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54–777 PDF 2008

H.R. 5998, THE PROTECTING 

CHILDREN’S HEALTH COVERAGE 

ACT OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 15, 2008 

Serial No. 110–118 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

Vice Chair 

TOM ALLEN, Maine 

TAMMY BALDWIN, Wisconsin 

ELIOT L. ENGEL, New York 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan (ex officio) 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Nathan Deal, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 9 

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 10 

Hon. Heather Wilson, a Representative in Congress from the State of New 

Mexico, opening statement .................................................................................. 11 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 122 

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, prepared statement .................................................................................. 128 

WITNESSES

Peter Orszag, Director, Congressional Budget Office ........................................... 12 

Prepared statement .......................................................................................... 14 

Dayna Shah, Managing Associate General Counsel, U.S. Government Accountability Office ................................................................................................ 32 

Prepared statement .......................................................................................... 34 

Morton Rosenberg, Specialist in American Public Law, American Law Division, Congressional Research Service ................................................................. 49 

Prepared statement .......................................................................................... 52 

Gary Alexander, director, Rhode Island Department of Human Services .......... 75 

Prepared statement .......................................................................................... 78 

Lesley Cummings, executive director, The California Managed Risk Medical 

Insurance Board ................................................................................................... 83 

Prepared statement .......................................................................................... 85 

SUBMITTED MATERIAL

H.R. 5998 .................................................................................................................. 4 

(1) 

H.R. 5998, THE PROTECTING CHILDREN’S 

HEALTH COVERAGE ACT OF 2008 

THURSDAY, MAY 15, 2008 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:10 a.m., in room 

2322 of the Rayburn House Office Building, Hon. Frank Pallone Jr. 

(chairman) presiding. 

Members present: Representatives Pallone, Green, Baldwin, 

Engel, Dingell (ex officio), Deal, Wilson, Burgess, and Barton (ex 

officio). 

Staff present: Bridgett Taylor, Amy Hall, Brin Frazier, Lauren 

Bloomberg, Hasan Sarsour, Jason Powell, Ryan Long, Brandon 

Clark, and Chad Grant. 

Mr. PALLONE. The meeting of the subcommittee is called to 

order, and today we are having a hearing on ‘‘H.R. 5998, the Protecting Children’s Health Coverage Act of 2008.’’ And I will now 

recognize myself for an opening statement. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. The legislation before us is a bill that I introduced 

recently with my friend and colleague from New Hampshire, Representative Carol Shea-Porter. And our legislation would invalidate 

the so-called CMS August 17 Directive preventing CMS from applying any of the provisions included in the directive when it reviews 

state plans. It also requires CMS to review within 30 days the 

original proposals from States whose plans were either rejected or 

amended based on that directive. 

As you know, for over 10 years, the State Children Health Insurance Program, or SCHIP, has had remarkable success in covering 

millions of low-income children, who would otherwise have nowhere 

else to turn, to obtain health coverage. And thanks to SCHIP, more 

than seven million children annually are able to obtain health coverage and receive the medical care that they need to live happy 

and healthy lives. 

Last year we tried to build on the success of SCHIP by passing 

the Children’s Health Insurance Program Reauthorization Act, or 

CHIPRA, of 2007, a bill that was negotiated on a bipartisan, bicameral basis. This bill would have provided states with the financial resources and tools they need to maintain their current proVerDate Nov 24 2008 10:37 Oct 08, 2010 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-118 SCOM1 PsN: JIMC
2 

grams as well as help them reach millions of low-income children 

who are presently eligible but not enrolled. 

CHIPRA passed the House two times with significant support 

from both parties, but sadly, even though a majority of Americans 

and their representatives in Congress agreed that it was the right 

thing to do to cover more kids, the President disagreed. And the 

President actually vetoed the CHIP Reauthorization twice, and the 

majority of the House Republicans refused to join us in overriding 

the veto. 

But blocking the will of Congress and the American public was 

not enough. The President also decided that he would try to singlehandedly undermine the CHIP program to administrative PHEAA. 

In the earning evening of Friday, August 17, last year during the 

midst of a congressional recess, after many people had gone home 

for the weekend, the Bush Administration issued a letter to state 

health officials that has come to be known as the August 17 Directive, and I have taken issue with this directive on two grounds. 

First, the substance contained within it, as well as the process 

in which it came to be. The policies put forward by the Administration and its directive fly in the face of SCHIP’s intended purpose 

as well as what we were trying to accomplish with last year’s reauthorization. The August 17 Directive would impose strict new requirements on states and beneficiaries that are not only impossible 

to achieve but make little, if any, sense. 

For example, under the new directive, states would be prohibited 

from covering children in families with incomes above 250 percent 

of the federal poverty level or $44,000 for a family of three, unless 

95 percent of all children eligible for Medicaid and CHIP with incomes below 200 percent are already enrolled. After talking with 

numerous state health officials, it is unclear how many states 

would be able to meet this requirement, if any. 

Even more mind-boggling, the directive prevents states from enrolling for 1 year eligible children who lose their private health insurance. The Administration has yet to provide an answer on what 

these children should do during this year, other than the President’s suggestion that the uninsured can simply go to the emergency room when they need care. 

If implemented, the August 17 Directive will severely limit state 

flexibility, which has been the hallmark of SCHIP since its inception, and also the directive will greatly restrict enrollment. We 

have already seen its effects. The directive has already been used 

to either reject or scale back plans in states like Indiana, Louisiana, Ohio, Oklahoma, and New York that had planned to expand 

their programs in order to provide health care coverage to tens of 

thousands of presently uninsured children. 

I am also alarmed about what will happen in places like my 

home state of New Jersey, which already covers children in this income range. If this directive were to go into effect, it would severely 

limit my State’s ability to develop solutions that meet the unique 

needs of our State’s uninsured population. According to our state 

officials, this directive could reduce enrollment of children in this 

income range by 84 percent, and I think that is appalling. 

Aside from the substance of this directive, I am dismayed by the 

process in which it was developed and issued. The Bush AdminisVerDate Nov 24 2008 10:37 Oct 08, 2010 Jkt 037690 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-118 SCOM1 PsN: JIMC
3 

tration broke the law when it issued this directive because it bypassed Congress and blocked any opportunity for public comment. 

As we will hear today, this is not just my opinion. Both GAO and 

CRS have concluded that the directive and the way it was issued 

violates the Congressional Review Act. And I am looking forward 

to hearing their testimony in that regard. 

In sum, I am clearly opposed, as you can tell, to the Administration’s August 17 Directive. It does nothing to move the ball forward 

in terms of covering more uninsured kids and, in fact, turns the 

clock back on our efforts over the past 10 years. 

For those reasons, I think that we must block the directive from 

taking effect, which my legislation would do, and refocus our efforts 

on strengthening SCHIP. 

And I now recognize Mr. Deal, our ranking member, for an opening. 

[H.R. 5998 follows:] 

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OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. DEAL. Thank you, Mr. Chairman. Thank you for calling this 

hearing today, which will give us an opportunity to review your 

legislation, which addresses the August 17 letter from CMS. The 

letter outlines some guidelines that CMS planned to use when considering whether or not a state SCHIP plan adequately discouraged 

individuals from leaving private coverage in order to enroll in a 

government-financed health care plan. 

This concern about government coverage crowding out private 

health insurance is a legitimate one. When the nonpartisan Congressional Budget Office reviewed past iterations of legislation to 

reauthorize the SCHIP Program, they concluded that for every 100 

children who gain public coverage as a result of SCHIP, there is 

a corresponding reduction in private coverage of between 25 and 50 

children. 

More specifically in the case of the reauthorization, CBO concluded that about one-third of the children who would be newly 

covered under SCHIP and Medicaid programs in the bill would otherwise have had private coverage. 

In last year’s reauthorization efforts, I fully supported reforms to 

SCHIP which would prevent crowd out of private insurance. I also 

supported creating a meaningful test to ensure that states covered 

the poorest children before moving up the income scale. As my 

chairman has indicated, his State of New Jersey, which has dramatically increased the income eligibility under SCHIP, they have 

not only left their poorest citizens behind, but they have also increased the likelihood of crowd out because wealthier populations 

are more likely to have access to private insurance. 

