The State Children’s Health Insurance Program (CHIP) pays for the health insurance coverage 

of targeted low-income children whose family income is above the state’s Medicaid eligibility 

levels in 1997, when CHIP was created.1 States operate their CHIP programs as a CHIP-funded 

expansion of Medicaid, a CHIP program separate from Medicaid, or a combination of both 

approaches. In FY 2010, CHIP financed the health coverage of 7.7 million children and nearly 

350,000 adults.2 

Federal CHIP funding provided to states differs from federal Medicaid funding in several ways:

•	 Federal CHIP allotments to states, which are based on a formula using the state’s previous 

CHIP spending, are capped; states can exhaust their federal CHIP funding, unlike typical 

federal Medicaid funding.

•	 Under current law, there are no appropriations for new federal CHIP allotments after 

FY 2015; federal Medicaid funding is provided automatically. 

•	 The federal matching rate—that is, the percentage of spending paid for by the federal 

government—is higher for states’ CHIP spending than under Medicaid; although the 

amounts vary by state, the federal government pays for 70 percent of CHIP spending, on 

average, compared to 57 percent historically under Medicaid.

Other policy changes, including the implementation of Patient Protection and Affordable Care 

Act (P.L. 111-148, as amended), are scheduled to take effect under current law and could affect 

federal CHIP financing. This MACBasic describes CHIP’s current financing structure and 

examines its future under current law. For a broad overview of the CHIP program, its history, 

and descriptions of individuals’ eligibility for CHIP, see Chapter 3 of MACPAC’s March 2011 

Report to the Congress on Medicaid and CHIP.

Federal CHIP Financing

Medicaid and CHIP Program Basics

MACPAC

Medicaid and CHIP Payment and Access Commission

September 2011

MACPAC

1800 M Street, NW, Suite 350N

Washington DC 20036

(202) 273-2460

www.macpac.gov
2 MACBasics: Federal CHIP Financing

www.macpac.gov

Current Federal CHIP Financing

The enhanced federal medical assistance percentage 

(E-FMAP) is the federal matching rate for states’ CHIP 

benefit spending as well as their CHIP administrative 

spending. The E-FMAP currently ranges from its 

statutory minimum of 65 percent in several states to 

82 percent in Mississippi. States are responsible for 

the remaining non-federal share. The CHIP E-FMAP 

requires states to pay a 30 percent smaller share of 

spending than under Medicaid’s regular FMAP, which 

currently ranges from 50 percent in several states to 75 

percent in Mississippi. 

Figure 1 shows the history of federal CHIP 

appropriations, broken into three funding categories: 

federal CHIP allotments, shortfall funds and the CHIP 

bonus fund.

1. Federal CHIP allotments. The CHIP allotments 

   

     	 	




	 	

	   



 	 




















	

	







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Notes: The figure shows amounts explicitly appropriated in statute. Redistributed amounts are not shown as separate appropriations because they come from 

allotments (shown in the figure) that were appropriated but unspent. Federal CHIP spending is from all sources (allotments, redistributed funds, shortfall funding, 

bonus payments). For FY 2002-5, the line in the figure shows spending nationally exceeding the annual allotment appropriations but no shortfall funding; shortfall 

appropriations were not needed during this time because states also drew from their unspent prior-year balances and redistribution funds. For FY 2006-8, shortfall 

funding represents the amounts appropriated in separate bills to eliminate projected shortfalls in those years; for FY 2009, shortfall funding is the initial appropriated 

amount for the CHIP contingency fund created by CHIPRA. 

BBA 97=Balanced Budget Act of 1997 (P.L. 105-33); CHIPRA=Children’s Health Insurance Program Reauthorization Act of 2009 (P.L. 111-3); PPACA=Patient 

Protection and Affordable Care Act (P.L. 111-148).

Source: Appropriated amounts are from MACPAC analyses of §§2104 and 2105 of the Social Security Act and §108 of CHIPRA, as amended by §10203(d)(2)(F) 

of PPACA. Actual federal CHIP spending (FY 1998-2010) is from Centers for Medicare & Medicaid Services (CMS) expenditure reports; projected federal CHIP 

spending (FY 2011-2016) is from Congressional Budget Office (CBO), “Spending and Enrollment Detail for CBO’s March 2011 Baseline: Children’s Health Insurance 

Program (CHIP),” March 18, 2011, http://www.cbo.gov/budget/factsheets/2011b/Chip.pdf.

