family incomes above 250 percent of poverty go without health insurance for

a minimum of 1 year before they can enroll in SCHIP. States already use waiting periods, but generally for 3 or 6 months. There

is no evidence that a 1-year waiting period reduces crowd-out.

The directive runs counter to clear lessons from research showing

the importance of continuous coverage for children’s health. Waiting periods are difficult to administer and always include exceptions for circumstances out of the family’s control, something the

directive does not mention.

Third, States will not be permitted to expand coverage if

employer-sponsored insurance among low-income children has declined by more than 2 percent over the past 5 years. But erosion

of employer-based coverage is a broad trend affecting adults and

children at all income levels, and it is a trend that States cannot

control. The directive essentially says that the larger a problem the

State faces, the fewer options it will have to respond.

Fourth, CMS directs States to adopt cost-sharing provisions like

those of private insurance plans, but there is no meaningful market

for child-only insurance coverage. The only way States can be confident they are complying with this provision is to impose the maximum cost sharing of 5 percent of income, which States have found

poses a substantial barrier to enrollment and receipt of necessary

services.

Now, while the primary harm of the directive will fall on children, States will bear a heavy burden as well. The policy changes

in the directive will require States to make major changes, including seeking legislative approval, initiating formal rulemaking, reprogramming eligibility systems, redesigning application forms,

training eligibility workers, and communicating all of this information to families and community organizations that support the enrollment process.

Many of the topics addressed in the directive are likely to be

modified when SCHIP is reauthorized. States will have to modify

their systems yet again only a few months after they have made

changes to conform to the directive. If nothing else, this will be a

tremendous waste of resources on administration when we need all

available dollars to go toward meeting the health care needs of

children.

Ultimately, the CMS directive reflects a fundamental misunderstanding of the interplay between two important program goals.

Provisions designed to reduce crowd-out through barriers to enrollment run directly counter to the goal of maximizing enrollment

among eligible children. It is simply impossible to simultaneously

say that we want every single eligible lower-income family to enroll, but we do not want anyone to enroll if their income is just a

few thousand dollars a year higher.

35

In addition, rates of employer-sponsored insurance, the cost of

living, and median salaries vary greatly around the Nation. SCHIP

builds upon a variable base of Medicaid coverage. Thus, the risk of

crowd-out and the income level at which crowd-out is likely to

occur varies significantly from State to State. The August 17th directive imposes a single set of policies on a diverse Nation. Given

our diversity, there is no single national policy that will yield maximum enrollment of eligible children and minimum levels of crowdout.

The CMS directive is poorly crafted because it was written and

issued without any input from the States who run the program.

The directive includes provisions that are unattainable, outside the

control of States, and poorly suited for achieving the purported

goals of targeting resources and minimizing crowd-out. Review and

modification of the directive, in consultation with States, is warranted prior to its implementation.

Senator ROCKEFELLER. Thank you, sir. Actually, I am a little

angry at you because you answered the question I was going to ask

you. [Laughter.]

Mr. WEIL. I apologize.

Senator ROCKEFELLER. No. It is entirely acceptable.

[The prepared statement of Mr. Weil appears in the appendix.]

Senator ROCKEFELLER. Ms. Owcharenko?

STATEMENT OF NINA OWCHARENKO, SENIOR POLICY

ANALYST, THE HERITAGE FOUNDATION, WASHINGTON, DC

Ms. OWCHARENKO. Thank you, Chairman Rockefeller, Senator

Hatch, for having me today to discuss children’s health care coverage.

The State Child Health Insurance Program describes the purpose

of the program as assisting low-income uninsured children. Although there is some disagreement over its interpretation, ‘‘lowincome children’’ is defined as those children whose family income

is at or below 200 percent of poverty. Moreover, in an effort to keep

the program focused on uninsured children, the statute includes

provisions to ensure that the program does not substitute for coverage under a group health plan and to inform parents through

outreach efforts of possible availability of private coverage options.

In August of 2007, the Centers for Medicare and Medicaid released a directive to States on SCHIP and helped clarify and reinforce the existing law. The directive keeps the program focused on

its core population, low-income uninsured children, and pays particular attention to the impact SCHIP expansions have on existing

private coverage.

