GAO-04-166R HHS Waiver Approvals

United States General Accounting Office

Washington, DC 20548 

January 5, 2004 

The Honorable Charles Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

Subject: SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with 

Program Goals

States provide health care coverage to about 60 million low-income uninsured adults 

and children largely through two federal-state programs—Medicaid and the State 

Children’s Health Insurance Program (SCHIP). Medicaid, established in title XIX of 

the Social Security Act, generally covers low-income families and elderly and 

disabled individuals, and SCHIP, established in title XXI of the act, covers children in 

families whose incomes, although low, are above Medicaid’s eligibility requirements. 

In 2001, the Secretary of Health and Human Services announced a new initiative—the 

Health Insurance Flexibility and Accountability Initiative (HIFA)—under which states 

could expand coverage to uninsured populations using Medicaid and SCHIP funds. 

HIFA encourages states to develop coordinated public and private health insurance 

coverage options and to target program resources to uninsured individuals with 

incomes below 200 percent of the federal poverty level (FPL). Authority for this 

initiative comes from section 1115 of the Social Security Act, which allows the 

Secretary to waive many of the statutory requirements of Medicaid or SCHIP in the 

case of experimental, pilot, or demonstration projects that promote program 

objectives. Within the Department of Health and Human Services (HHS), the Centers 

for Medicare & Medicaid Services (CMS) has the lead role in reviewing HIFA waiver 

applications.1

 

1

Although CMS has lead responsibility for administering Medicaid and SCHIP, throughout this report 

we refer to HHS as the primary program entity because section 1115 waiver authority resides with the 

Secretary, and other HHS entities are also involved in the review process. 
2 GAO-04-166R HHS Waiver Approvals

In a July 2002 report, we raised legal and policy concerns about the need to clearly 

establish purposes and populations for which SCHIP funds may be spent.2 Our 

specific concerns related to HHS’s approval of a HIFA waiver for Arizona, which 

proposed using unspent SCHIP funds to cover childless adults. We reported that, in 

our view, approving a waiver to use SCHIP funds for expanding coverage to childless 

adults was inconsistent with SCHIP’s statutory objective to expand health coverage 

to low-income children. Because the SCHIP statute requires that unused funds be 

redistributed to states that have spent their allotments, states’ coverage of childless 

adults using SCHIP funds decreases the funding available in future years for 

reallocation to states with unmet SCHIP needs.3

We also reported that HHS had approved HIFA waivers for Arizona and California to 

use SCHIP funds to cover parents of SCHIP- and Medicaid-eligible children without 

regard to cost-effectiveness, even though the SCHIP statute provides that families 

may be covered only if such coverage is cost-effective—that is, only if covering the 

family costs no more than covering the eligible children. We suggested that Congress 

consider specifying in statute that SCHIP funds are not available to cover childless 

adults and recommended that HHS deny any pending or future state proposals to 

spend SCHIP funds for such coverage. We also suggested that Congress consider 

establishing which statutory objectives should take precedence: those of the SCHIP 

statute, which authorizes family coverage only if cost-effective, or those of section 

1115, which allows certain statutory provisions—such as cost-effectiveness tests—to 

be set aside. 

After receiving our July 2002 report, you wrote to the Secretary of HHS to express 

concern about the agency’s justification for using SCHIP funds to provide health 

coverage for childless adults.4

 In your letter, you indicated that the Secretary should 

not continue to approve waivers that divert SCHIP funds set aside by Congress for 

children to insure childless adults. You also indicated that if these approvals 

 

2

U.S. General Accounting Office, Medicaid and SCHIP: Recent HHS Approvals of Demonstration 

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

3

Congress in 1997 appropriated a fixed amount for SCHIP—approximately $40 billion in federal 

matching funds over 10 years (fiscal years 1998 through 2007). Annual allotments are made to states 

for use over a 3-year period, and the Secretary is required to determine an appropriate procedure for 

redistributing the unused SCHIP funds to those states that have already spent their SCHIP allotments. 

Pub. L. No. 108-74, 117 Stat. 892, signed into law on August 15, 2003, made SCHIP allotments for fiscal 

years 1998 through 2001 available for a longer period (for example, 1998 and 1999 allotments will be 

available through 2004). It also allows states that do not spend their entire 2000 and 2001 allotments 

within a 3-year period to keep half the unspent amounts, while the other half is redistributed to states 

that have spent their entire allotments (for example, half a state’s unspent 2001 allotment shall remain 

available to that state through the end of fiscal year 2005). 