If the chairman is dissatisfied with the method used by CMS to 

implement policies to discourage crowd out, I believe that members 

on our side of the aisle would be willing to work with him to 

achieve these goals through legislative means. However, as I read 

this legislation that we are considering, it appears to be an attempt 

to prohibit CMS from taking reasonable steps to ensure that states 

like New Jersey, which have left nearly a quarter of their poorest 

citizens behind, would actually do the hard work to cover the neediest children. 

In fact, New York submitted a state plan amendment to receive 

federal SCHIP matching payments for covering children with family incomes up to 400 percent of the federal poverty level, or 

$84,800 for a family of four. So far, this is the only state plan 

amendment to be denied based upon the policies described in the 

August 17 guidance letter. 

H.R. 5998 would force the secretary to promptly reconsider New 

York’s state plan amendments to go to 400 percent of the federal 

poverty level without using the policies in the August 17 guidance 

letter. It seems all too likely that this legislation is an attempt to 

allow New York to receive federal taxpayer dollars to subsidize the 

health expenditures of New Yorkers making nearly $85,000 a year. 

Coming from a state where the median income is just above 

$45,000, it is difficult for me to contemplate sending the federal 

taxpayers’ dollars from my state to families making nearly twice 

the median household income of my state of Georgia. 

10 

I look forward to the testimony of our witnesses today and in 

particular the insights of the officials from Rhode Island, whose 

State was able to comply with the requirements of the August 17 

letter. And I think our witnesses should be able to provide us an 

important perspective on these issues, and I thank all of you for 

your attendance here today. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Deal. The gentlewoman from Wisconsin, Ms. Baldwin. 

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN 

Ms. BALDWIN. Thank you, Mr. Chairman. I appreciate the fact 

that you are holding this important hearing, and I am proud to 

also be an original cosponsor of your bill, ‘‘The Protecting Children’s Health Coverage Act of 2008.’’ 

Mr. Chairman, I know that you and other members of this committee were very disappointed last year when the Administration 

failed to work with us in ensuring health care access to the 10 million kids who would have been covered under the House-passed 

SCHIP bill. And these administrative actions, like the August 17 

Directive and the Medicaid regulations that the House recently 

voted to temporarily halt, are really like pouring salt into the 

wounds left by that disappointment last year with SCHIP being vetoed. 

Mr. Chairman, I believe that every American has a right to comprehensive, affordable health care, and I believe that 8.7 million 

uninsured kids is 8.7 million too many. I believe that the SCHIP 

Program has proven to be an effective partnership between the 

Federal Government and the states in covering uninsured children. 

And I believe that states who want to expand their SCHIP Programs to cover more uninsured children should not be prevented 

from doing so. 

The August 17 Directive is harmful. It is overreaching, and it is 

an attack on SCHIP. Both the Government Accountability Office 

and the Congressional Research Service have issued legal opinions 

that the August 17 Directive violates the Congressional Review 

Act. This directive will result in more uninsured children, and that 

is simply unacceptable. 

So, Mr. Chairman, I am proud to be an original cosponsor of H.R. 

5998. This bill would nullify the August 17 Directive and will ensure that states can continue to cover uninsured children to the extent that they can. 

Mr. Chairman, thank you for holding this hearing. Thank you to 

our witnesses who will testify today. I am disappointed that the 

Administration did not accept our invitation to defend their actions, but I look forward to today’s discussion. And I yield back the 

balance of my time. 

Mr. PALLONE. Thank you. The gentlewoman from New Mexico, 

Ms. Wilson. 

11 

OPENING STATEMENT OF HON. HEATHER WILSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

MEXICO 

Ms. WILSON. Thank you, Mr. Chairman. I am actually a supporter of the Children’s Health Insurance Program. I think it has 

been an important program to reduce the number of uninsured 

children in America. In New Mexico, 25,000 low-income children 

get access to health care through the Children’s Insurance Program. In New Mexico, we call it New MexiKids. 

I also agree with those who say that SCHIP should be targeted 

to the lowest income kids. I actually was a cabinet secretary for 

child welfare in New Mexico when we implemented the program 

initially, and it is a very good and effective program. But it needs 

some things to be fixed. 

In particular, the legislation as it was initially passed 10 years 

ago did not have the same requirements that exist in other federal 

programs to make sure that those who sign up are American citizens. It also does not have any cap, an upper-income cap, and a lot 

of states have involved adults in the program. This is a program 

that is intended to provide health insurance to low-income children 

who are American. 

The August 17 letter attempts to offer states guidance on how to 

comply with some principles which were embodied in the original 

SCHIP legislation and strengthen bipartisan SCHIP reauthorization legislation considered by Congress last year and vetoed by the 

President. But I think there are some important questions to be 

asked about the August 17 Directive. 

First, does the policy outlined in the letter clarify existing requirements and law, or does it go beyond to limit the ability of 

states to design their own SCHIP Programs as they see fit? Second, 

if it does amend existing regulations, should these policy changes 

go through the rule-making process to give states and interested 

parties the ability to provide public comment? And third, if it does 

amend existing law or congressional intent, should Congress consider these policy changes and give them statutory authority? 

I look forward to hearing the answer to some of these questions 

here today, and I hope that in this next Congress we can stop some 

of the demagoguery from the far left and the far right and reauthorize a program that has been effective at helping low-income 

children get access to health care and it also fixes some problems 

with SCHIP by getting adults out of the program, limiting it to 

low-income American children. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Ms. Wilson. I believe that concludes 

our opening statements by members of the subcommittee, so we 

will now turn to our panel. And we do have but one panel today, 

a very good one. And I want to welcome everybody, welcome all of 

you for being here today. 

Let me introduce you from left to right, starting with Dr. Peter 

Orszag, who is Director of the Congressional Budget Office. Welcome. And then next to him is Ms. Dayna Shah, who is Managing 

Associate General Counsel for the GAO. And next to her is Mr. 

Morton Rosenberg, who is a specialist in American Public Law 

from the American Law Division of the Congressional Research 

12 

Service, or CRS. And next to him is Mr. Gary Alexander, who is 

Director of the Rhode Island Department of Human Services. And 

then we have Ms. Lesley Cummings, who is Executive Director of 

the Managed Risk Medical Insurance Board in Sacramento, California. Welcome. 

We have 5-minute opening statements. They become part of the 

hearing record. The committee may also ask you, as you will notice 

from some of our questions as we proceed, to provide us some statements in writing as follow up. And we will get back to you with 

those questions so you can respond in writing. And those would 

also be included in the record once you get back to us. 

But we will start with Peter Orszag. Thank you for being here, 

and thank you for all you do over the years. 

STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL 

BUDGET OFFICE 

Mr. ORSZAG. Thank you very much, Mr. Pallone, Mr. Deal, members of the Committee. I will be brief, and let me make four points. 

First, SCHIP has significantly reduced the number of low-income 

children who lack health insurance in the United States. You can 

see in Figure 1 of my testimony on page 8 that there was a dramatic reduction, about 25 percent, in the share of children between 

100 and 200 percent of the poverty level who are uninsured in any 

given year at around the time that SCHIP was enacted. Those are 

the children who represent the bulk of beneficiaries under the 

SCHIP Program. 

At higher income levels, there was no reduction in uninsurance 

rates and it is therefore reasonable to conclude that the program 

had a lot to do with the reduction in uninsurance between 100 and 

200 percent of poverty. There was also a reduction below the poverty level, and that is likely a reflection of the outreach efforts that 

were involved in SCHIP increasing enrollment in Medicaid where 

children below 100 percent of poverty are disproportionately concentrated. 

The enrollment of children in public coverage in both SCHIP and 

Medicaid, however, as a result of SCHIP, has not led to a one-forone reduction in the number of low-income children who are uninsured. In the specific 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, making it attractive to families. 

On the basis of our review of the research literature, CBO has 

concluded that for every 100 children covered under SCHIP, there 

is a corresponding reduction in private coverage of between 25 and 

50 children. 

Third, CBO’s analysis of CHIPRA, as passed by the House of 

Representatives, suggests that the legislation would increase coverage under Medicaid and SCHIP in 2012 by 5.8 million children, 

of whom 3.9 million would otherwise be uninsured and roughly two 

million would have otherwise had insurance. In other words, about 

a third of the children who would be newly covered under the legislation who would otherwise have had private coverage. 

Given the scale of the increase in coverage that was entailed in 

that program, it is extraordinarily unlikely that you would be able 

13 

to get crowd-out rates significantly below a third through any feasible policy intervention. 