Many low-income children have private health insurance. The

Congressional Budget Office estimates that 50 percent of children

between 100 and 200 percent of poverty have private coverage, and

77 percent of children between 200 and 300 percent of poverty have

private coverage. Thus, it is critical to take the extent of private

coverage into account when considering expanding public programs

such as SCHIP beyond the 200-percent threshold. There are wide

and varying degrees of estimates on the impact of public program

expansions and the availability of enrolling in private coverage.

36

Economists Jonathan Gruber and Kosali Simon looked at public

programs in general and found ‘‘the number of privately insured

falls by about 60 percent as much as the number of publicly insured rises.’’ Gruber and Simon also conclude that this crowd-out

phenomenon is far more dramatic when considering the entire family. The Congressional Budget Office, as has already been discussed, reviewed literature and estimates a 25- to 50-percent reduction in private coverage due to SCHIP expansions.

Since their estimates only considered children and not parents,

CBO, like Gruber and Simon, points out that these estimates probably underestimate the total extent to which SCHIP has reduced

private coverage. The Heritage Foundation’s Center for Data Analysis conducted an econometric analysis based on a modified and extended version of the methodology developed by Gruber. This analysis concluded that, for every 100 newly eligible children and families with incomes between 200 and 400 percent of poverty, 54 to

60 percent of children will lose private coverage.

The directive is not aimed at all States, but those States that expanded eligibility to 250 percent of poverty. Ironically, many of the

affected States at or above 200 percent of poverty have received additional Federal funding after over-spending their allotments,

which raises questions about whether these States already have expanded beyond capacity.

The administrative directive requires that States that want to

expand SCHIP above 200 percent of poverty must meet certain requirements to ensure the basic goals of the program are being met,

preserving SCHIP for the core population that it is intended to

serve, and by deterring further erosion of private coverage.

Meaningful cost sharing standards and standard waiting periods,

for example, can help protect SCHIP as a safety net program for

low-income uninsured children and ensure that the program’s design does not create incentives for families to drop their existing

private coverage.

Policymakers need to balance access to public coverage with the

need to preserve private coverage. Instead of focusing solely on

SCHIP as a vehicle for covering children, policymakers should

broaden their efforts to make private coverage more available for

working families.

Offering a Federal tax credit, for example, would give working

families the ability to get and keep private health insurance. A

dual approach that protects SCHIP for its intended population and

a tax credit for others has a long history and broad support.

The administration’s SCHIP directive helps to preserve SCHIP

as a safety net program for low-income uninsured children. Efforts

to undermine these directives will lead to further erosion of private

health insurance coverage and over-burdened public programs. In

order to address the coverage needs of children, policymakers

should look beyond the public program expansion and consider solutions that will bolster, not unravel, the foundations of America’s

private health insurance system.

Thank you.

Senator ROCKEFELLER. Thank you.

37

[The prepared statement of Ms. Owcharenko appears in the appendix.]

Senator ROCKEFELLER. Ms. Mann?

STATEMENT OF CINDY MANN, EXECUTIVE DIRECTOR, CENTER

FOR CHILDREN AND FAMILIES, HEALTH POLICY INSTITUTE,

GEORGETOWN UNIVERSITY, WASHINGTON, DC

Ms. MANN. Thank you, Senator Rockefeller, Ranking Member

Hatch. I am Cindy Mann. I am the director of the Center for Children and Families at Georgetown University’s Health Policy Institute, and a research professor there.

I am going to focus my remarks this afternoon on two points:

first, the impact that the directive is already having and is expected to have on children’s coverage; and second, the extent to

which the directive represents back-door rulemaking that reverses

longstanding Federal law and practice.

The directive has actually already taken a significant toll on children’s coverage at a time when the number of uninsured children

is rising and families are facing new hardships due to the downturn in the economy. I could not be nearly as eloquent or compelling, of course, as Paula Novak has been, but let me try to put the

experience of her children into a broader context.

The directive potentially affects children in every single State.

Currently, it affects children in at least 23 States. This includes 10

States, like Ohio, that had enacted plans to cover uninsured children but whose plans had not made it through the CMS approval

process before the directive was issued, so they are subject to the

directive.