Figure 1. Federal CHIP Appropriations, FY 1998-2016
MACBasics: Federal CHIP Financing 3

www.macpac.gov

are projected to be spent, this section concludes with 

a discussion of the treatment of budget authority and 

outlays.

Federal CHIP Allotments

Federal appropriations for allotments

The national CHIP appropriation amounts, shown in 

Figure 1, set the overall ceiling on annual federal CHIP 

allotments to the states, the District of Columbia, and 

the territories.4 Since FY 2009, state-level amounts 

have been allotted according to the allotment formulas 

described below—as long as the annual appropriation 

is large enough, which it has been.5 For FY 2011, the 

national appropriation for federal CHIP allotments was 

$13.459 billion. Of the $13.459 billion appropriated 

for FY 2011 federal CHIP allotments, $8.479 billion 

was actually allotted to states and territories based on 

the formulas.6 The difference in the two amounts—the 

unobligated amount of approximately $5 billion—was 

made available to the bonus fund. Figure 2 illustrates 

how, for FY 2011, the various appropriations in CHIP 

are allotted, transferred to other funds, rolled over from 

one year to another, and/or redistributed.

Allotment formula

For even-numbered years (FY 2010, FY 2012, and 

FY 2014), allotments are calculated as last year’s 

allotment and any shortfall payments (e.g., contingency 

funds), increased by a state-specific growth factor.7 For 

these years, a state can also have its allotment increased 

to reflect a CHIP eligibility or benefits expansion. For 

odd-numbered years (FY 2011, FY 2013, and FY 2015), 

the allotments are rebased, based on last year’s federal 

CHIP spending in each state or territory, including 

from contingency funds, plus its growth factor. 

Redistribution of unspent allotments

States have two years to spend their allotments. Since 

FY 2009, allotments not spent within two years may 

be redistributed to states that, even after taking into 

account any contingency fund payments, are projected 

to experience shortfalls. Since FY 2009, no state has 

received such redistribution funds. If not redistributed 

are states’ primary source of federal CHIP funding. 

The national appropriation amounts for allotments 

and the way in which those amounts were allotted 

to states have varied, depending on their legislative 

source:

•	 The Balanced Budget Act of 1997 (BBA 97, P.L. 

105-33), which created CHIP and provided 10 

years of federal CHIP appropriations;3

•	 The Children’s Health Insurance Program 

Reauthorization Act of 2009 (CHIPRA, P.L. 

111-3), which provided five additional years 

(FY 2009-13) of federal CHIP appropriations 

and overhauled CHIP’s allotment formula; and

•	 The Patient Protection and Affordable Care 

Act (PPACA, P.L. 111-148), which provided 

an additional two years (FY 2014-5) of federal 

CHIP appropriations for allotments, using 

CHIPRA’s allotment formula.

2. Shortfall funding. Toward the end of CHIP’s 

first decade, some states began to exhaust all their 

available federal CHIP funds. Redistributions 

of other states’ unspent allotments reduced or 

eliminated some of these shortfalls. For FY 2006 

– 2008, Congress separately appropriated funds 

to eliminate remaining shortfalls. Beginning 

in FY 2009, CHIPRA appropriated money 

for a new CHIP contingency fund dedicated 

to automatically provide funding to qualifying 

states with federal CHIP shortfalls, in addition to 

available redistribution funds.

3. CHIP bonus fund. CHIPRA also appropriated 

funds for another new source of federal CHIP 

payments: CHIP bonus payments to states that 

implement certain outreach efforts and that have 

significant increases in child Medicaid enrollment.