Finally, on August 17, 2007, as has already been mentioned, the 

Administration issued a directive to state health officials under 

CBO’s baseline in which funding in future years is constrained to 

be $5 billion a year. That directive has only very minimal effects 

on enrollment of children in SCHIP primarily because States are 

so constrained under that baseline funding that whether children 

above 250 percent are newly covered or not doesn’t matter that 

much because there is so much downward pressure on enrollment 

in general under that baseline concept. 

If you provided additional funding to the program, the effect of 

the directive could be somewhat larger, and we could have a discussion of that during the question-and-answer period. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Orszag follows:] 

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Mr. PALLONE. Thank you, Doctor. Ms. Shah. 

STATEMENT OF DAYNA SHAH, MANAGING ASSOCIATE GENERAL COUNSEL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. SHAH. Mr. Chairman and members of the subcommittee, I 

am pleased to be here this morning to discuss GAO’s recent opinion 

about the August 17 letter issued by CMS concerning crowd-out or 

the substitution of SCHIP for other insurance coverage. 

In GAO’s opinion, the August 17 letter is a rule. Under the Congressional Review Act and as required by that Act, the letter must 

be submitted to Congress and to the GAO before it can take effect. 

Before I get to the heart of GAO’s opinion, I would like to note 

that the definition of rule in the Review Act adopts the definition 

in the Administrative Procedure Act, or APA, with some exceptions, none of which are applicable here. 

While the focus of inquiry under the APA is often whether a 

statement is binding and whether it must follow notice and comment requirements, there are many types of agency statements 

that are not binding, do require notice and comment, but nevertheless are rules under the APA’s broad definition. 

As a result, the answer to the question of whether a particular 

agency statement is a rule under the APA and under the Congressional Review Act does not turn on whether the rule is binding or 

subject to notice and comment requirements. 

Three particular elements of the APA definition were relevant to 

our review of the August 17 letter. Specifically, the letter was applicable generally. It extended to all States seeking to cover children with effective family incomes above 250 percent of the federal 

poverty level, as well as those States already covering such children. 

Second, the letter had future effect. It was not concerned with 

present or past conduct. Finally, the letter was designed to implement, interpret, or prescribe law or policy, in that it purported to 

clarify and explain the manner in which CMS supplied statutory 

and regulatory requirements to these states and sought to promote 

the implementation of SCHIP statutory requirements. The letter 

therefore met the general definition of rule. 

Three additional features of the August 17 letter supported our 

view that it is a rule that should have been submitted for review 

by Congress. First, the letter represented a marked departure from 

CMS’s settled interpretation of the regulatory provision governing 

crowd-out. Case law indicates that a change in settled interpretation may only be made by a rule. 

Second, the letter gave a deadline for states to come into compliance by telling states currently covering children with effective 

family incomes over 250 percent of the federal poverty level that 

CMS expected those states to implement the letter’s provisions 

within 12 months or face possible corrective action. 

Third, we found it striking that CMS expressly relied on the August 17 letter last September when it disapproved New York’s request to amend its SCHIP plan. CMS’s application of the letter in 

this way confirmed that it viewed the letter as having a binding 

effect. 

33 

Finally, a note about general statements of policy. CMS told us 

that the August 17 letter was a statement of policy announcing the 

course that the agency intended to follow in adjudications concerning compliance with regulatory requirements. In addition, the 

Justice Department characterized the letter as being either a statement of policy or an interpretive rule. 

Courts have generally held that a statement of policy is a type 

of rule, although not the type of rule requiring notice and comment. 

That said, the August 17 letter does not have the characteristics 

of statements of policy identified in case law. Its language has little 

of the tentativeness that courts had associated with policy statements. 

In addition, as I mentioned earlier, CMS itself treated the letter 

as a binding rule rather than a policy statement when it expressly 

relied on it to disapprove a State’s plan amendment. 

Mr. Chairman, that concludes my statement. I would be pleased 

to address any questions that you or other members of the subcommittee may have. 

[The prepared statement of Ms. Shah follows:] 

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Mr. PALLONE. Thank you, Ms. Shah. Mr. Rosenberg. 

STATEMENT OF MORTON ROSENBERG, SPECIALIST IN AMERICAN PUBLIC LAW, AMERICAN LAW DIVISION, CONGRESSIONAL RESEARCH SERVICE 

Mr. ROSENBERG. I am Morton Rosenberg, a Specialist in American Public Law in the American Law Division of the Congressional 

Research Service. I thank you for inviting me here today to comment on the legal and practical issues associated with the August 

17, 2007 letter issued by the Director of the Center of Medicaid and 

State Operations of the Centers for Medicare and Medicaid Services to all State health officials. 

That letter, as you are aware, ostensibly clarified how CMS 

would apply existing statutory and regulatory requirements in its 

review of state request to extend eligibility of the SCHIP Program 

to children and families with effective income levels above 250 percent of the federal poverty level. 

Our analysis of the statutory scheme of the CRA, its legislative 

history, opinions of the general counsel of GAO, indicates that the 

drafters of the congressional review provision were concerned with 

the then-prevalent actions that had the practical effect of imposing 

binding norms on non-agency parties without being promulgated in 

conformance with requirements of notice and comment rulemaking. 

And in response, Congress adopted a very broad definition of the 

term rule that would capture such actions for congressional review. 

The rulings of several appellate courts recognizing the invalidity of 

such actions support the CRA’s history and the GAO interpretations. 

The courts have also indicated that past practices of an agency 

in implementing a rulemaking may be looked at for insight as to 

the understanding the reliance that regulated parties and beneficiaries have placed on such past agency practices. In such instances, the courts have held that an abrupt change of course requires a new rulemaking proceeding to substantively alter those 

practices and relied-on interpretations. 

In this instance, the CMS practice under the 2001 crowd-out 

rules arguably have created a binding norm, and therefore changing such practices would be an action that is covered by the CRA 

and that such changes may not be implemented until they are reported to Congress and the Controller General. 

And so concluding, I have taken into account CMS’s May 7 clarification of its August 17, 2007 clarification, which does not alter 

the nature, I believe, of the 2007 letter. 

I thought it would be useful to you if I focused to provide you 

with my understanding of the nature, purpose and intent of the review scheme established by the CRA and how and why it differs 

from the scheme of judicial review with final agencies rules under 

the Administrative Procedure Act. 

In particular, I want to focus on Congress’s adoption of a broader 

definition of the rule under the CRA that is applicable to judicially 

reviewable rules under the APA and why that may make a difference in how Congress might address the current controversy. 

The congressional review mechanism, properly known as the 

Congressional Review Act, requires that all agencies promulgating 

50 

a covered rule must submit that report to each house of Congress 

and to the controller general. And it must accompany it with a copy 

of the rule, a concise general statement describing the rule, and a 

proposed effective date. A covered rule under the statute cannot 

take effect if the report is not submitted. 

The broad definition of a rule found in the CRA is adopted from 

5514 of the Administrative Procedure Act, which provides that the 

term rule means the whole or part of agency statement of general 

applicability and future effect desired to implement, interpret, or 

prescribe law policy. The legislative history of that 5514 indicates 

that term is to be very broadly construed and that is covers all 

kinds of documents and is not limited to substantive rules but embraces interpretative, organizational, and procedural rules as well. 

And the courts have recognized that it covers virtually every statement an agency can make. 

The drafters of the Congressional Review Act arguably purposely 

adopted the broadest possible definition of the term rule when they 

incorporated that provision from the APA. The history of the CRA 

makes it clear that adoption of the broad definition of rule, the review process would not be limited to coverage of only rules that 

were required to comply with the notice and comment provisions of 

the APA or any other statutorily required variations of the notice 

and comment procedures but would rather encompass a wide spectrum of agency activities characterized by their effect on the regulated public. 

The committee stated the committee’s intent in these subsections 

is to include matters that substantially affect the rights and obligations of outside parties. The essential focus of this inquiry is not 

on the type of rule but on its effect on the rights and obligations 

of the parties. 

The drafters of the CRA indicated their awareness of the practice 

of agencies at that time of avoiding the notification and public participation requirements of the APA by utilizing the issuance of 

other documents as a means of binding the public either legally or 

practically. And know that it was the intent of the legislation to 

subject just such documents to cvongressional scrutiny. 

Again the framers emphasize the adoption of the broad definition 

of a covered rule was to focus Congress not on the type of rule but 

on the rule’s effect on the rights or obligations of non-agency parties. 