Tens of thousands of children in these States have lost out on

coverage that their State had planned to offer them. For example,

according to State projections, about 26,000 children have lost the

opportunity for coverage in Oklahoma, Ohio, and Louisiana, just

three of those affected States. Each of these States has had to roll

back their coverage plans because of the directive.

Fourteen of the 23 States—there is one State in common—that

are affected already cover children above this income range under

federally approved plans, plans that have been in effect in some

cases for a decade. These States have until this August to either

show that they can meet the conditions of the directive or they

must stop enrolling children in this income range. CMS has said

that States in this group that do not meet the requirements do not

have to disenroll children. That will do little, however, to avert the

shut-down of coverage among children in this income range.

For example, according to State estimates, the combination of

ban on new enrollment and turnover in the program will result in

the loss of 97 percent of the kids in this income range covered now

in New Hampshire, and 84 percent of the children covered in this

income range in the State of New Jersey within just 2 years of the

directive going into effect. The loss of coverage or the opportunity

for coverage moves the Nation exactly in the wrong direction at a

time when more children need affordable coverage.

Let me turn to the second point now, which is to describe how

much of a 180-degree turn this policy makes with respect to longstanding Federal policy and practice.

38

The directive requires States to meet two conditions before they

can expand coverage, and we have heard much about both of these:

they must meet the 95-percent requirement and they must show

that employer coverage for low-income children has not declined by

more than 2 percentage points. If they meet those requirements,

they must impose that 12-month waiting period we have heard

talked about, and they must impose new cost-sharing requirements, likely the maximum permitted by law, 5 percent of income.

Compare those policies to the policy and the law before this directive was issued. There was no one-size-fits-all federally imposed

precondition before a State could cover uninsured children. States

could decide the appropriate income level to cover children in their

States given differences in cost of living, differences in the cost of

health care, and other relevant factors. States also had the flexibility to design their crowd-out policies. Most had waiting periods,

but before the August 17th directive, out of 38 States that had

waiting periods, 36 of them had waiting periods of 6 months or

less.

States also had the flexibility to design cost sharing. As States

go up the income scale, they all impose some form of cost sharing,

but no State has the kind of premiums that would be required, apparently, by this directive. In other words, in each of the four most

basic components of CHIP—income eligibility, eligibility criteria,

crowd-out policies, and cost-sharing—the directive imposes farreaching new rules and it did so through a letter, not a proposed

regulation, not prompted by any new congressional enactment.

When the CHIP extension bill was enacted last December, Congress provided States with sufficient CHIP funding to allow them

to keep their programs and their coverage plans intact until March

2009. The directive, however, is undermining that goal. Through

back-door policymaking, it is unraveling coverage commitments

that States have made to their children relying on longstanding

Federal rules. The directive raises many complicated and important questions. Whatever your view of these policies may be, it

seems indisputable that they ought to be decided in the light of day

on the basis of sound data and good analysis.

A moratorium would move these questions into CHIP reauthorization where they belong, and meanwhile protect children like

Seth from losing out on the coverage that they need.

Thank you.

Senator ROCKEFELLER. Thank you very much, Ms. Mann.

[The prepared statement of Ms. Mann appears in the appendix.]

Senator ROCKEFELLER. I want to ask a question of you, but I

want to start out and try to stipulate something, as they say. Is

it not true, because we have been doing so much discussion around

here about 250, 300 percent of poverty, et cetera. Is it not true that

91 percent of all of the children on CHIP are at 200 percent or

below of poverty?

Ms. MANN. That certainly was the data in 2006. There is some

new data that CRS just released that shows it is about 12 percent

in the latest data, Senator. The vast majority——

Senator ROCKEFELLER. So down by——

Ms. MANN. No. The children above 200 percent. It has gone up

somewhat slightly.

39

Senator ROCKEFELLER. All right.

Ms. MANN. But the overwhelming majority of the children covered by the CHIP program have incomes below 200 percent of poverty.

Senator ROCKEFELLER. So this is really the background for this

discussion, is it not?

Ms. MANN. That is correct. And it is also true that many of the

children between 200 and 300 percent of poverty have access to private health insurance, but so many of them are in exactly the kind

of situations that the Novaks find themselves in. They are selfemployed, they work for small firms, they work for firms that do

not offer affordable health care coverage. They may not be the majority of the children in that income range, but they are uninsured

children who do not have affordable options.