The following section describes the current-law 

structure of these three categories of federal CHIP 

appropriations. Because all three funding categories 

have been appropriated significantly more funds than 
4 MACBasics: Federal CHIP Financing

www.macpac.gov

Available FY 2011 

Federal CHIP Funding 

Allotments 

FY 2011: 

$8.5 billiona

Rollover from 

FY 2010: 

$6.6 billion 

$0.2 billion to 15 states

$0.03 billion (Iowa)

Contingency 

fund rollover 

from FY 2010: 

$2.1 billion 

Rollover from 

FY 2010: 

$2.7 billion b 

Unused FY 

2011 allotment 

appropriation: 

$5.0 billion a 

Bonus Funds Shortfall funding 

Redistribution 

funds: 

$1.2 billion c 

Projected FY 2011 

Federal CHIP Spending 

$5.8 billion

$2.9 billion 

Unspent $0.9 

billion available for 

redistribution in FY 

2012

Unspent $5.6 billion 

available as rollover in 

FY 2012

Unspent $2.1 billion in 

contingency funds 

available as rollover in 

FY 2012 

Combined unspent $7.5 billion in 

bonus funds, plus $1.2 in 

redistribution funds not used for 

shortfalls, available for bonus funds 

in FY 2012 

Unspent Balances at 

End of FY 2011 

a. For FY 2011, $13.5 billion was appropriated for allotments. Of that total, $8.5 billion was allotted to states; the remaining $5.0 billion was transferred to the 

bonus fund.

b. From unspent balances of initial bonus fund appropriation, allotment appropriations not allotted, and redistribution funds not used for shortfalls, reduced by $3.5 

billion per §1859 of P.L. 112-10.

c. In FY 2011, unspent balances from two years’ of federal CHIP allotments became available for redistribution—the FY 2008 allotment, which was available to states 

for three years, and the FY 2009 allotment, available for two years.

Source: MACPAC analysis of Medicaid and CHIP Budget and Expenditure System as of August 4, 2011.

Figure 2. Snapshot of FY 2011 Federal CHIP Financing
MACBasics: Federal CHIP Financing 5

www.macpac.gov

•	 While the redistribution of states’ unspent 

allotments had historically been used to reduce or 

eliminate any need for separate federal shortfall 

funding, contingency funding is provided before 

taking into account any amounts available through 

redistribution. This modification was likely 

intended to first target funding to shortfall states 

with higher enrollment growth and/or lower per 

capita spending growth.

•	 In addition, not all shortfall states will necessarily 

qualify for contingency funds. As described below, 

receipt of contingency funds is tied to having 

certain levels of CHIP enrollment growth. 

•	 No state received contingency funds in FY 2009 

or FY 2010. In FY 2011, Iowa became the first 

state to receive contingency funds. Iowa’s projected 

FY 2011 federal CHIP spending ($82.3 million) 

was projected to exceed its available funding 

($78.5 million) by approximately $3.8 million. 

Because the state was projected to face a shortfall 

($3.8 million), the Centers for Medicare and 

Medicaid Services (CMS) put Iowa’s projected FY 

2011 enrollment and per capita spending numbers 

through the statutory contingency fund formula, 

which multiplies:

•	 CHIP child enrollment growth (that is, the number 

of children enrolled in CHIP in FY 2011 above a 

target amount),8 by 

•	 the federal share of the state’s per capita CHIP 

expenditures in FY 2011 for those children.9

Based on the formula, Iowa qualified for and received 

a federal contingency fund payment of $28.9 million, 

which may be adjusted when the actual FY 2011 

enrollment and expenditure numbers become available.

Using states’ own projections of FY 2012 CHIP 

spending, a preliminary analysis by MACPAC found 

that a handful of other states may also qualify for 

contingency fund payments in FY 2012. Whether 

the contingency fund payments in FY 2012 would be 

larger or smaller than these states’ projected shortfalls 

was not assessed.

for shortfalls, unspent allotments are made available for 

bonus payments.

Shortfall Funding

(Contingency and Redistribution Funds)

CHIPRA provided larger total CHIP appropriations, 

compared to prior years (Figure 1), and overhauled the 

allotment formula to better align with states’ actual 

use of federal CHIP funds. In the event shortfalls still 

might occur, CHIPRA also created a child enrollment 

contingency fund, which was appropriated $2.112 

billion in FY 2009. After receiving contingency funds, 

which are calculated based on a complex formula 

described below, a state may then have any remaining 

shortfalls addressed by the redistribution of other states’ 

unspent CHIP allotments. Considering the current 

CHIP appropriations, allotment formula, contingency 

funding, and redistributions, any shortfalls of federal 

CHIP funds that states actually experience in the near 

term are expected to be small and rare.