In sum, it is arguable that the heart of the drafters’ design of the 

CRA was the creation of a review mechanism that would uncover 

and remedy in a timely manner what were viewed as agency attempts to evade congressional oversight, presidential executive 

order review, and the requirements of public comment and judicial 

review under the APA. 

Time-consuming legislation was seen as an anathema to achieving accountable agency public policy results. The critical point here 

then is that Congress does not have to rely on the uncertainty of 

lengthy civil litigation. It can call up for review any covered rule 

it wishes. It is not required to demonstrate standing, rightness, finality, jurisdiction, or any showing of arbitrariness or unreasonable 

decision making. You simply have to determine that it is contrary 

to the way that you expect the program to be administered. And 

51 

if you use the CRA properly, you have the benefit of expedited consideration of a disapproval measure, which, if not vetoed, accomplishes a retroactive nullification that is not subject to judicial review. 

Finally, this process can be initiated even though the document 

has not been reported. Thank you. 

[The prepared statement of Mr. Rosenberg follows:] 

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Mr. PALLONE. Thank you, Mr. Rosenberg. Thank you. 

Mr. Alexander. 

STATEMENT OF GARY ALEXANDER, DIRECTOR, RHODE 

ISLAND DEPARTMENT OF HUMAN SERVICES 

Mr. ALEXANDER. Thank you very much, Mr. Chairman, Ranking 

Member Deal, and other members of the Committee. My name is 

Gary Alexander. I am the director of the Rhode Island Department 

of Human Services. The Rhode Island Department of Human Services is entrusted with, among other programs, the Medicaid program, the TANF Program, food stamps, and the State’s department 

of Veterans’ Affairs. 

I would like to talk to you today about Rhode Island’s experience 

with Medicaid and SCHIP crowd-out and our ability to comply with 

the provisions outlined in the CMS State health official letter from 

August 17, 2007. 

Rhode Island’s Medicaid program recognized the potential for 

crowd-out of private health insurance and its managed care program known as Right Care almost a decade ago. As we experienced 

an increase in enrollment in the late 1990s, policymakers quickly 

identified the risks to Right Care’s fiscal sustainability and viability and in response, adopted a series of health reforms aimed at 

stabilizing the program. 

Those reforms were guided by the following principles. The preservation of employer-sponsored insurance, ensuring that there are 

no incentives for employers to shift or dump their employees from 

private to public coverage, the wise and responsible use of public 

dollars, ensuring continued health coverage for long-income beneficiaries, and to promote personal responsibility through beneficiary 

cost sharing. 

As a result, Rhode Island created the Right Share Premium Assistance Program and established cost-sharing requirements for 

Right Care and Right Share beneficiaries above 150 percent of the 

federal poverty level. Rhode Island sought and received approval 

from CMS through a state plan amendment to create the Right 

Share Public/Private Partnership. This program is aimed at helping eligible beneficiaries maintain employer-sponsored insurance. 

In the Right Share program, the State pays the beneficiary’s portion of the employer-sponsored insurance and provides wraparound 

services through the State Medicaid program. A portion of that 

state share may be paid by the beneficiary as a monthly premium. 

This arrangement has been extremely successful at maintaining 

the employee/employer link. 

CMS has agreed that this is an acceptable alternative to a 1-year 

waiting period because we are able to effectively capture the employer coverage and avoid any crowd-out issues. 

Right Share has been very successful helping lower-income families maintain employer-sponsored insurance and avoid moving to a 

completely government-funded health program. Currently 90 percent of Right Share families have an income below 185 percent of 

the federal poverty level. Those families are at greatest risk for 

dropping their employer-sponsored insurance and becoming crowdout statistics. 

76 

The Right Share approach has maintained the employer share at 

a savings of $1 million for every 1,000 enrollees every single year. 

Those are costs that would have likely come to the state as employers have passed higher commercial premiums onto their employees, 

creating an affordability problem for lower income families. 

Rhode Island also received approval to require monthly premiums for families with incomes over 150 percent of the federal 

poverty level. For higher income enrollees, monthly premiums have 

lessened the gap between the cost of maintaining employer-sponsored insurance and enrolling in a government program. This is intended to dissuade employees from dropping commercial health 

plans for less expensive, government-funded coverage. 

To avoid losing the lower-income enrollees to relatively high cost 

sharing efforts, Rhode Island has opted for a sliding scale monthly 

premium based on income. Our ability to maintain a high percentage of eligible persons enrolled is evidence that we have been successful at balancing these competing interests. 

Additional measures contained in the CMS letter include the 

monitoring of possible health coverage through non-custodial parents, a requirement that 95 percent of eligible children under 200 

percent of the poverty level are ensured, and an assurance that the 

number of children under 200 percent of the federal poverty level 

covered by private insurance has not decreased by more than 2 percent over the past 5 years. 

As part of Rhode Island’s Medicaid program, Integrity Procedures, the state routinely conducts third-party liability checks in 

an effort to determine any other source of insurance coverage, 

which would include coverage associated with non-custodial parents. These checks are conducted routinely and in conjunction with 

commercial insurers. 

Rhode Island has complied with the assurance that 95 percent of 

eligible children under 200 percent of the federal poverty level are 

insured. Compliance was achieved through long-term outreach and 

a commitment to sustaining commercial insurance through the 

Right Share premium assistance program. 

Rhode Island has a history of strong community advocacy. With 

these community partners, the state has been able to enroll tens 

of thousands of children in this program. Efforts to educate the 

public about this program continue on a daily basis. The assurance 

that limits the potential decrease in commercial insurance coverage 

for this population to 2 percent over 5 years is the most difficult 

provision to meet. 

Statewide insurance initiatives to expand access and affordability 

are not under the purview of the state Medicaid program. But in 

Rhode Island, they have played an active role in those strategic 

discussions. The ability for long-income Rhode Islanders to afford 

commercial health insurance is important to the governor and to 

the fiscal integrity of the State’s Medicaid program. 

In conclusion, compliance with the CMS letter dated August 17, 

2007 was not the result of last minute program changes or quick 

fixes by the Medicaid department. Rhode Island has been able to 

avoid crowd-out issues because of a long-term reasoned approach 

that seeks to maintain an enrollee’s existing coverage, which will 

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not create disincentives so that beneficiaries will migrate to big 

government programs. 

I thank you very much for the chance to speak. 

[The prepared statement of Mr. Alexander follows:] 

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Mr. PALLONE. Thank you, Mr. Alexander. Ms. Cummings. 

STATEMENT OF LESLEY CUMMINGS, EXECUTIVE DIRECTOR, 

THE CALIFORNIA MANAGED RISK MEDICAL INSURANCE 

BOARD 

Ms. CUMMINGS. Thank you, Mr. Chairman and Mr. Deal and 

other members of the Committee. We really appreciate the opportunity that you invited us here to talk to you about how we would 

see the effect of the August 17 directive applying to California. 

First, I wanted to note that SCHIP, one of the things that we 

have all loved about it and continue to love about it, is that it has 

provided States with a lot of flexibility to look at the circumstances 

in its State and decide what it needs in terms of coverage of children. This is really important because every State has a difference 

in its rates of uninsurance, in the income of people in the State, 

of the incidents of employer-sponsored coverage. So it is really important to take those things into consideration when designing a 

program. 

In California, we designed a program that began in July 1998 

with coverage of children to 200 percent of the federal poverty level 

with the application of income disregards used by Medicaid. Why 

did we do that? Because we wanted somebody to go into Medicaid 

if they should, and if you use a different standard, you wouldn’t be 

able to do that. This was approved by the Federal Government. 

In 1999, we expanded coverage to children up to 250 percent of 

poverty again using this net income standard. Another thing that 

was a future of our program then and was approved by CMS at 

that time was a 3-month waiting period for our entire program. 

Next in 2006, at the urging of the administration, California 

elected to cover pregnant women with SCHIP dollars, and that is 

to an income of 300 percent of federal poverty level and coverage 

for the woman’s children for 2 years at 300 percent poverty level. 

We have built a fabulous program in California. We cover a million 

people. That is through Medicaid, through our pregnancy program, 

through our program for children. So we have really taken the opportunity and worked with it to create what I think anybody in our 

state said would be a fabulous program. 

Nevertheless, despite the fact that we cover up to 250 percent in 

our SCHIP program, up to 300 percent for pregnant women, the 

average family income for a child in our program is 165 percent. 