Senator ROCKEFELLER. Right.

Now, the August 17th directive. I am going to get to Mrs. Novak.

But it does get down to the question about impact on children with

special needs care. In a country called America, we tend to want

to have an obligation towards those folks, particularly when they

are children. You can argue about the whole question of the last

6 months of life and all of that. We are not talking about that, we

are talking about children, in this case, a very young child. Because

of the 12-month waiting period which has been already spoken

about, will States, because of that requirement, have to terminate

their coverage in some, or most, cases? I want that as a baseline

answer.

Ms. MANN. The 12-month requirement, as I understand it from

CMS—and as Mr. Weil said, there are many questions that have

yet to be answered—applies if a State is given approval to cover

children in this income range, which is a big question-mark given

the 95-percent and the ESI requirements. Then they would have to

apply a 12-month waiting period. They would clearly have to apply

it to a newly eligible child trying to enroll in the program.

They would have to wait 12 months before they could get on the

program, like the three Novak children. It is not clear whether

they would have to apply it also to the children who are currently

enrolled, whether they would disenroll those children for purposes

of the waiting period. That has been one of the questions that is

not answered.

Senator ROCKEFELLER. Is it not also true that CMS has been

doing a great deal of one-on-one negotiation with States, so that

the parameters of whatever a State is, and how this applies to

them, or a Medicaid waiver, or whatever, it is often done simply

by negotiating between CMS folks and the Governor of the State,

which to me would be a highly destabilizing way of trying to put

together a coherent program.

Ms. MANN. That is correct, Senator.

Senator ROCKEFELLER. And what is the effect of that?

Ms. MANN. The effect of not having even-handed, transparent

rules is, States cannot plan, States do not know what the rules are,

States are worried that they might not be the favored State in getting the better deal or the same deal as a neighboring State. Families are left in the lurch and do not know at all what the rules of

40

the game are and how, and whether, they can expect to have the

coverage that their State has enacted for them to have.

Senator ROCKEFELLER. I have a little bit of time, but I will go

to Senator Hatch now and come back. Go ahead.

Senator HATCH. Thank you. Thank you, Mr. Chairman.

I have to tell all of you, I really appreciate working with Senator

Rockefeller. He is a person of great conviction and someone who

has great feeling.

Senator ROCKEFELLER. We met every day, as I recall, at the end

of the day, you, Chuck Grassley, Max Baucus, and myself, for almost 5 to 6 months for 2 hours, every day, to reach a compromise,

a bipartisan compromise on this program.

Senator HATCH. That is right. And I feel badly that we were not

able to find the correct compromise. I do not think the House was

completely at fault with some of their criticism because they were

trying to push Medicaid kids above 300 percent of poverty and get

the best match, the better match, which that program grants. That

was probably the thing that stuck us from getting a major expansion of this bill. At least, that is my interpretation of it. I think I

am pretty accurate.

But let me go to you, Mr. Weil, and just ask you a couple of questions. As I noted in my question to Dennis Smith, I have great

sympathy for the disabled. I am one of the prime authors of the

Americans With Disabilities Act, and I have worked hard to address their struggles through the passage of the Family Opportunities Act as well.

Now, the FOA gets families making up to 300 percent of poverty

with disabled children, including children with Down Syndrome,

the option of buying into Medicaid for their coverage. Now, my

question is this, because I am concerned about Mrs. Novak and

what she goes through. But if Ohio had taken up the FOA option,

would Mrs. Novak’s son Seth have coverage?

Mr. WEIL. Senator Hatch, I am not sufficiently expert on the

FOA to answer that question, though I get the impression the answer is probably yes.

Senator HATCH. I think it is yes.

Mr. WEIL. However, we should be clear that it would apply only

to one of her three children.

Senator HATCH. Right.

Mr. WEIL. And that she describes the current state of the Medicaid program with a spend-down requirement where families that

have high costs are forced to spend a significant amount of their

resources—as she describes, an untenable amount—before they are

actually eligible for any benefits from the program.

Senator HATCH. It is a big problem. We have to work on this in

this coming—I do not think we are going to get an awful lot done

this year, but in the coming years we have to work on this. I dedicate myself to doing so. I am sure Senator Rockefeller will as well.