Chapter 3 of the March 2011 MACPAC Report to 

the Congress described several ways in which the new 

contingency fund addresses shortfalls differently than 

prior to CHIPRA:

•	 Unlike prior shortfall appropriations, the amount 

of federal contingency funds provided to a state is 

not the amount of its shortfall. As described below, 

the contingency fund formula does not factor in 

the size of the state’s shortfall. The contingency 

fund formula is designed to make payments based 

on a state’s growth in CHIP enrollment and per 

capita spending since FY 2008, so the contingency 

fund payment may be significantly smaller or larger 

than the amount necessary to eliminate a state’s 

shortfall.

•	 Unlike previous shortfall appropriations, 

contingency funds require no state matching funds. 

Instead, federal contingency funds are designed to 

offset CHIP spending by the state for which it had 

no federal CHIP matching funds.
6 MACBasics: Federal CHIP Financing

www.macpac.gov

Treatment of Budget Authority and Outlays

Several billion dollars of balances exist in unused bonus 

funds and contingency funds. For federal budget and 

accounting purposes, these balances are considered 

unused budget authority. The U.S. Department of 

Health and Human Services (HHS) is authorized to 

spend these amounts in accordance with the federal 

CHIP statute, but those balances have not actually 

been spent, or outlaid. As described above, the actual 

spending, or outlays, from these funds has been very 

small in comparison to the available amounts. 

For most legislative purposes, “costs” and “savings” are 

calculated on the basis of projected changes in outlays, 

not budget authority.14 As a result, eliminating the 

bonus and/or contingency funds would not produce 

significant savings given their relatively small amount 

of projected outlays, notwithstanding their balances of 

unused budget authority.

Future of CHIP Financing

Federal CHIP Financing Beginning in 2014

Under current law, millions of adults age 19 to 64 will 

be newly eligible in 2014 for Medicaid and for coverage 

through state health insurance exchanges; states’ 

CHIP eligibility levels for children are not required 

to increase, but cannot be lowered from current 

levels until October 1, 2019. One of the Medicaid 

changes effective in 2014 extends mandatory Medicaid 

eligibility levels for children ages 6 to 18 to 133 percent 

of the federal poverty level (FPL), from 100 percent 

FPL. States affected by this change are those currently 

covering these children in separate CHIP programs.15

Beginning in 2014, these children will be enrolled in 

Medicaid but will continue to be financed by CHIP at 

the CHIP matching rate (E-FMAP), as long as CHIP 

funding is available. 

Another $1.2 billion was available for shortfall funding 

in FY 2011 from the redistribution of states’ unspent 

FY 2008 and FY 2009 allotments. Because Iowa was 

the only shortfall state in FY 2011, and its shortfall 

was eliminated by contingency fund payments, no 

amounts were redistributed in FY 2011. The unspent 

$1.2 billion in redistribution funds will be transferred 

to the CHIP bonus fund for FY 2012.

CHIP Bonus Fund

For FY 2009, $3.225 billion was appropriated for 

CHIP bonus payments. Although these payments are 

from CHIP appropriations, they are only available to 

states that (1) increase Medicaid (not CHIP) child 

enrollment by significant amounts and (2) implement 

five out of eight specific outreach and retention efforts.10

In addition to the initial FY 2009 appropriation, bonus 

fund balances are also increased by unspent national 

allotment and redistribution amounts. Combined, 

unspent national allotment and redistribution amounts 

have been substantial, while actual payments from 

the bonus fund have been comparatively small. In 

FY 2009, 10 states received less than $0.1 billion in 

bonus payments; in FY 2010, 15 states received $0.2 

billion in bonus payments.11 In the law to fund the 

federal government through FY 2011, a provision was 

included to reduce the balance of the CHIP bonus 

fund by $3.5 billion (§1859 of P.L. 112-10). After 

accounting for this reduction, the balance of unspent 

bonus funds available at the end of FY 2011 is projected 

to be $7.5 billion.12

Under current law, FY 2013 is the final year for 

bonus payments. FY 2013 bonus payments are 

projected to total $0.1 billion, with a bonus fund 

balance of approximately $24.3 billion at year’s end. 