Now, why? Because the incidents of employer-sponsored coverage 

increases as you get higher up in the income so fewer people need 

it. But that doesn’t mean there aren’t uninsured people there. They 

are there, and they don’t have access to employer-sponsored coverage. It is just that it is to a fewer of them. So our state would 

like to go to 300 percent of coverage would be not allowed to under 

the terms of the August 17 letter, but we see the need in that population. 

What has happened as a result of the letter? Coverage has been 

affected now in a number of other states that wanted to expand 

their coverage, and they have been denied, coverage like Louisiana, 

Oklahoma, Ohio. We ourselves in California are one of the 14 

states that CMS has said you have a year to come into compliance. 

So we are in that category where we haven’t asked for an expanVerDate Nov 24 2008 10:37 Oct 08, 2010 Jkt 037690 PO 00000 Frm 00089 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-118 SCOM1 PsN: JIMC
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sion, but we are expected to make changes to our program if we 

are going to continue to serve children or pregnant women with incomes above 250 percent of the poverty level. 

Well, so how able are we to make these changes? People have 

talked to you about a number of these. I am not going to mention 

all of them again, but I would like to just go through a couple of 

them that seem particularly challenging to us. 

One, the provision that there have not been a decline in employer-sponsored coverage for children over a five-year period. We 

have had a decline higher than that for adults where there is no 

public program waiting to take somebody out. So that is not a feature of crowd-out. That is a feature of the fact that employer-sponsored coverage is declining. And that is true not just in California 

but in other states. 

Cost sharing. The letter would require you to increase your cost 

sharing up to 5 percent of family income, unless you can demonstrate in some way that is totally unclear that the relationship 

between private coverage and your program coverage is less than 

1 or 2 percent. Well, I don’t see how anybody would ever do that, 

and if you have to increase to 5 percent, in our State, you would 

be increasing families’ premiums by thousands and thousands of 

dollars. 

We are aware of the issue of cost sharing. We also pay a third 

of the cost of this program. Our governor has proposed increasing 

premiums in the budget year but not up to 5 percent of family income. He has proposed it to 2.7 percent. 

So that is just a couple of the things I would bring to your attention, a number of them are laid out in my testimony. What will it 

mean to us in California if 817 is implemented? We won’t be able 

to expand to 300. We will have to reduce services to children who 

have net incomes at 250 percent rather than gross. That is about 

14,000 children per year. And we don’t know what it means about 

our pregnant women because the application of these rules to pregnant women is unclear. 

And on that point of things being unclear, we think that one of 

the really challenging things about the August 17 letter is that it 

is not transparent. There are not uniform standards. There are negotiations going on with States on a one-on-one basis where you 

can come forward and see if this particular database or that particular database would satisfy. 

One of the really challenging things about doing that particularly 

to meet the 250 percent standard—I am sorry, 90 percent of children at 200 percent, is that that is a way that you could then be 

falsely indicating that you don’t have as many uninsured children 

as you really do. And it will affect your formula when it comes 

down to passing out state SCHIP dollars. Because if you jerry-rig 

databases and come in and go good news, according to this database, we are at 92 percent. But if in fact you are—and nobody will 

ever really know this number, but at 80 percent and your economy 

is going down and more people are qualifying, you will just deny 

your state the money that you need to serve those children. 

So that is my comments. Thank you. 

[The prepared statement of Ms. Cummings follows:] 

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Mr. PALLONE. Thank you very much, Ms. Cummings. And thank 

you to all the panel. I think you have been very succinct in explaining to us the impact of the August 17 memo. 

We will now turn to questions. I will recognize myself for 5 minutes, and I will start with Dr. Orszag. One of the Administration’s 

stated goals in issuing the August 17 directive is to improve enrollment of low-income children in families with incomes below 

$35,200, which is the 200 percent of the federal poverty level. But 

many of us have questioned whether this directive will actually 

achieve this goal. Can you tell me how many currently eligible but 

unenrolled children in families with incomes below $35,200 a year 

does CBO assume gain new coverage as a result of the directive? 

Mr. ORSZAG. Under our baseline? 

Mr. PALLONE. Yes. 

Mr. ORSZAG. Effectively zero. 

Mr. PALLONE. OK, does the CBO assume that the net effect of 

the directive is to help improve enrollment of eligible but uninsured 

children in families with incomes below that $35,200 a year? Or 

does CBO assume the net effect of the directive is to prevent states 

that cover children in families with incomes above the $44,000 a 

year from continuing to cover those children? 

Mr. ORSZAG. Again, under our baseline the effect is very modest, 

but the fact that it is there is mostly because of the waiting period 

that is imposed on children above 250 percent. 

Mr. PALLONE. Which is the $44,000? 

Mr. ORSZAG. Right. 

Mr. PALLONE. OK, I personally believe, Dr. Orszag, that the August 17 directive is punitive to both states and children, and I also 

believe that we can increase enrollment of the poorest children 

without harming moderate-income children. 

The CHIPRA bill, the bill that we passed last year that the 

President vetoed, the expansion, that actually helps states enroll 

more of the lowest income children without penalizing States looking to cover children at moderate income levels. And I just wanted 

to ask you from CBO’s standpoint, do you believe that the CHIPRA 

bill would have been more effective at reaching the lowest-income 

eligible but not insured children than this August 17 directive? 

Mr. ORSZAG. It is quite difficult to compare something that significantly expands the program to the effect of a directive. Again, 

as I said earlier, the effect of the directive relative to our baselines 

is effectively zero on take-up among low- or moderate-income children. Whereas the legislation that was proposed did have a significant increase in enrollment including among those who are currently eligible but unenrolled. 

Mr. PALLONE. You may have heard Mr. Alexander’s comments 

that having a beneficiary pay a portion of the state’s share would 

reduce crowd-out. Would you agree with that? 

Mr. ORSZAG. I think the evidence on that is quite inconclusive. 

In fact, the leading researcher in this area is Professor John 

Gruber of MIT, and with regard to both waiting periods, but especially with regard to cost sharing, his results suggest that it is not 

clear. I actually have the study with me, and I will just quickly 

read: ‘‘Findings suggest that state efforts to increase financial barriers to public barriers’’—that would be cost sharing—‘‘may deter 

119 

the use of those programs by those who need them’’—he means uninsured people—‘‘at a faster rate than it is deterring the use of 

those programs by those who are crowded out. While the results 

are imprecise, there is certainly no evidence that imposing costs on 

beneficiaries is reducing crowd-out of private insurance.’’ 

Mr. PALLONE. OK, thank you. Now, let me ask Mr. Rosenberg. 

CMS has said repeatedly that they will work with states to help 

them meet some of these tests in the August 17 directive. For example, CMS has initially indicated informally that there would be 

no exceptions to the 1-year waiting period or requirement that children must be uninsured for a full year before qualifying for CHIP. 

But in the May letter, you know, that they recently did, CMS now 

says it will consider exceptions. 

My fear is that working with states and these exceptions could 

be applied arbitrarily in the absence of any regulations and any 

specificity. Doesn’t this give CMS the power to approve one state 

and disapprove another even if they are in the exact same circumstances? And for example, while Rhode Island did not have to 

change the way it calculates eligibility levels for CHIP, other states 

like Indiana and Tennessee have already been told by CMS that 

they must change that part of their program. 

I will ask either Ms. Shah or Mr. Rosenberg actually. Doesn’t 

this approach have the potential to undermine requirements for a 

fair, transparent, and equitable review process? Mr. Rosenberg or 

Ms. Shah or both of you? 

Ms. SHAH. I agree with you that I think it does introduce a great 

deal of uncertainty as to what states are expected to do, and there 

is a potential for inconsistency. It is especially unclear since the 

issuance of the May 7 letter what exactly is the position of all of 

the strategies and assurances that are set out in the August 17 letter. And I think probably further clarification would be needed. 

If CMS’s intent was to require uniformity among states by 

issuing the August 17 letter, I don’t think this strategy is going to 

work. 

Mr. PALLONE. Mr. Rosenberg? 

Mr. ROSENBERG. I would agree with Ms. Shah and just add that 

it provides a certain amount of leverage for CMS to the States to 

engage in perhaps disparate action. Once again, it appears to be an 

attempt to move toward and to satisfy potential court scrutiny that 

will say that we are still being flexible. In fact, the evidence of past 

practice in the departure and the leverage that might be affected 

by this, I agree with Ms. Shah that this doesn’t change the difficulties in their potential legal problems that are raised by both the 

August 17 letter and the clarification, so to speak, of the May 7 letter. 