4

Letter to the Honorable Tommy G. Thompson from Max Baucus, Chairman, and Charles E. Grassley, 

Ranking Member, Senate Committee on Finance, August 6, 2002. 
3 GAO-04-166R HHS Waiver Approvals

continued, you intended to take legislative action to prevent them, which you have 

subsequently done.5

This report responds to your request that we update our analysis of states’ HIFA 

waiver proposals reviewed and approved by HHS after July 2002. This report provides 

information on HHS’s approvals of states’ proposals to use SCHIP funds to extend 

health insurance coverage to childless and other groups of adults, including whether 

such proposals were subject to a cost-effectiveness test, and outlines the status of 

other HIFA waiver applications that HHS has reviewed but not approved. Our 

analysis covers states’ HIFA waiver proposals considered by HHS from July 2002 

through December 2003.6 For approved waivers, we analyzed the waiver applications 

as submitted by the states; HHS decision memorandums and approval letters; waiver 

applications as approved; waiver terms and conditions; and, when available, the 

states’ plans (called operational protocols) for how the waivers will operate. We also 

discussed these waiver approvals with officials at CMS. We conducted our work from 

January through December 2003 in accordance with generally accepted government 

auditing standards. 

Results in Brief 

Despite SCHIP’s statutory objective of expanding coverage to low-income children, 

HHS has continued to approve HIFA waivers that allow states to use SCHIP funds to 

cover childless adults. From July 2002 through December 2003, HHS approved three 

states’ proposals to use SCHIP funds for childless adults. Without requiring the states 

to meet the statutory cost-effectiveness test, the agency also approved four states’ 

proposals to use SCHIP funds to cover parents or guardians of SCHIP- or Medicaideligible children. Unless Congress and HHS take actions in response to the matters 

for congressional consideration and recommendations to HHS presented in our July 

2002 report, it appears likely that HHS will continue to allow states to use SCHIP 

funds for childless adults, and for parents and guardians, without regard to whether 

this use is cost-effective. 

 

5

Since our July 2002 report, several legislative proposals have been introduced that expressly prohibit 

the Secretary from using section 1115 waiver authority to make SCHIP funds available for childless 

adults. As of December 2003, however, none of these proposals had been enacted into law. See 

Beneficiary Access to Care and Medicare Equity Act of 2002, S. 3018, 107th Cong., § 706, placed on 

Senate Legislative Calendar on October 2, 2002; Health Care Coverage Expansion and Quality 

Improvement Act of 2003, S. 10, 108th Cong., § 801, introduced in the Senate on January 7, 2003; and 

Personal Responsibility, Work, and Family Promotion Act of 2003, H.R. 4, 108th Cong., § 602, reported 

in S. Rep. 108-162, at 182 (2003). A prior version of the Jobs Growth Tax Relief Reconciliation Act of 

2003 also contained a provision that would have prohibited the agency from spending SCHIP funds on 

childless adults. See H.R. 2, 108th Cong., § 383 of Engrossed Amendment as Agreed to by Senate, 

discussed in H.R. Conf. Rep. No. 108-126 at 169 but not enacted in Pub. L. No. 108-27, 117 Stat. 752. 

6

HHS also reviews non-HIFA section 1115 waivers, including some with provisions similar to those 

proposed under HIFA, such as Tennessee’s TennCare II and Utah’s Primary Care Network. We did not 

include non-HIFA applications in this review. HHS approved one additional HIFA waiver that we also 

omit: a waiver for Maine, approved September 13, 2002, that would cover childless adults but would 

not use SCHIP funds. The Maine waiver instead uses funds from its Medicaid disproportionate share 

hospital allocation for this coverage. 
4 GAO-04-166R HHS Waiver Approvals

HHS reviewed a draft of this report and reiterated its position responding to our July 

2002 report. HHS continues to believe that using section 1115 waiver authority to 

approve spending SCHIP funds to cover childless adults is appropriate because this 

practice helps low-income Americans who do not have health insurance. We believe 

that in allowing states to use unspent SCHIP funds for their own adult populations, 

HHS is reducing the unspent SCHIP funds available for future redistribution to states 

that have exhausted their allotments for covering uninsured low-income children. 

HHS has not, in our view, adequately explained how the objectives of the SCHIP 

statute are promoted by insuring childless adults or by covering populations besides 

children without regard to cost-effectiveness. 

Background 

Medicaid and SCHIP are the nation’s largest health-financing programs for lowincome people, accounting for about $250 billion in federal and state expenditures in 

fiscal year 2002. To receive federal funding—which reimbursed states, on average, for 

about 57 percent of their Medicaid expenditures and 70 percent of SCHIP 

expenditures in fiscal year 2002—states must meet certain statutory requirements. 

Medicaid is an open-ended entitlement program: as long as the federal government 

has approved a state’s Medicaid plan, the federal government will pay its share of the 

state’s expenditures to cover eligible populations; the number of enrollees in the 

state’s program cannot be limited. SCHIP, in contrast, is not open-ended. Congress in 

1997 appropriated a fixed amount for SCHIP, specifically, $40 billion in federal 

matching funds over 10 years (fiscal years 1998 through 2007). Annual allotments are 

made to states for use over a 3-year period, and the Secretary of HHS is required to 

determine an appropriate procedure for redistributing unused funds to states that 

exhaust their allotments. As of the end of fiscal year 2002, few states had spent their 

full SCHIP allotments, and Congress in 2003 passed legislation allowing the states to 

retain their unspent funds for a longer period.7

 At the same time, however, SCHIP 

enrollment has been growing. CMS estimates that 3.4 million children were covered 

through SCHIP in fiscal year 2000, compared with more than 5.3 million children in 

fiscal year 2002. 