Ms. Owcharenko? Is that the correct way to pronounce it?

Ms. OWCHARENKO. That is correct.

Senator HATCH. I know you have made significant adjustments

to your schedule to be with us today. I want you to know how much

we all appreciate your willingness to testify before the hearing

today.

41

You testified before our subcommittee back in 2006 on the CHIP

program. I wanted to get your additional insights on what you believe we can do to ensure that low-income uninsured children are

covered before expanding CHIP eligibility to higher-income families

and, in addition, how do you believe that Congress and CMS

should address crowd-out? What is your reaction to the CMS guidance letter of August 2007?

Ms. OWCHARENKO. I guess I will start with the last question

first. The guidance, I think, is only part of the answer. It is very

difficult to continue to build walls on one side without doing other

things to help encourage the participation in the private market.

That is why it is important to develop policies such as tax credits

and looking at insurance reform for situations like the Novak’s—

who are actually buying in the non-group market—to really look at,

how do we arrive at a comprehensive approach to providing health

care coverage? I think that is the one challenge, that obviously

their focus is only on the SCHIP program, but I think that it begs

a larger debate on the overall efforts of trying to preserve the private health insurance market.

Senator HATCH. All right.

Mr. Weil, the Congressional Research Service has testified that

using administrative data factoring in the Medicaid under-count

and adjusted for immigrant status, nearly every State could meet

the 95-percent test. Now, since it appears that CMS has affirmatively acknowledged such adjustments, when would the States—or

should they have cause to complain about having to meet a test

that they are virtually certain to meet?

Mr. WEIL. Well, it sort of seems as if they want to have it both

ways. On the one hand, the criticism is that States should not expand eligibility until they accomplish this very challenging task of

reaching the eligible, but unenrolled. Oh, but by the way, you already did it, so please go ahead. I think we hear different things

at different times.

No, I do not think there is a lot of complaint if you are told that

you can only pass ‘‘go’’ if you meet a certain test and you have already met the test. But I think that the goal here ought to be a

meaningful and comprehensible and defensible mechanism for

gauging States’ progress, both in terms of what the threshold

should be and in the data used to determine whether or not States

have met the threshold.

Senator, I am sorry. The only thing I would add is, what we hear

from States is that basically CMS sits down with them one-on-one

and says, well, you show us what data you think would make it

clear that you have met the 95-percent standard, and that is not

a good basis on which to determine whether or not States can expand coverage. So I believe there could be an answer to this question, but a letter drafted and sent out with nothing more than the

verbal assurance of some folks at CMS that we can get you there,

it is not a good basis for making public policy.

Senator HATCH. Well, all right. I do not think I gave you enough

time on the answer to that question I gave you. If you want more

time, I would be happy to do that. I interrupted you.

Ms. OWCHARENKO. No, no. That is fine. One of the things I would

like to point out on the crowd-out issue that has not come up in

42

the discussion is more of the other consequences of the crowd-out

effect. We have to look, and I think Dr. Orszag alluded to it, at the

pressures of allowing more people to enroll in the SCHIP program.

It is going to put significant financial pressures on the future of the

SCHIP program as well.

I think policymakers need to be aware of the amount of funding

that would be needed in order to accommodate much of these efforts. I think that sometimes gets lost in the issue of simply, do we

want private coverage protected. We also have to look at the longterm costs that that will have on the public programs, in particular

SCHIP, but also the entitlement program of Medicaid and the

struggles that the country is facing in funding those liabilities.

Senator HATCH. All right.

Thank you, Mr. Chairman.

Senator ROCKEFELLER. Thank you, Senator Hatch.

Mrs. Novak, first of all, again, thank you for coming. Thank you

for your courage. Thank you for speaking about profoundly personal matters before essentially strangers, and to the world at

large, really. So, I really thank you for that.

One thing I was not entirely clear of in your testimony is whether Seth is, at this moment, healthy. I understand the longer-term

problem. I understand the operation. But at this moment?

Mrs. NOVAK. At this moment, he is fairly healthy. He struggles

with chronic sinus and ear infections, which are a result of the fact

that he does not have the tubes in his ears. But on the whole, he

is basically healthy, yes.

Senator ROCKEFELLER. So that just takes me right to the question, in his case or in either of the other children’s case, if they get

sick in a major way or in a minor way, sick enough so that you

cannot take care as a good mother, what are you going to do?