Mr. PALLONE. Thank you. I just wanted to ask unanimous consent to enter into the record a letter from, I guess, over 100 different organizations that have opposed the August 17 Directive. 

Mr. Deal. 

Mr. DEAL. Thank you, Mr. Chairman. I am going to ask you all 

to be brief in the responses because I am going to try to cover a 

lot. Ms. Shah and Mr. Rosenberg, you have given this committee 

something that probably only a third-year law student who is 

120 

bogged down in an administrative law class could ever appreciate, 

and that is the bureaucracy’s minutiae mindset. 

Now, the thrust of this whole thing is Congress passed a statute 

called the SCHIP Program. Regulations were adopted by CMS, the 

administrative executive branch agency designed to implement that 

statutory program. And now we are arguing about whether a letter 

is a rule that must go through some bureaucratic process in order 

to have force and effect. I want to go back to a more simplistic approach. 

I would like to ask the two of you, the experts, and please be 

brief, can an executive branch agency such as CMS enforce a statute passed by Congress that delegates them the authority to enforce the statute without this minutiae? Does it depend on how specific the statute is? 

Mr. ROSENBERG. Supreme Court case law and court of appeals 

case law make it clear that in delegating authority to an agency 

to promulgate rules and when that agency promulgates such rules, 

if it then—— 

Mr. DEAL. I am not talking about rules. I am talking about statute. Let me read you the statutory language. Statutory language 

says that through intake and follow-up screening, that only targeted low-income children are furnished child health assistance 

under state child health plan. And it also goes on to say that the 

state child health plan does not substitute for coverage under 

group health plans. That is the statutory language. The regulatory 

language as to part of it says the state plan must include a description of reasonable procedures to ensure that health benefits coverage provided under state plan does not substitute for coverage 

provided under group health plans as defined in the code section 

that it is designed to enforce. 

Now what I hear you saying is that—and you quoted it—said 

that a rule covers every statement that an agency can make. It becomes a rule and must follow the procedures of adoption of a rule. 

I would like to ask you this question, Ms. Shah, since you used the 

illustration of the New York plan being denied. Could CMS have 

denied the New York state plan amendment if they just never 

issued the August 17 letter based on the authority given them 

under the statute and under the regulation? 

Ms. SHAH. Well, CMS would have to follow whatever the regulation and the established interpretation of that regulation was over 

the years. 

Mr. DEAL. I take that to be a yes. 

Ms. SHAH. But you see in the case of New York, they applied 

that letter requiring a whole host—— 

Mr. DEAL. I am saying if they had never written the letter—— 

Ms. SHAH. Yes. 

Mr. DEAL [continuing]. Could they have denied the plan if they 

had just never written the letter? 

Ms. SHAH. They may not have. It might have been viewed as—— 

Mr. DEAL. Well, then how did they approve Mr. Alexander’s 

Rhode Island plan? 

Ms. SHAH. But to require a whole host of strategies, which they 

required New York to comply with here, without having required 

121 

that of any other State previously, might have been viewed as arbitrary and capricious and again have resulted in a lawsuit. 

Mr. DEAL. In other words, you are really making the argument 

that some of us have made before when our colleagues on the other 

side have said and criticized the Administration for approving state 

plans that have allowed them to go above 200 percent of poverty 

for their SCHIP program. You are basically saying that the Administration had no discretion to deny those plans. Is that right? 

Ms. SHAH. The Administration has a great deal of discretion in 

the way it implements programs, but where there has been a settled interpretation of how a statute or regulation is to be implemented, case law is very clear that there has to be a—it is considered a rule and—— 

Mr. DEAL. OK. So in other words, we can’t pass a statute that 

is specific enough that says that you don’t have crowd-out and that 

you ensure poor children first. The statute is not specific enough. 

The regulation that goes further detail to saying how to implement 

that statute is not detailed enough, that we then have to go to implementing rules that deal with this minutiae before CMS can do 

anything to enforce this SCHIP Program? 

Ms. SHAH. Well, very interestingly, when this rule was promulgated—— 

Mr. DEAL. Well, you said it was a letter, and the letter is the 

equivalent of a rule. 

Ms. SHAH. No, I am talking about the regulation. 

Mr. DEAL. OK. 

Ms. SHAH. When the regulation was promulgated, there was a 

debate at that time as far as what the crowd-out strategies should 

be. And CMS at that time said that they considered requiring a set 

of specific procedures that each state would have to use. They rejected that option because the statute authorizes states to design 

approaches to prevent substitution, not the Federal Government. 

In other words, they questioned whether they had the authority to 

impose a certain set of procedures. 

Mr. DEAL. Are you saying CMS has no discretion then in the administration of this program? 

Mr. ROSENBERG. CMS, when it promulgated the 2001 rule, provided guidelines, provided the rules by which they would grant or 

deny. They gave great flexibility. If they want to change that flexibility and put in more rigid rules, they have to, according to the 

Supreme Court, go back and change the rule the same way they 

promulgated it, which is by notice and comment rulemaking. But 

remember what Ms. Shah and I are dealing with is not the APA. 

We are dealing with the Congressional Review Act, which has 

much broader standards for review by Congress. And if Congress 

wants to look at the amendment that has been made, or the document of August 17, they can do that, and they can use different 

kinds of analysis and reasons for overturning it if they can get majorities to affect a disapproval resolution. 

Mr. DEAL. I think you both illustrated the point I was making 

in my first statement. Thank you. 

Mr. PALLONE. Thank you, Mr. Deal. Next is our vice chair, Mr. 

Green. 

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Mr. GREEN. Thank you, Mr. Chairman, for, one, holding the 

hearing, and I apologize for jumping back and forth because we 

have a nursing home hearing downstairs in O&I, those of us who 

are on that committee. But I would like to ask unanimous consent 

to have my full statement placed into the record. 

[The prepared statement of Mr. Green follows:] 

STATEMENT OF HON. GENE GREEN

Thank you Mr. Chairman for holding this hearing today on H.R. 5998, the Protecting Children’s Health Coverage Act of 2008. As an original cosponsor of this bill, 

I am pleased we are moving this quickly through the legislative process. 

The SCHIP program has been a priority for me because my home state of Texas 

has one of the highest uninsured rates of children in the US with nearly 20 percent 

uninsured compared to 11 percent nationwide. 

Today, we will discuss H.R. 5998, which will nullify the August 17th directive. 

The August 17th directive is a letter the Administration sent to State Medicaid and 

SCHIP directors outlining certain conditions states must meet if they want to cover 

children in families with incomes above 250% of the federal poverty level. 

One other provision outlined in the directive bars children who have been dropped 

from employer based insurance from participating in CHIP for a full 12 months. 

These types of hurdles do not help get those uninsured children who are eligible for 

CHIP in the program. 

In Texas, SCHIP only covers children at 200% and below the federal poverty level, 

but we have still experienced some significant problems enrolling children in the 

CHIP program. In fact, Texas CHIP participation has never been above 85%. 

The State of Texas has not been wise with the SCHIP program and has lost over 

$850 million in matching funds due to many missteps including kicking children off 

of the SCHIP roles and forcing them to reregister every 6 months. 

According to the US Census Bureau, 1.5 million Texas children are uninsured. 

Many of those children are actually eligible for Medicaid or CHIP, but are not enrolled in either program. The fact of the matter is,the number of insured children 

is growing, not only in Texas, but throughout the US and the August 17 directive 

does not help reduce the number of uninsured children. 

The two SCHIP reauthorization bills that we passed and that the President vetoed actually allowed states to sustain current programs and cover an additional 4 

million uninsured children by 2012. 

Adding new challenges and hurdles for states to meet before they can enroll additional children does nothing to solve the problems we have insuring children in this 

country. 

The last thing we need to do is make it harder to enroll children in the CHIP 

program when states like Texas are experiencing problems enrolling children in the 

first place. 

The August 17th directive represents a fundamental policy change in the SCHIP 

program and was published in the form of a letter from CMS to state health officials 

and not moved through the promulgated rule process, which would have required 

a comment period for stakeholders before the rule went into effect. 

Both the GAO and CRS have stated this letter violated the Congressional Review 

Act and while the Administration has attempted to clarify the underlying policy in 

the August 17th directive, the fact is it made significant changes to the SHIP program which made it more difficult for states to expand their SCHIP programs and 

violated congressional review processes. 

That’s why I strongly support H.R. 5998 and I hope we will move this bill swiftly 

through the Committee. 