Although bonus payments cannot occur after FY 

2013, unobligated allotments would continue to be 

transferred to the fund such that the balance of bonus 

funds at the end of FY 2015 is projected to approach 

$50 billion.13
MACBasics: Federal CHIP Financing 7

www.macpac.gov

be available to children who would otherwise have been 

enrolled in a separate CHIP program. States could also 

expand their Medicaid eligibility levels to cover these 

children in Medicaid at the regular Medicaid matching 

rate. It is worth noting that for children enrolled in 

subsidized exchange coverage, the state would pay for 

no portion of their coverage, while the state would be 

responsible for its usual share of Medicaid spending for 

children enrolled in Medicaid. This could deter states 

from expanding their Medicaid eligibility levels. 

Moving from Medicaid-expansion CHIP programs

Under current law, children enrolled in Medicaidexpansion CHIP programs are actually enrolled in 

Medicaid but funded by CHIP, as long as CHIP funding 

is available. When CHIP funding is exhausted, these 

children continue to be enrolled in Medicaid but funded 

by Medicaid at the regular Medicaid matching rate. For 

children, the PPACA MOE provides no exceptions for 

states to restrict their Medicaid eligibility levels from 

those in effect at the law’s enactment. Thus, if a state’s 

federal CHIP funds are exhausted, the PPACA MOE 

and other provisions could be interpreted to require 

that Medicaid-expansion children remain eligible for 

Medicaid, albeit financed at the regular FMAP from 

Medicaid funds rather than the E-FMAP from CHIP 

funds. On the other hand, PPACA also said its MOE 

does not prevent states from enrolling CHIP children 

in certified exchange plans beginning in FY 2016.20

MACPAC will continue to track and provide analyses 

on the issues described in this MACBasic that affect 

CHIP financing. 

No New CHIP Allotments Beginning FY 2016

Although no new federal funds for allotments are slated 

for FY 2016 or thereafter, CHIP’s authorization does 

not technically expire. Thus, in FY 2016, states can 

continue to use unspent federal CHIP funds, as long as 

they are available.16 

Also beginning in FY 2016, E-FMAPs under current 

law will increase by 23 percentage points (but cannot 

exceed 100 percent). Thus, beginning in FY 2016, 

E-FMAPs will range from 88 percent to 100 percent, 

rather than the current 65 percent to 83 percent. This 

E-FMAP increase will cause states to use remaining 

federal CHIP balances more quickly, which may also 

need to be a consideration if the Congress provides 

CHIP allotments for FY 2016 and thereafter.17 

If no new appropriations are provided for CHIP 

allotments beginning in FY 2016, states will begin to 

exhaust their federal CHIP funds. The coverage options 

for children formerly funded by CHIP may vary based 

on whether they were enrolled in a Medicaid-expansion 

or separate CHIP program, because of the maintenance 

of effort (MOE) provision for children in the Patient 

Protection and Affordable Care Act (PPACA, P.L. 111-

148, as amended). The PPACA MOE requires that 

states maintain their Medicaid and CHIP eligibility 

levels for children until October 1, 2019. If a state’s 

federal CHIP funds are exhausted, however, CHIP 

children are to be screened for Medicaid or exchange 

eligibility and enrolled in the appropriate program.

Moving from separate CHIP programs

Beginning in FY 2016, children in separate CHIP 

programs can be enrolled in subsidized exchange 

coverage that has been certified by the Secretary of 

HHS. To be certified, the subsidized exchange coverage 

must offer benefits and cost sharing comparable to the 

state’s CHIP coverage. However, one analysis found 

that almost all of the CHIP benefit packages analyzed 

had more comprehensive coverage18 than even the most 

generous coverage permitted in subsidized exchange 

plans.19 Nevertheless, assuming certified exchange plans 

will exist for former CHIP children, such plans would 
8 MACBasics: Federal CHIP Financing

www.macpac.gov

1 See Table 9 of MACStats the March 2011 Report to the 

Congress on Medicaid and CHIP, available at www.macpac.

gov/reports, page 92. MACStats for states’ Medicaid 

eligibility levels that are treated as in effect as of March 31, 

1997, as well as the income eligibility levels for CHIP-funded 

children’s coverage in each state as of March 2011.

2 Table 3 of MACStats in the March 2011 Report to the 

Congress on Medicaid and CHIP, page 80. Prior to FY 2009, 

some states received approval to use their unspent federal 

CHIP funds to cover adults through §1115 waivers. With 

the exception of targeted low-income pregnant women, adult 

coverage is being phased out of CHIP (§§2111-2112 of the 

Social Security Act).