Mrs. NOVAK. You tell me. I do not know. We are going to be in

a lot of trouble.

Senator ROCKEFELLER. I accept that and believe that. But there

are emergency rooms. If you lived in West Virginia, which you

come close to doing but do not quite make, it is a long way to a

hospital. A lot of folks in our State can be afraid of hospitals. They

are very big buildings that they have not been in before, so they

do not go. That would apply to an ER.

I can remember sitting with a mother of a girl who had dyslexia

in the—I will not name the hospital; it is a local hospital—for 6

hours. I did not try to pull any rank. I was just a citizen. I never

do that. Six hours. If that is a heart attack, the person is not going

to survive. So really the only answer that you could give me, is it

not, is that you would have to go to an emergency room?

Mrs. NOVAK. Yes. Yes, you are right. The other problem with

that is, a lot of Seth’s conditions cannot be treated in an emergency

room.

Senator ROCKEFELLER. Could you explain that for a moment?

Mrs. NOVAK. I am sorry?

Senator ROCKEFELLER. Could you explain that?

Mrs. NOVAK. Yes. Because there are a lot of issues to do with developmental things with Seth. I cannot get Seth’s physical or occupational therapy at an emergency room. I cannot have Seth come

in and have tubes put immediately in his ears in an emergency

43

room. So for Seth, an emergency room is not a viable answer except

in an emergency.

Senator ROCKEFELLER. So your first answer is the correct answer: I do not know what I would do, what I could do.

Mrs. NOVAK. Exactly. No. No.

Senator ROCKEFELLER. I am just trying to put myself in your position and think of the strain that brings every day. Children catch

colds like crazy, and then you catch them. So that is very, very disturbing.

Let me ask a somewhat blunt question. What do you think this

situation with Seth not having insurance, or your children, and I

think you implied you and your husband also, how does that affect,

in your mind, his long-term prognosis?

Mrs. NOVAK. Oh, it is incredibly detrimental to his long-term

prognosis. Just take the instance of just the tubes in his ears, that

he cannot hear, which impacts incredibly his speech. He is nonverbal, so long-term that is just going to have an incredible impact.

The fact that he needs the orthotics on his feet and the ability for

him to just be able to walk and move is an incredible impact. Those

are just two of his issues.

Senator ROCKEFELLER. Thank you.

Mrs. NOVAK. Thank you.

Senator ROCKEFELLER. I have a question for you, Ms.

Owcharenko, if I can find it here. That is, back when we were

doing—you have very definite views from The Heritage Foundation

about crowd-out on Medicaid and CHIP, and you have expressed

them very clearly. My staff tells me that similar reports on Medicare prescription drug crowd-out were not done by The Heritage

Foundation. That gets to my point, that people always get to

crowd-out when it gets to the most vulnerable part. Is that true?

If so, why?

Ms. OWCHARENKO. There was not an econometric model done,

but Heritage Foundation was very outspoken on the concern of

what the effects of putting in a universal Part D benefit into the

prescription drug piece, what that would do to access to existing

private employer-based coverage.

So I think we have documented that quite well, that there was

significant concern that, by putting in the Part D benefit—and by

the way The Heritage Foundation was very concerned with the direction that that legislation went for the cost and the reliability to

the program—but we certainly highlighted the concerns that employer coverage would probably drop because of the adding of the

universal entitlement into Part D. So I would be happy to share

some of the documentation from my colleagues on that issue.

Senator ROCKEFELLER. I am over my time, but I will have some

more questions. It also strikes me sometimes that, when it comes

to children or the particularly vulnerable, that we get very picky

about our health care policy. For example, one of our sins that was

previously committed when we started the program, and the reason

that I think the program that Orrin Hatch and I worked on was

vetoed by the President was because we had a cigarette tax as a

way to pay for it.

Now, the Democrats have committed themselves to being responsible fiscally, which I have to say that in some loneliness, I must

44

say at my caucus, that there are some things where you just have

to spend a little bit more money because there are people involved,

at stake. This is too obvious a comparison, but we do that so easily

when we go to war. We become so picky about that, so defensive

about that, so negative about that when it has to do with American

people; trade adjustment assistance, or in this case children without health insurance. Would you agree with that?