Thank you Mr. Chairman, I yield back my time. 

Mr. GREEN. I guess my concern in the hearing is the August 17 

Directive. In coming from Texas, I have been so frustrated, and the 

members of this committee know that, that using the 1-year waiting period or even the not having insurance for 1 year is a way you 

reduce your enrollment. And I know that happened in Texas in 

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cent of poverty they have the year that you can have insurance for 

the full year. 

I know we are talking about two different things, but I think 

they are interrelated because if you make a child wait a year from 

losing their private sector employment—although it is interesting— 

and I will ask this question. It is interesting that CMS said that 

it didn’t include unborn children. So they are giving health insurance to the same family for a child that is born within that year 

period, but if you are a child that is 2 years old, you have to wait 

that year. I would have to understand the convoluted reasoning for 

that. You know I don’t know why we would have an arbitrary year 

waiting period because you are the children without health care. 

And that was the original intent in ’97. A number of us were here 

when we voted for that balanced budget act. I didn’t vote for the 

balanced budget act, but I voted for the CHIP side because I knew 

that was needed. 

Let me ask—CMS said they will work with the states to help 

meet some of these tests to the August 17 Directive. For example, 

CMS has initially indicated informally that there will be no exceptions to the 1-year waiting period, a requirement that children 

must be uninsured for a full year before qualifying for CHIP coverage. In the May letter, CMS now says it will consider exceptions. 

My fear is that this working with the States, these exceptions could 

be applied arbitrarily and in the absence of regulations in any specificity. Doesn’t this give the CMS power to approve one state and 

disapprove another even if they have the exact same circumstances? Ms. Cummings or anyone on the panel? 

Ms. CUMMINGS. Mr. Green, that is exactly one of the concerns 

that we raised in our testimony is this approach of negotiation and 

different states being able to use different databases to make cases 

is one that does seem to us to lead to a non-uniform approach, 

which arouses concern. 

The other thing is that we haven’t today yet mentioned that the 

August 17 letter said you must satisfy all of the conditions so that 

we in California, for example, are in a situation where we could 

satisfy a couple of them. But, for instance, this issue about replacement of employer-sponsored coverage. Given that the adults in our 

state have an erosion of employer-sponsored coverage of over that 

amount, there is no way we are going to satisfy it with children. 

And so you just end up being out of luck. 

Mr. GREEN. Ms. Shah and Mr. Rosenberg, I know from the GAO 

and CRS. Do you have anything from your reports on that issue, 

the arbitrariness it could have unless we actually have some regulations that—I like the Federal Government to work with the 

States. But I also like it to be on the same playing field, I guess. 

That is what my concern is. 

Ms. SHAH. Well, I know GAO often looks at federal programs to 

see how states are implementing them and whether they have been 

consistent across states. I don’t know about this particular concern, 

but I think it is something that, from a problematic side, they 

might look into some time in the future. 

Mr. GREEN. Mr. Rosenberg? 

Mr. ROSENBERG. I did not address that and wasn’t asked to address that in my statements. 

124 

Mr. GREEN. OK. To point out, with regard to CHIP, it seems that 

the administration has used a lot of fuzzy math on it. Do you agree 

with that? 

Mr. ORSZAG. You are probably referring to the 95 percent participation rate test—— 

Mr. GREEN. Yes. 

Mr. ORSZAG [continuing]. Which has been interpreted—my job is 

to evaluate the effects of how they are interpreting a certain test. 

They appear to be interpreting the test in a particular way whereby the vast majority of states would pass the test, and a substantial number of states would have participation rates significantly 

above 100 percent. 

Mr. GREEN. How do you get above 100 percent? Frankly, I would 

love to get there in Texas. 

Ms. CUMMINGS. Mr. Green. 

Mr. GREEN. Yes? 

Ms. CUMMINGS. There are a number of ways you can get 100 percent. According to one set of data, we are at 130 percent. What 

does that mean? Does that mean we have served all the uninsured 

children? No. If we go to look at the CPS’s, is that 130 figure confirmed? No. If we go to our own state survey data, is that number 

confirmed? No. 

Mr. GREEN. OK, I know I am out of time, Mr. Chairman. Thank 

you for your patience. 

Mr. PALLONE. Thank you, Mr. Green. Ranking member of the full 

committee, Mr. Barton. 

Mr. BARTON. Thank you, Mr. Chairman, and thank you for having a hearing on this. It is good. We have been discussing SCHIP 

for over a year and a half. For the first year, all we did was discuss 

it on the floor. It is good to actually have real people testifying on 

real bills. I am not a supporter of your bill, but I think it is an honest bill and I think it is worthy of being debated. 

My first question is to Dr. Orszag. CMS has stated that of the 

15 states that have submitted data to comply with this August 17 

letter, they have looked at 11 of those data sets. Nine of those 

states comply with the 95 percent test, and they say that they 

think every state will be able to. I believe CBO has looked at that 

same data set and concurs with that assessment. Is that correct? 

Mr. ORSZAG. I would concur that it appears that given the way 

that CMS is interpreting or applying the 95 percent test, the vast 

majority of states will either automatically pass it even with no effort or very close. 

Mr. BARTON. OK, and you seem to imply in your answer that 

CMS isn’t looking at the data correctly? The way they look at it, 

are they using some unusual, exotic methodology? 

Mr. ORSZAG. I think it would be fair to say that the way they 

are applying that test is not the way that most analysts would do 

so, yes. 

Mr. BARTON. Would you say that they are applying the test more 

stringently or more loosely? 

Mr. ORSZAG. More creatively. 

Mr. BARTON. I don’t understand creative. 

Mr. ORSZAG. Well, conceptually it is hard to get participation 

rates—or not conceptually, just simple mathematics that are above 

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100 percent. And the way that they appear to be applying this test, 

you can easily get participation rates above 100 percent. The reason is that they are looking—— 

Mr. BARTON. Now, what I mean—— 

Mr. ORSZAG. What is the underlying reason? The underlying reason is they are saying you are insured if you have insurance at any 

point during the year. So if you have insurance just for half of January, you are good to go. And obviously that means that there are 

a lot of people who are uninsured for the vast majority or in any 

given month who would be counted as insured under their methodology. Or I should say their apparent methodology. 

Mr. BARTON. What would a normal analyst use as a length of insurance? The entire year, half the year? 

Mr. ORSZAG. Or a point in time. You look at the population at 

a point in time or over a month or something, average monthly insurance and average monthly enrollment and what share of the 

population would be uninsured over a month. Or you could do it 

over different periods of time, but the way that they are doing both 

the nominator and denominator in this—— 

Mr. BARTON. Numerator and denominator. 

Mr. ORSZAG. The numerator and the denominator gives you answers that don’t make a lot of sense. 

Mr. BARTON. OK. Now, Mr. Alexander, your state has received 

a compliance letter, I believe, from CMS. Is that correct? 

Mr. ALEXANDER. Correct, yes. 

Mr. BARTON. And what did you do that you weren’t doing before 

to show the CMS that you could comply with this directive? 

Mr. ALEXANDER. Well, as I had stated in my testimony, Rhode 

Island has had a premium assistance program for some time, and 

this is not something new that Rhode Island had to do post-August 

17. So not only has Rhode Island had a commitment to insuring 

our poorest children, but in regards to the 95 percent, we closely 

monitor those people that are coming in and on and off the program. So if somebody had health insurance for just a month or if 

somebody has health insurance for 6 months, we are watching that 

very closely. 

Mr. BARTON. So and CMS worked with your state and you to do 

this? 

Mr. ALEXANDER. CMS has been nothing but a big help to us in 

terms of either complying with the provisions in the letter or on a 

day-to-day basis with our program. Of course, all states have challenges. Rhode Island is—I am just a small boy from a small state. 

So, as I am sitting up here looking at all the big states in front 

of me—— 

Mr. BARTON. A state is a state. 

Mr. ALEXANDER. Yes, well you are correct, but Rhode Island is 

more like a county. So although—— 

Mr. BARTON. Tell that to the Congressman from Rhode Island. 

Mr. ALEXANDER. Well, we will, but although as you know—— 

Mr. BARTON. His vote counts just as much as mine. 

Mr. ALEXANDER. As you know, we can bang with the best of them 

when it comes to the political arena. 

Mr. BARTON. Yes. 