Under the authority of section 1115, HIFA gives states considerable flexibility to 

increase cost sharing and reduce benefits for some Medicaid and SCHIP beneficiaries 

to help fund coverage for additional uninsured populations within existing program 

resources. The initiative allows states to provide different benefit packages to 

different groups of people covered under the waiver. To be considered, HIFA 

proposals must be statewide and seek to coordinate coverage with private health 

insurance options for low-income uninsured individuals—for example, through 

premium assistance programs that would pay a portion of covered individuals’

premiums to purchase employer-based insurance. Typically, waivers are approved for 

5 years. 

 

7

The Congressional Research Service reports, for example, that as of the end of fiscal year 2002, 29 

states (including the District of Columbia) had spent less than half their available SCHIP funds. See 

Congressional Research Service, CRS Report to Congress: SCHIP Financing Issues for the 108th 

Congress (Washington, D.C.: Library of Congress, Aug. 15, 2003). 
5 GAO-04-166R HHS Waiver Approvals

At the time of our July 2002 report, HHS had approved two HIFA waivers, Arizona’s 

and California’s. Arizona’s HIFA waiver allows the state to cover previously 

uninsured low-income adults, including those with no children. Coverage of childless 

adults with incomes at or below 100 percent of FPL was implemented in November 

2001. Coverage of parents of children enrolled in Medicaid or SCHIP with family 

incomes from 100 to 200 percent of FPL was implemented in January 2003. According 

to CMS, as of July 1, 2003, combined state and federal SCHIP spending on childless 

adults covered in Arizona’s waiver totaled more than $214 million, and coverage for 

parents totaled about $12.8 million. California’s HIFA waiver, which had not been 

implemented as of December 2003, would allow that state to use SCHIP funds to 

cover the parents of children who are enrolled in Medicaid or SCHIP. 

Five Approved HIFA Waivers Use SCHIP Funds to Cover Uninsured Adults 

From July 2002 through December 2003, HHS approved five states’ waiver proposals 

that would use SCHIP funds to provide health care coverage for adults, including 

three that would cover childless adults. Specifically, HHS approved HIFA waiver 

proposals from Illinois, New Mexico, and Oregon to use unspent SCHIP funds to 

cover uninsured adults who have no children, as well as parents of Medicaid- or 

SCHIP-eligible children. Two other approved HIFA waiver proposals—New Jersey’s 

and Colorado’s—do not cover childless adults but do cover other groups of adults. 

New Jersey’s HIFA waiver uses SCHIP and Medicaid funds to cover uninsured 

parents and relative caretakers of children covered by Medicaid or SCHIP, and 

Colorado’s HIFA waiver used SCHIP funds along with state tobacco settlement funds 

to expand coverage to pregnant women not otherwise eligible for Medicaid.8

 Table 1 

presents more specific information on covered populations and the expected sources 

of funding. 

 

8

On November 1, 2003, Colorado suspended its waiver because budget constraints forced it to close its 

SCHIP program to new enrollment, and under the terms and conditions of its waiver, the state could 

not close enrollment in SCHIP while the waiver demonstration program was in effect. 
6 GAO-04-166R HHS Waiver Approvals

Table 1: HIFA Waivers Approved from July 2002 through December 2003 

State and Approved coverage expansion and funding sources 

approval date Projected 

populationa SCHIP Medicaid Other 

New Mexico

August 23, 2002b

Approximately 40,000 

individuals: 

11,000 childless 

adults 

29,000 parents of 

Medicaid or SCHIP 

children 

$246.8 million 

total: 

$193.3 million 

federal share 

$53.5 million 

state share 

 

Illinois

September 13, 2002 

Approximately 

300,000 individuals: 

Up to 1,000 adults 

who are uninsurable 

because of their 

medical conditions 

(including childless 

adults) 

Up to 43,000 

children 

Up to 268,000 

parents of Medicaid 

or SCHIP children 

$889.1 million 

total: 

$577.9 million 

federal share 

$311.2 million 

state share 

$209.0 million 

total: 

$104.5 million 

federal share 

$104.5 million 

state share 

State general 

revenues 

Colorado

September 27, 2002 

13,000 pregnant 

women 

(Closed to new 

enrollment in May 

2003 and suspended 

on Nov. 1, 2003) 

$64.0 million 

total: 