Ms. OWCHARENKO. I think that I have been consistent in my

writing on the SCHIP program, and actually on the TAA program

as well, where Heritage was a strong voice in supporting a tax

credit proposal to give those TAA workers some sort of assistance

to help them buy private health insurance. I would also say that

I am very sympathetic——

Senator ROCKEFELLER. What is ‘‘some sort of assistance’’?

Ms. OWCHARENKO. It was a tax credit, a TAA tax credit, to enable the——

Senator ROCKEFELLER. Oh. The TAA, you are talking about. All

right.

Ms. OWCHARENKO. Tax credit.

Senator ROCKEFELLER. All right.

Ms. OWCHARENKO. But I would also say that I think that one of

the issues that I have been trying to introduce to this is that covering children is not a silo of looking into SCHIP, but it really

should be looked at as health care coverage as a whole. Those people who have private health insurance today are also at risk of losing it tomorrow and joining the ranks of the uninsured. We need

to make sure that the policies that are we are looking at are broader in scope than I think just looking at SCHIP.

Senator ROCKEFELLER. Now, you mentioned Dr. Gruber, and I

mentioned Dr. Gruber. When I mentioned him, after we identified

he had come from MIT and therefore could tell only the truth, that

the amount of crowd-out was vitiated, it was sort of equal as between what private companies did and what people did. It was

kind of a wash-out. I think you took a different view.

Ms. OWCHARENKO. Yes. Mine actually was a quote. I would have

to say you would have to ask Dr. Gruber his explanation of that,

but the crowd-out effect was substantial. I think it is consistent

with what CBO has also testified, between 25 and 60 percent of

crowd-out. Now, his was on general public program expansions,

which include not only SCHIP, but Medicaid as well.

Senator ROCKEFELLER. All right.

Senator Hatch?

Senator HATCH. I want to thank you all for being here. Mrs.

Novak, I commend you. Down Syndrome children are beautiful

kids, and those who really spend an effort in helping them are always benefitted. There have to be some ways, even within the current lacking system, to be able to get—for your child, for your

son—there are child organizations and others.

Now, I would like to solve it where we take care of these problems. Senator Rockefeller is a great champion for children as well.

We have worked on a lot of programs to try to help, and let us hope

we can solve this problem on CHIP so that folks like you can have

the confidence that your children will be given the very best care

that they can possibly have under the circumstances.

45

These are not easy questions and answers because, let us face it,

our country is going to be bankrupt if we do not find some way of

getting spending under control. There are no simple, easy answers.

We have both struggled with these problems the whole time we

have been here, and in my case that is 31 years. We have passed

a lot of very important legislation, and it has been very important

for families and has helped families.

But we still have not come up with a way of solving what really

would be universal health care, to me, without government mandates, one-size-fits-all government mandated health care. To others, the government is the only answer to universal health care.

But sooner or later, we are going to have to come up with some

sort of an answer that will work. Unfortunately, we have liberals

fighting the conservatives all the time, and we do not really get to

a point where we can really solve these problems.

That was the miracle of CHIP that I indicated at the beginning

of our discussion, that CHIP was brought up in the back room right

here. All the members of the Finance Committee were here, very

few staff. We then would agree on what we could agree on and

what we could not agree on and we would go on from there. Well,

there was an amendment brought up that failed that was in the

nature of helping people, and when that failed, I grabbed the floor

and brought up CHIP. Jay weighed in. Al D’Amato shot out of his

chair and started screaming, ‘‘It’s the right thing to do. It’s just

right.’’ Then Frank Murkowski stood up, and I did not expect him

to stand up on this occasion, but he did and he said, ‘‘It’s right and

we ought to do this.’’ Finally, we put it in the bill before we went

out there.

Now, I have to tell you, there were some who hated having CHIP

in the bill. Others on Jay’s side hated having the balanced budget

the way we were doing it. But it was the glue that brought everybody together, and it has worked amazingly well. It was basically

a block grant where the Federal Government and the States have

had to work together. The States have kept a hammer lock on it

as far as making it work right. The Federal Government has been

a principal source of funding and also making sure that it works

right.