126 

Mr. ALEXANDER. But in regards to your question of course, we 

did not have any major problem complying with the August 17 letter. I can only speak as to—— 

Mr. BARTON. Well, based on your efforts—because my time is 

about to expire—do you think that the other states that wish to 

comply will be able to work with the CMS and get compliance at 

the 95 percent rate? 

Mr. ALEXANDER. Based on my experience, I would say yes. 

Mr. BARTON. OK. 

Mr. ALEXANDER. But I am not working the other states. 

Mr. BARTON. I understand that. 

Mr. ALEXANDER. But based on my experience, I would say yes. 

I think we have an excellent model in Rhode Island. 

Mr. BARTON. Mr. Chairman, my time has expired. Let me simply 

say this before I yield back. Any states can cover any child in their 

state at any level of income with state-only dollars. All the CMS 

is trying to do is the law that we passed 10 years ago is that if 

you want federal matching funds, you should try to cover your lowincome children first at the 95 percent level. And as we have pointed out, the states that are actually working in a good faith effort 

to do that seem to be able to comply with that directive. So I hope 

that we will take that into consideration before you attempt to 

move this piece of legislation. But I sincerely appreciate you holding this legislative hearing. I think that is the way to do it. And 

with that, I yield back. 

Mr. PALLONE. Thank you, Mr. Barton. Mr. Engel for questions. 

Mr. ENGEL. Thank you, Mr. Chairman. As I was saying, right in 

the nick of time. Let me follow up on early questions related to 

New York’s state plan amendment. 

New York first submitted a state plan amendment to CMS last 

April to expand on the number of individuals covered. Five times, 

and let me say that again, five times CMS stopped the clock on 

considering the proposal by asking the state of New York questions 

about the proposal. New York repeatedly engaged with CMS and 

provided answers in a timely fashion. 

Only after the draconian August 17 letter was sent out, which 

both GAO and CRS says violates the Congressional Review Act, did 

CMS deny New York’s application. They used the August 17 CMS 

Directive as the basis for doing so. There is no doubt about this. 

They said it time and time and time again. 

So the administration’s argument that the August 17 Directive 

is not binding is obviously contrary to actions they have already 

taken, as I just explained. 

So let me start with Ms. Shah. In the brief file by the Department of Justice in the case of New Jersey versus the U.S. Department of Health and Human Services, the DOJ argues that the directive is non-binding. Isn’t it true, however, that the Department 

of Health and Human Services has already denied a number of 

states’ efforts to expand coverage to uninsured children based on 

this directive? 

Ms. SHAH. In the course of our legal opinion, we were concerned 

with whether it was a violation of the Congressional Review Act, 

so we didn’t look at particular states except for New York because 

the denial of the New York state plan amendment, the August 17 

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letter was specifically cited in that denial. But I understand that 

some states, other states have been affected by the letter. 

Mr. ENGEL. Well, let me ask you this and perhaps Mr. Rosenberg 

as well. In addition, hasn’t the Department of Health and Human 

Services forced the number of States to scale back or modify proposals to cover uninsured children based on the requirements in 

the directive? 

Mr. ROSENBERG. I have seen reference to those kinds of allegations. I am not aware of actually factual—that leverage or whatever was used, on the basis of that, to have the state scale back. 

If that can be demonstrated in an APA case, that could be persuasive to the courts in addition to the New York state actual rejection. 

Mr. ENGEL. OK, isn’t it true though that the Department of—the 

argument that the August 17 Directive is not binding is contrary 

to actions they have already taken? Perhaps Ms. Cummings could 

answer that. 

Ms. CUMMINGS. Well, one thing that was in testimony previously 

submitted in a congressional hearing by Georgetown, by the Center 

for Children and Families, was that Louisiana, Oklahoma, and 

Ohio had had to—failed to pursue getting 300 percent of federal 

poverty level coverage in their state because of the 8/17 directive. 

In our state, for example, the hammer doesn’t hit until at some 

point in the future because we are one of 14 states that have been 

told that we must come into compliance. Our state would like to 

go to 300 percent of federal poverty level. If we tried that right 

now, we are sure that we would be stopped. But we don’t actually 

have anything on the table to do that. 

What we do have is what happens to children who have incomes 

of 250 percent with the application of income deductions because 

that is something that CMS has indicated, although not said in 

writing, but will no longer be possible. That affects 14,000 children 

a year in our state. 

Mr. ENGEL. Thank you. Ms. Shah, let me go back to you. In spite 

of DOJ’s argument for the district court that the directive is nonbinding, didn’t GAO determine that the August 17 letter is, in fact, 

binding? 

Ms. SHAH. What we did determine was that it meant the threepart test that needed to be of an APA rule and had to be submitted 

to GAO. But in reinforcing our determination that this was a rule 

that had to be submitted to Congress and to GAO, we noted that 

there were certain elements of the August 17 letter that did indeed 

appear to have a binding effect. And one of those was that it was 

applied in the case of New York and also the language of the letter 

itself imposing a 1-year deadline for states to come into compliance 

with what was set forth in that letter. 

Mr. ENGEL. Let me ask you this, Ms. Shah. If CMS were to clarify if the August 17 Directive was not intended to be binding, 

would the agency still have a problem for failing to comply with the 

requirements of a Congressional Review Act? 

Ms. SHAH. Yes they would because that’s not one of the criteria 

that is needed to be a rule for the purposes of the Congressional 

Review Act. Basically for a rule, it just has to be a rule that is of 

general applicability, having future effect, and designed to impleVerDate Nov 24 2008 10:37 Oct 08, 2010 Jkt 037690 PO 00000 Frm 00133 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-118 SCOM1 PsN: JIMC
128 

ment, interpret or prescribe law or policy. That reaches a range of 

statements that are well beyond those that are binding. 

Mr. ENGEL. Mr. Rosenberg—— 

Mr. PALLONE. We are up to—— 

Mr. ENGEL. Am I done? 

Mr. PALLONE. You are, yes. 

Mr. ENGEL. OK. 

Mr. PALLONE. Sorry. 

Mr. ENGEL. Thank you. 

Mr. PALLONE. All right, thank you very much. Thanks. That concludes our questions. This actually went very quickly, but it doesn’t 

mean that we didn’t learn a lot. I thought it was very worthwhile 

and I—— 

Mr. DEAL. Mr. Chairman. 

Mr. PALLONE. Yes? 

Mr. DEAL. Since I was very hurried in my questions, I just want 

to express to all of you, and I didn’t get a chance to ask all of you 

questions, I want to thank all of you for being here. I think this 

mental exercise, if it is that, and the substantive issues that lie behind it are much more important, I think, technically than the 

issue of the August 17 letter. That is the underlying purpose of the 

legislation, and I think all of us want to work cooperatively with 

the states in trying to work out the problems that they face in 

keeping with what the purpose of the SCHIP program is. Thank 

you very much. 

Mr. PALLONE. Thank you, Mr. Deal. Let me just remind you that 

members may submit additional written questions, and we should 

have those to the clerk within the next 10 days. So in another 10 

days or so, you may get additional written questions which obviously we would like you to respond to. But again, thank you again. 

And without objection, this meeting of the subcommittee is adjourned. 

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

STATEMENT OF HON. ANNA G. ESHOO

Thank you Mr. Chairman for holding this important hearing on the future of 

SCHIP. 

In the 10 years since its inception, SCHIP has been successful in reducing the 

number of uninsured low-income children in the United States by one-third. In California, we cover over 1 million children who otherwise would not have any coverage 

and care. I ever American should have healthcare and above all, every child should 

be covered, regardless of their parent’s employment situation or wealth. 

On August 17th, 2007, CMS adopted a draconian directive that effectively prevents any state from covering children in families earning 250% above the federal 

poverty level ($43,000 for a family of three) unless they can achieve impossible-toattain standards. For example, states must enroll 95% of all eligible children under 

200% of poverty before they can expand their SCHIP program. No federal meanstested program of any kind comes close to 95% enrollment. The result is that states 

are forced to scale back plans to cover thousands of children. 

The bill before us today will nullify the harmful, and likely illegal, directive that 

the Administration put out last August. The GAO and CRS have each issued legal 

opinions that the directive violates the Congressional Review Act (CRA), a law intended to keep Congress and the public informed about the rulemaking activities 

of federal agencies and to allow congressional review of such rules. 

129 

I look forward to hearing from our witnesses who have had direct experience with 

these cuts to SCHIP, as well as from the GAO and CRS about the legality of CMS’s 

directive. 

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