$41.6 million 

federal share 

$22.4 million 

state share 

 Tobacco 

settlement 

funds 

Oregonc

October 15, 2002

Approximately 

581,000 individuals 

(535,000 current plus 

46,000 expansion 

eligibles): 

99,900 childless 

adults 

10,000 pregnant 

women 

234,400 parents of 

Medicaid or SCHIP 

children 

236,700 children 

$379 million total:

$272 million 

federal share 

$107 million 

state share 

$12.9 billion total: 

$9 billion federal 

share 

$3.9 billion state 

share 

New Jersey 

January 31, 2003 

12,000 uninsured 

parents and relative 

caretakers of children 

covered by Medicaid 

or SCHIP 

$134 million total:

$87.1 million 

federal share 

$46.9 million 

state share 

$866.8 million 

total: 

$433.4 million 

federal share 

$433.4 million 

state share 

State general 

revenues and 

tobacco 

settlement 

funds 

Source: HHS. 

a

Populations to be covered and projected numbers of enrollees over 5 years of the HIFA waiver, with 

the exception of Colorado, whose waiver was approved for 4 years. On November 1, 2003, Colorado 

suspended its waiver because budget constraints forced it to suspend new enrollment in its SCHIP 
7 GAO-04-166R HHS Waiver Approvals

program, and under the terms and conditions of its waiver, the state could not close enrollment in 

SCHIP while the waiver demonstration program was in effect. 

b

Not yet implemented. 

c

The projected population and funding sources and amounts for Oregon represent the HIFA waiver 

combined with the existing statewide waiver program known as the Oregon Health Plan. Expansions 

approved under the HIFA waiver in October 2002 have been implemented only in part (see 

enclosure I for details). According to CMS officials, Oregon’s proposal would use Medicaid funds to 

cover pregnant women. 

Four of the five approved HIFA waivers allow states to cover eligible parents and 

guardians of children in Medicaid or SCHIP, and three include a provision that would 

require parents and guardians with access to employer-sponsored health insurance to 

enroll in premium assistance programs.9 For three of these HIFA waivers, the states 

will also directly cover certain eligible parents and guardians who do not have access 

to employer-sponsored insurance. 

In approving the four waivers covering parents and guardians, HHS did not require 

the states to demonstrate that their waivers met the SCHIP statutory costeffectiveness test.10 As we reported in July 2002, in creating SCHIP, Congress 

authorized states to cover health benefits for entire families—parents or custodians 

and their children—if it was cost-effective to do so. The cost-effectiveness test for 

family coverage specifies that the expense of covering adults as well as children in a 

family must not exceed the cost of covering the eligible children. Under these 

circumstances, achieving cost-effectiveness appears possible only when the cost to 

SCHIP of covering a family is subsidized by employer contributions or other state 

funds. In our view, this statutory test demonstrated congressional priority for 

covering children before their parents. We reported in 1999 that some states and 

advocacy groups were nevertheless seeking increased flexibility to tailor their SCHIP 

programs to cover uninsured parents through the use of section 1115 waiver 

authority.11 The agency questioned waiver proposals to cover parents during the first 

year of SCHIP implementation, expressing concern that waivers should not 

circumvent the SCHIP goal of insuring low-income children. The agency indicated to 

states that the waivers’ purpose was to test innovative approaches, not to waive 

statutory provisions that the states found objectionable. In July 2000, however, the 

agency announced to states that it would consider waivers to use unspent SCHIP 

funds to cover parents, but it was silent on the application of the cost-effectiveness 

test. 

 

9

HHS approved Colorado’s HIFA demonstration waiver without a premium assistance provision 

because of the difficulty of designing a cost-effective premium assistance program for pregnant 

women only. The agency required Colorado to include a premium assistance program as a second 

phase of the state’s waiver. 

10For premium assistance programs, HHS’s guidelines for HIFA waivers indicate that states are not 

required to meet a specific cost-effectiveness test but that states should monitor their waivers to 

ensure that aggregate costs for those enrolled are not “significantly higher” than they would be under a 

direct coverage program. For direct-coverage programs, HIFA guidelines are silent on the application 

of a cost-effectiveness test. 

11See U.S. General Accounting Office, Children’s Health Insurance Program: State Implementation 

Approaches Are Evolving, GAO/HEHS-99-65 (Washington, D.C.: May 14, 1999). 
8 GAO-04-166R HHS Waiver Approvals

Four Other HIFA Waiver Proposals Reviewed by HHS 

In addition to the five HIFA waivers approved from July 2002 through December 

2003, HHS reviewed four other states’ HIFA proposals involving the use of SCHIP 

funds. These proposals targeted coverage to various populations, such as childless 

adults, parents and guardians of SCHIP- and Medicaid-eligible children, and pregnant 

women. Of these four, one proposal was denied, two were pending as of December 

2003, and one was withdrawn by the state. (See enclosure I for a summary of HIFA 

waiver proposals.) 