Our problem is that we have not covered all the kids, and we

have to do that. There is a big desire here to keep entitlement programs going so fast, so furious, and so expensively, that in the

process we have not been able to resolve these problems, the anywhere from 3 to 6 million kids who really should be covered by

CHIP.

But we are going to keep working on it, and Jay, I, and others

will see if we can come to some conclusions here that will get this

up and running for all children. If we had that going right, I think

we could pretty well solve your child’s problem, and your problem

as well as far as children are concerned.

But the way CHIP came about, we had two families from Provo,

UT come in. Each family had six children, each husband and wife

worked. Neither family made more than $20,000 a year. This was

back in 1996. They worked but they could not afford to purchase

health insurance. That is how the idea of CHIP came about. Others

had been working on some sort of idea as to how we could put this

46

together, and finally it did come together, I think in a pretty

darned good way. It could not have come together without the help

of Senator Rockefeller and others who worked so hard on this.

But we would like to have it work right. We would like to have

the Federal Government as a full partner. We would like the States

to be a full partner—at least I would. We would like to be able to

get over this hurdle that has stopped us this year, and last year,

really, from getting CHIP done in a way that would cover the appropriate kids that should be covered by it.

But I have appreciated, Mr. Chairman, this hearing. I have appreciated the knowledge we have gained from this hearing and the

people who have testified, and hopefully we will find some ways of

solving your problem. Thanks, Mr. Chairman.

Senator ROCKEFELLER. I am just going to ask one final question

of Ms. Mann. What do you suggest we do to make this work for

low-income children?

Ms. MANN. Well, if I could make one clarification-for-the-record

comment. It has been talked about that every State maybe can

make this 95-percent participation rate, and do we care if the numbers are cooked or not as long as everybody gets through the gate.

I just want to stress that we have had six States that have not gotten through the gate, including Ohio. This is not a theoretical problem. This is Louisiana, Indiana, Ohio, New York, Wisconsin. They

have already had to roll back their plans to cover children. So the

notion that every State will get in is not borne out by the activities

of CMS relative to State plans over the last few months, and it is

just important to be clear on that.

In terms of what we can do, I think there is absolutely no disagreement among all players that the primary objective really is to

cover uninsured children and a really important focus is to cover

the low-income uninsured children: 7 out of 10 of those kids who

are uninsured today are eligible for Medicaid and CHIP. Many of

the things that can be done were in the CHIP reauthorization bill

that you all worked on in a bipartisan fashion. They provided financing, the bills provided incentives, they provided new tools.

As a result, 87 percent of those newly enrolled kids would have

been kids who are already eligible, but unenrolled, the lowestincome kids. We have to very much keep our eye on that ball because that is where so many of the kids are, but we do not have

to do that at the expense of the kids like the Novaks. We could do

it all. It is not extraordinarily expensive. It has worked so far. We

have had a disruption by virtue of this letter that was issued, and

hopefully that disruption can be put aside and we can keep moving

forward.

Senator ROCKEFELLER. That August 17th letter has caused enormous outrage on the Hill. I am hopeful something will come of

that. Does that make me optimistic? Not necessarily, but we have

to——

I would, finally, just end up by saying that there is something

almost sad about having a hearing like this, there really is. I mean,

the generals are talking to the Armed Services and the Foreign Relations Committees. One of the things that is often brought up, and

this will sound political and I do not mean it to be that way, but

it comes right out of my gut as a former Vista volunteer who

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worked with people for 2 years who had no health insurance whatsoever, nobody had a job, what we are spending over there and

what a couple of weeks of that could do back here to help Seth and

family, and many others.

It is a real mystery that we in America, maybe because of the

degradation or sensationalism in the media, are you patriotic or

are you not, that we have developed an increasingly concerning

habit of ignoring our own people even as we help others, in Iraq

or whatever. So whether it be a sad hearing or not, it is a very important hearing. You have all contributed very, very substantially.

I am sorry, Mr. Weil, I did not ask you a question. It was nothing

personal.

Mr. WEIL. I already answered it, I thought you said.

Senator ROCKEFELLER. That is right, you already answered it. So

it was your fault. [Laughter.] But I thank you all. It is 10 minutes

after 5, so I think we will just adjourn this, with great appreciation

to all of you.

[Whereupon, at 5:11 p.m., the hearing was concluded.]

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