3 BBA 97 provided appropriations for new CHIP allotments 

through FY 2007. The CHIP appropriation for FY 2008 was 

enacted in the Medicare, Medicaid, and SCHIP Extension 

Act of 2007 (MMSEA, P.L. 110-173) as a stopgap measure 

until longer-term legislation could be enacted.

4 The Commonwealth of Puerto Rico, Guam, the U.S. Virgin 

Islands, American Samoa, and the Northern Mariana Islands.

5 If the total national appropriation is not large enough to 

provide states and territories with their full allotments, all 

allotments would be reduced proportionally.

6 Table 4 of Centers for Medicare and Medicaid Services 

(CMS), “Children’s Health Insurance Program (CHIP); 

Allotment Methodology and States’ Fiscal Years 2009 

Through 2015 CHIP Allotments,” 76 Federal Register 9244, 

February 17, 2011.

7 This allotment increase factor is the product of (1) the 

percentage increase in projected per capita National Health 

Expenditures and (2) the Census Bureau’s projection of 

child population growth (if any) plus one percentage point 

(§2104(m)(5) of the Social Security Act). In calculating the 

FY 2010 allotments, this factor ranged from 4.69 percent 

to 7.14 percent across the states and territories (76 Federal 

Register 9241).

8 The target number is the FY 2008 average monthly 

unduplicated child enrollment in CHIP, as adjusted by the 

state’s annual growth in child population plus 1 percentage 

point (§2104(n)(3)(B) of the Act).

9 For purposes of the contingency fund payments, projected 

per capita expenditures are the per capita expenditures for 

children enrolled in FY 2008, increased by annual growth 

factors, multiplied by the enhanced FMAP (§2104(n)(3)(c) 

of the Act).

10 See MACPAC March 2011 Report to the Congress on Medicaid 

and CHIP, Chapter 3, pages 68-69 for a complete description 

of these eight initiatives.

11 Department of Health and Human Services, Connecting Kids 

to Coverage: Continuing the Progress—2010 CHIPRA Annual 

Report, Appendix 3, 2011, http://www.insurekidsnow.gov/

professionals/reports/chipra/2010_annual.pdf.

12 MACPAC analysis of Medicaid and CHIP Budget and 

Expenditure System as of August 4, 2011. 

13 Balances in CBO, “Spending and Enrollment Detail for 

CBO’s March 2011 Baseline: Children’s Health Insurance 

Program (CHIP),” March 18, 2011, http://www.cbo.gov/

budget/factsheets/2011b/Chip.pdf, reduced by $3.5 billion 

per §1859 of P.L. 112-10.

14 For example, see §3(4)(A) of the Statutory Pay-As-You-Go 

Act of 2010 (P.L. 111-139).

15 As of March 2011, 17 states covered 6-to-18-year-olds in 

separate CHIP programs: Alabama, Arizona, Colorado, 

Delaware, Florida, Georgia, Kansas, Mississippi, Nevada, 

New York, North Carolina, Oregon, Pennsylvania, Texas, 

Utah, West Virginia, and Wyoming (Table 9 of MACStats 

in the March 2011 Report to the Congress on Medicaid and 

CHIP, page 92).

16 Federal CHIP funds available in FY 2016 would be (1) 

a state’s own unspent balances (if any) from its FY 2015 

allotment, and (2) previously unspent FY 2014 allotments 

redistributed to shortfall states. Contingency funds are not 

available after FY 2015 (§2104(n)(3)(A) of the Act).

17 Another consideration for the Congress if CHIP funding is 

extended is the amount of federal CHIP appropriations for 

allotments that CBO assumes continues in its baseline—$5.7 

billion annually, beginning in FY 2016 (CBO, “Spending 

and Enrollment Detail for CBO’s March 2011 Baseline: 

Children’s Health Insurance Program (CHIP),” March 18, 

2011, http://www.cbo.gov/budget/factsheets/2011b/Chip.

pdf). 

18 Watson Wyatt Worldwide, “Implications of health care reform 

for children currently enrolled in CHIP,” 2009, http://www.

firstfocus.net/sites/default/files/r.2009-10.1.watson.pdf.

19 §1402(c)(1)(B) of the Patient Protection and Affordable 

Care Act (PPACA, P.L. 111-148, as amended).

20 §2105(d)(3)(A)(ii) of the Act.