In March 2003, HHS denied Delaware’s HIFA application. The state proposed using 

SCHIP funds to cover childless adults and pregnant women and, in the future, 

uninsured parents of Medicaid or SCHIP children. The proposal sought to move some 

current Medicaid beneficiaries into SCHIP, thereby reducing their benefits and 

increasing their share of costs. Had the proposal been approved, the shift of existing 

coverage from Medicaid to SCHIP would also have enabled the state to cap 

enrollment for those beneficiaries previously covered by Medicaid and to claim 

SCHIP’s higher federal matching rate.12 HHS denied the waiver because, contrary to 

HIFA requirements, Delaware’s proposal did not expand coverage or plan to 

coordinate with the private health insurance market. 

As of December 2003, HHS was reviewing HIFA applications from two states. A 

January 2003 proposal from Arkansas would use SCHIP funds, an employer tax, and 

enrollee cost sharing to provide a basic benefit package to cover as many as 55,000 

uninsured adults working for small employers. The state proposes to coordinate with 

private insurers to help pay the costs of health insurance premiums for the adults 

covered by the waiver. Michigan submitted a HIFA application in March 2002, 

withdrew the submission 4 months later, and resubmitted a new application in April 

2003. The state’s proposal, currently under review, would use SCHIP funds to cover 

childless adults with incomes at or below 35 percent of FPL. Participants would pay 

unspecified cost sharing, which the state expects to be about 3.2 percent of monthly 

countable income. The benefit package would include hospital and physician 

services, laboratory tests and X-rays, prescription drugs, and mental health and 

substance abuse services. 

HHS also reviewed a HIFA application submitted in August 2002 by Washington, 

which proposed using SCHIP funds to cover parents of Medicaid children and also 

childless adults with incomes at or below 200 percent of FPL. After making changes 

that put its proposal outside of HHS’s HIFA guidelines, the state withdrew its 

application and, in July 2003, submitted a non-HIFA waiver application to require 

premiums for some Medicaid families. 

 

12Arizona’s HIFA demonstration waiver permitted the state to use SCHIP funds to cover a population 

that was already covered under the state’s Medicaid plan. Because the federal matching rate is higher 

for SCHIP than for Medicaid (77 percent in Arizona in fiscal year 2003 for SCHIP and 67 percent for 

Medicaid), moving a population from existing Medicaid coverage into SCHIP shifts costs to the federal 

government. 
9 GAO-04-166R HHS Waiver Approvals

Concluding Observations 

The legal and policy concerns that we raised in our July 2002 report remain: HHS 

continues to approve waivers allowing states to use SCHIP to fund health insurance 

coverage for childless adults, despite SCHIP’s statutory objective of expanding 

coverage to low-income children. We believe that these approvals are inconsistent 

with SCHIP’s goals because they allow SCHIP funds to be diverted from the needs of 

low-income children. In the absence of congressional clarification of whether SCHIP 

funds may be used to cover parents and guardians of Medicaid- or SCHIP-eligible 

children without regard to cost-effectiveness, we also question HHS’s approval of 

additional waiver proposals for such coverage. 

Unless Congress and HHS take action in response to the matters for congressional 

consideration and recommendations to the Secretary that we presented in our July 

2002 report—namely that (1) Congress consider amending title XXI of the Social 

Security Act to specify that SCHIP funds are not available to provide health insurance 

coverage for childless adults; (2) Congress consider establishing, for parents or 

guardians of SCHIP-eligible children, which statutory objectives should take 

precedence, those of title XXI to provide family coverage only if it is cost-effective or 

those of section 1115, which allow the cost-effectiveness test to be waived; and (3) 

the Secretary of HHS amend approval of all section 1115 waivers to prevent future 

use of SCHIP funds for childless adults and deny any pending or future state 

applications to spend SCHIP funds for such coverage—it appears likely that HHS will 

continue to allow states to use SCHIP funds for childless adults and, in the case of 

low-income parents or guardians, without regard to the cost-effectiveness of such 

coverage. 

Agency Comments and Our Evaluation 

We provided a draft of this report for comment to HHS. In its response, the 

department stated that it continues to believe that its actions to increase coverage 

through waivers are appropriate to help low-income Americans who do not have 

health insurance, and that it maintains its position in response to our July 2002 

report. The department stated that the approved demonstrations are required to 

prioritize use of SCHIP funds for children over other uses and that these 

demonstrations are anticipated to reduce the number of uninsured children. The 

department also expects that these waivers will increase health insurance to adults 

who potentially could become parents or caretaker relatives in the future and will 

strengthen the health status of the low-income community in general. HHS’s 

comments are reprinted in enclosure II. 

We believe that in allowing states to use unspent SCHIP funds for their own adult 

populations, HHS is reducing the unspent SCHIP funds available for future 

redistribution to states that have exhausted their allotments for covering uninsured 

low-income children. HHS has not adequately explained how the objectives of the 

SCHIP statute are promoted by insuring childless adults. 

HHS also provided technical comments that we incorporated where appropriate. 
10 GAO-04-166R HHS Waiver Approvals

- - - - - 

As arranged with your offices, unless you release its contents earlier, we plan no 

further distribution of this report until 30 days after its date. At that time, we will 

send copies to the Secretary of HHS, the Acting Administrator of CMS, and other 

interested parties. We will also make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-7118 or 

Katherine Iritani at (206) 287-4820. Other major contributors to this report include 

Ellen W. Chu, Jennifer DeYoung, Suzanne Rubins, and Ellen M. Smith. 

Kathryn G. Allen 

Director, Health Care—Medicaid and 

 Private Health Insurance Issues 

Enclosures - 2
Enclosure I Enclosure I 

11 GAO-04-166R HHS Waiver Approvals

Summary of HIFA Waivers Reviewed by HHS, July 2002–December 2003 

From July 2002 through December 2003, the Department of Health and Human 

Services (HHS) reviewed nine Health Insurance Flexibility and Accountability 

Initiative (HIFA) waiver proposals that would use State Children’s Health Insurance 

Program (SCHIP) funds to cover individuals other than children, approved five of 

them, and denied one. As of December 2003, two applications were under review, and 

one had been withdrawn by the state. Table 2 provides additional details on these 

HIFA waiver proposals. 

Table 2: Approved, Denied, Pending, and Withdrawn HIFA Waivers 

State and waiver status Description 

Approved 

New Mexico 

Submitted April 3, 2002 

Approved August 23, 2002 

Not implemented as of December 2003 

because of state budget constraints 

Projected enrollment: 40,000 individuals. 

Projected expenditures: Total $246.8 million in SCHIP 

funds over 5 years; federal share $193.3 million, state 

share $53.5 million. 

Highlights: Uses SCHIP funds to expand coverage, 

through subsidized private insurance, to 40,000 

uninsured adults ages 19 through 64 with incomes at or 

below 200 percent of the federal poverty level (FPL), 

including 29,000 parents of Medicaid and SCHIP children 

and 11,000 single or childless adults. 

Benefits: Premium assistance for a state-established 

reduced commercial benefit package, to be delivered 

under contracts with managed care organizations. 

Beneficiaries to pay premiums and sliding-scale copayments; employers to contribute monthly premiums of 

$75 per enrollee. 

Employer-sponsored insurance component: The 

entire waiver is to be implemented as a premium 

assistance program to enable eligible beneficiaries to 

obtain private insurance coverage through their 

employers. 
Enclosure I Enclosure I 

12 GAO-04-166R HHS Waiver Approvals

State and waiver status Description 

Illinoisa 

Submitted February 15, 2002 

Approved September 13, 2002 

Implementation started October 1, 2002 

Projected enrollment: Approximately 300,000 

individuals. 

Projected expenditures: Total $1.1 billion over 5 years, 

including $889.1 million SCHIP funds (federal share 

$577.9 million, state share $311.2 million) plus $209.0 

million in Medicaid funds (federal and state shares each 

$104.5 million). 

Highlights: Uses SCHIP, Medicaid, and state general 

revenues to expand coverage to approximately 300,000 

individuals over 5 years, including as many as 268,000 

parents of Medicaid and SCHIP children with incomes up 

to a maximum of 185 percent of FPL, as many as 1,000 

adults who are low income and uninsurable because of 

their medical conditions with incomes up to 185 percent 

of FPL (including those without children), and as many as 

43,000 children from a state-funded premium assistance 

program with family incomes up to 185 percent of FPL. 

As implemented, in October 2002, the waiver covered 

parents with incomes up to 49 percent of FPL and other 

groups with incomes up to 185 percent of FPL, including 

SCHIP children, children from a state-funded premium 

assistance program, and low-income uninsurable adults. 

HHS has reviewed several proposed changes to Illinois’ 

waiver and approved, effective July 2003, expanding 

coverage for parents to those with incomes from 49 to 90 

percent of FPL. 

Benefits: Depend on whether waiver enrollees choose 

direct state coverage or premium assistance to purchase 

coverage through an employer. State benefits for parents 

are nearly the same as children’s Medicaid or SCHIP 

coverage; cost sharing varies by income. State provides 

defined benefits for individuals who are uninsurable 

because of their medical conditions, with variable 

premiums and cost-sharing requirements. 

Employer-sponsored insurance component: Illinois 

already had a premium assistance program in place for 

low-income people including children, and the waiver 

continues that option. 
Enclosure I Enclosure I 

13 GAO-04-166R HHS Waiver Approvals

State and waiver status Description 

Colorado 

Submitted May 8, 2002 

Approved September 27, 2002 

Implementation started October 9, 2002 

Closed to new enrollees in May 2003; 

suspended as of November 1, 2003 

Projected enrollment: 13,000 pregnant women. 

Projected expenditures: Total $64.0 million in SCHIP 

funds over 4 years; federal share $41.6 million, state 

share $22.4 million. 

Highlights: Uses SCHIP and state tobacco settlement 

funds to expand coverage to 13,000 pregnant women 

with incomes from 134 through 185 percent of FPL who 

are not otherwise eligible for Medicaid or SCHIP in 

Colorado. 

Benefits: Waiver extends comprehensive SCHIP 

benefits, excluding dental coverage; services are to be 

delivered through a SCHIP network of managed care 

providers. 

Employer-sponsored insurance component: HHS did 

not require this component in Colorado’s waiver because 

the agency agreed with state officials that a population 

comprising only pregnant women is not appropriate for a 

premium assistance program. HHS is considering this 

waiver as phase I while awaiting submission of a 

separate, phase II HIFA waiver with an employersponsored insurance component and including parents. 

Suspension: Colorado suspended enrollment in the 

prenatal program in May 2003. Services continued for 

waiver participants until November 1, 2003, which 

coincided with the date that the state closed enrollment in 

its SCHIP program because of budget constraints. 

According to the waiver’s terms and conditions, Colorado 

could not close enrollment in SCHIP while the waiver 

demonstration program was in effect. 
Enclosure I Enclosure I 

14 GAO-04-166R HHS Waiver Approvals

State and waiver status Description 

Oregon 

Submitted May 31, 2002 

Approved October 15, 2002 

Implementation started November 1, 

2002, for premium assistance 

component; February 1, 2003, for 

coverage expansion to pregnant women 

and children with incomes to 185 percent 

of FPL 

Projected enrollment: As originally approved, 

approximately 581,000 people, including about 535,000 

currently eligible individuals plus 46,000 expansion 

individuals. 

Projected expenditures: Total $13.3 billion over 5 years 

for combined HIFA and statewide Medicaid waivers, 

including $379 million in SCHIP funds (federal share 

$272 million, state share $107 million) and $12.9 billion in 

Medicaid funds (federal share $9 billion, state share $3.9 

billion). 

Highlights: Approved to use SCHIP and Medicaid funds 

to expand coverage to approximately 46,000 additional 

individuals over 5 years, including pregnant women and 

children, with incomes from 170 through 185 percent of 

FPL and other individuals in a state-funded premium 

assistance program with incomes up to 185 percent of 

FPL (includes children, parents, and childless adults). 

The HIFA waiver restructures the existing statewide 

waiver, known as the Oregon Health Plan. Since 

approval of the original HIFA waiver, HHS has approved 

revisions that reduce certain benefits. The state informed 

HHS in May 2003 that a planned expansion in the 

Oregon Health Plan for parents and childless adults with 

incomes above 100 percent of FPL would not occur 

because of state budget constraints. In September 2003, 

Oregon requested additional amendments to the Oregon 

Health Plan to implement state legislation. These 

amendments, which were under review by HHS as of 

December 2003, include some proposed service 

reductions, the addition of a prescription drug-only benefit 

for some new low-income seniors and disabled 

individuals, expanded coverage under SCHIP from 185 to 

200 percent of FPL, and expanded coverage under the 

premium assistance program for individuals with incomes 

from 185 to 200 percent of FPL. 

Benefits: The Oregon Health Plan expands coverage to 

pregnant women and children with incomes from 170 to 

185 percent of FPL and covers parents and other adults 

with incomes from 100 to 185 percent of FPL only if they 

choose to enroll in the premium assistance program. The 

Oregon Health Plan also reduces benefits (eliminating 

dental, durable medical equipment, mental health, and 

chemical dependency services) and caps enrollment for 

some previously eligible parents and adults, and it 

expands cost-sharing requirements, such as copayments. 

Employer-sponsored insurance component: Oregon 

expanded its existing state-funded premium assistance 

program and offers it as an option to previously eligible 

and new beneficiaries. 
Enclosure I Enclosure I 

15 GAO-04-166R HHS Waiver Approvals

State and waiver status Description 

New Jersey 

Submitted July 15, 2002 

Approved January 31, 2003 

Implementation started March 1, 2003 

Projected enrollment: 12,000 parents and caretaker 

relatives. 

Projected expenditures: Total $1 billion over 5 years, 

including $134 million in SCHIP funds (federal share 

$87.1 million, state share $46.9 million) and $866.8 

million in Medicaid funds (federal share $433.4 million, 

state share $433.4 million). 

Highlights: Uses SCHIP funds to expand coverage to as 

many as 12,000 uninsured parents and caretaker 

relatives of Medicaid- and SCHIP-eligible children with 

family incomes at or below 200 percent of FPL.b

 This 

expansion group comprises individuals whose 

applications for the New Jersey FamilyCare program, 

under an existing SCHIP waiver, were pending when 

enrollment for that program was frozen in June 2002. 

Benefits: The state will reduce benefits for all parents 

and adults in its existing SCHIP waiver to health 

maintenance organization-equivalent coverage, and it will 

use the savings to fund the expansion group of parents 

and caretaker relatives. Premiums and co-payments, 

capped at 5 percent of adjusted family income per year 

(in keeping with federal SCHIP rules), are required for 

families with incomes above 150 percent of FPL. 

Employer-sponsored insurance component: The 

state’s existing SCHIP waiver includes a premium 

assistance program implemented in July 2001. The HIFA 

waiver requires beneficiaries who have access to 

employer-sponsored private insurance to enroll in this 

premium assistance program. 

Denied 

Delaware 

Submitted May 16, 2002 

Denied March 19, 2003 

Projected enrollment: 7,075 individuals. 

Projected expenditures: Total $68.9 million in SCHIP 

funds over 5 years; federal share $44.8 million, state 

share $24.1 million. 

Highlights: Proposed using SCHIP funds and other 

sources to cover about 7,000 low-income uninsured 

adults, including those in transitional medical assistance 

(temporary coverage for individuals who have lost full 

Medicaid eligibility), pregnant women with incomes from 

133 through 200 percent of FPL, uninsured adults with 

incomes at or below 100 percent of FPL, and other 

eligible adults with incomes from 65 through 75 percent 

of FPL. Also proposed future expansion, with sufficient 

funding, to cover uninsured parents of Medicaid and 

SCHIP children. 

Benefits: Proposed moving some current Medicaid 

beneficiaries into SCHIP, reducing their benefits, 

increasing cost sharing (including sliding-scale 

premiums), and capping enrollment. 
Enclosure I Enclosure I 

16 GAO-04-166R HHS Waiver Approvals

State and waiver status Description 

Pending 

Arkansas 

Submitted January 23, 2003 

Projected enrollment: 55,000 individuals. 

Projected expenditures: Total $147.3 million in SCHIP 

funds over 5 years; federal share $120.7 million, state 

share $26.5 million (numbers do not add because of 

rounding). 

Highlights: Would use an employer tax, SCHIP funds, 

and beneficiary cost sharing to expand coverage to 

uninsured adults working for small employers by 

providing premium assistance for a basic benefit 

package. To be implemented in two phases: (1) a pilot 

program capped at 15,000 individuals and (2) coverage 

for an additional 40,000 uninsured adults with incomes up 

to 200 percent of FPL. 

Michigan 

Submitted April l4, 2003 

Projected enrollment: 62,000 childless adults. 

Projected expenditures: Total $858.6 million in SCHIP 

funds over 5 years; federal share $593.3 million, state 

share $265.3 million. 

Highlights: Proposes using unspent SCHIP allocation to 

expand coverage to 62,000 childless adults with incomes 

at or below 35 percent of FPL. 

Benefits: Include inpatient and outpatient hospital, 

physician medical and surgical, laboratory and X-ray, 

pharmacy, and mental health and substance abuse 

services. State estimates that cost sharing represents 

approximately 3.2 percent of family monthly adjusted 

income. 

Withdrawn 

Washington 

Submitted August 13, 2002 

Withdrawn May 2003 

Projected enrollment: 20,000 individuals. 

Projected expenditures: Total $401 million in SCHIP 

funds over 5 years; federal share $260 million, state 

share $141 million. 

Highlights: Proposed using SCHIP funds to expand 

coverage to 20,000 individuals with incomes at or below 

200 percent of FPL, including parents of children in 

Medicaid and childless adults. Expansion also to be 

supported by increased cost sharing, benefit reductions, 

and a possible Medicaid enrollment freeze for previously 

eligible groups, including children. 

Source: Centers for Medicare & Medicaid Services (CMS). 

Note: Information in this table is based on waiver documentation, including initial applications, terms 

and conditions, and operational protocols, and on clarifications and updates provided by CMS 

officials. 

a

Illinois also asked to expand coverage in three programs—the Illinois Comprehensive Health 

Insurance Program (ICHIP, a program for uninsurable low-income individuals), Hemophilia, and 

KidCare Rebate (for parents of children in Medicaid or SCHIP)—to include those with incomes from 

185 to 200 percent of FPL. HHS informed the state that the department could not approve this waiver 

amendment because it would cover childless adults before parents. The state has asked HHS to 

reconsider its decision on KidCare Rebate, since that program currently includes only children, and 

this request for reconsideration was under review as of December 18, 2003. 

b

HHS’s approval letter and press release for this waiver say that eligibility extends to individuals with 

incomes at or below 133 percent of FPL, but HHS representatives confirmed to us that eligibility 

extends to individuals with incomes at or below 200 percent of FPL.
Enclosure II Enclosure II 

17 GAO-04-166R HHS Waiver Approvals

Comments from the Department of Health and Human Services 
Enclosure II Enclosure II 

18 GAO-04-166R HHS Waiver Approvals

(290319) 
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