SEC. 2. PURPOSES.
It is the purpose of this Act to benefit American fami-
lies by—
(1) providing grants to States to develop and
implement a voluntary program to help purchase
health coverage for uninsured, needy children; and
(2) acquiring resources targeted to help reduce
the Federal budget deficit that, if unchecked, will re-
quire American families to devote an increasing pro-
portion of their tax liability to service the debt.
SEC. 3. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.
The Public Health Service Act (42 U.S.C. 201 et
seq.) is amended by adding at the end the following:
‘‘TITLE 
XXVIII—CHILDREN’S
HEALTH INSURANCE GRANT
PROGRAM
‘‘PART A—VOLUNTARY STATE GRANT PROGRAMS
‘‘SEC. 2801. AUTHORITY TO ESTABLISH.
‘‘(a) STATE ELECTION.—Each State may elect to es-
tablish a children’s health insurance program that com-
plies with this title.
‘‘(b) STATE PLAN.—
‘‘(1) IN
GENERAL.—To apply to participate
under this part, a State shall, not later than 90 days
prior to the beginning of the calendar year in which
the State program is to begin, prepare and submit
to the Secretary a State plan for the operation of
the program.
‘‘(2) APPROVAL
BY
SECRETARY.—The State
plan submitted by a State under paragraph (1) must
be approved by the Secretary in order for the State
to be eligible to receive a grant under this title.
‘‘(c) USE OF FUNDS.—Under a program under this
title, a participating State shall provide subsidies, consist-
ent with section 2822, for coverage under a qualifying
children’s policy and a qualifying children’s direct service
benefit option.
‘‘SEC. 2802. REQUIREMENTS FOR QUALIFYING CHILDREN’S
POLICY.
‘‘(a) IN GENERAL.—Each participating State—
‘‘(1) shall contract with health insurance issu-
ers to make qualifying children’s policies available to
subsidy eligible children in the State;
‘‘(2) shall ensure that qualifying children’s poli-
cies are available to all eligible children in the State
and that each eligible child has the opportunity to
enroll for coverage under such policies;
‘‘(3) shall ensure that a qualifying children’s
policy provides coverage for the care described in
subsections (b) and (c); and
‘‘(4) shall provide for the payment of premium
and cost sharing subsidies (in amounts as defined by
the State in accordance with section 2822), that
may include vouchers, to or on behalf of subsidy eli-
gible children, except that a State electing to partici-
pate may not—
‘‘(A) provide a premium subsidy that is
less than 95 percent for a subsidy eligible child
in a family with a family income below 185 per-
cent of the poverty line for a family of the size
involved;
‘‘(B) allow the imposition of cost-sharing
requirements for preventive services provided to
a subsidy eligible child; or
‘‘(C) enter into a contract with a health in-
surance issuer offering a qualifying children’s
policy that requires that a subsidy eligible child
(in a family with a family income below 150
percent of the poverty line for a family of the
size involved) pay more than 20 percent of the
cost-sharing otherwise applied under such con-
tract as applied with respect to a particular
item or service unless the cost-sharing required
under the contract involved has been deemed by
the Secretary as not being a barrier to care for
children of families below 150 percent of pov-
erty line for a family of the size involved.
‘‘(b) COVERAGE FOR MEDICAL CARE.—For purposes
of this title, a qualifying children’s policy is a policy for
an eligible child that provides coverage for medical care
for such child that is the equivalent of the medical assist-
ance available (other than cost sharing) to children under
the State plan under title XIX of the Social Security Act
(42 U.S.C. 1396 et seq.).
‘‘(c) ACCESS
TO SPECIALITY CARE
FOR SPECIAL
NEEDS CHILDREN.—Each participating State shall as-
sure that each qualifying children’s policy ensure access
to pediatric primary and speciality care providers, includ-
ing centers of pediatric specialized treatment expertise.
‘‘(d) ACCESS.—
‘‘(1) ACCESS
TO
POLICIES.—In carrying out
subsection (a)(1), a participating State shall, subject
to the funding limitation described in section
2822(d), ensure that subsidy eligible children have
access to a qualifying children’s policy provided by
a health insurance issuer serving the area in which
the eligible child resides. Such policies may be of-
fered to eligible children residing in the State
through existing public and private purchasing spon-
sors.
‘‘(2) TO TRADITIONAL PROVIDERS.—A partici-
pating State shall ensure that a qualifying children’s
policy provides access to traditional providers who
have experience in serving populations covered under
this title and in areas in which such populations re-
side.
‘‘SEC. 2803 REQUIREMENTS FOR QUALIFYING CHILDREN’S
DIRECT SERVICE BENEFIT OPTION.
‘‘(a) IN GENERAL.—Each participating State—
‘‘(1) for each area of the State served by a
health center (as defined in section 330), shall con-
tract directly with the health center to provide serv-
ices under the program under this title for subsidy
eligible children who choose to receive services from
the health center;
‘‘(2) shall ensure that under a qualifying chil-
dren’s direct service benefit option, coverage is pro-
vided for the care described in subsections (c) and
(d);
‘‘(3) shall ensure that services described in sub-
section (c) which are not made available by a health
center are provided either—
‘‘(A) through contracts for direct payment
to specific networks of providers; or
‘‘(B) through the purchase of wraparound
insurance; and
‘‘(4) shall provide for payments in accordance
with subsection (b).
‘‘(b) PAYMENTS.—
‘‘(1) IN
GENERAL.—Under a qualifying chil-
dren’s direct service benefit option, a State may
not—
‘‘(A) require that a subsidy eligible child in
a family with a family income below 185 per-
cent of the poverty line for a family of the size
involved pay more than 5 percent of the
capitated payment rate;
‘‘(B) allow the imposition of cost-sharing
requirements for preventive services provided to
a subsidy eligible child; or
‘‘(C) enter into a contract that requires
that a subsidy eligible child (in a family with a
family income below 150 percent of the poverty
line for a family of the size involved) pay more
than 20 percent of the cost-sharing otherwise
applied by the health center, unless the cost-
sharing required under the contract involved
has been deemed by the Secretary as not being
a barrier to care for children of families below
150 percent of the poverty line for a family of
the size involved.
‘‘(c) COVERAGE FOR MEDICAL CARE.—For purposes
of this title, a qualifying children’s direct service benefit
option is an option for a eligible child that provides cov-
erage for medical care for such child that is the equivalent
of the medical assistance available (other than cost shar-
ing) to children under the State plan under title XIX of
the Social Security Act (42 U.S.C. 1396 et seq.).
‘‘(d) ACCESS TO SPECIALITY CARE FOR SPECIAL
NEEDS CHILDREN.—Each qualified children’s direct serv-
ice benefit option shall assure access to pediatric primary
and speciality care providers, including centers of pediatric
specialized treatment expertise.
‘‘SEC. 2804. OTHER REQUIREMENTS.
‘‘(a) IN GENERAL.—A participating State shall—
‘‘(1) take steps to ensure that information
about the availability of the program, requirements
for family participation in the program, benefits of-
fered, and the application process are disseminated
effectively to potential participants;
‘‘(2) have in effect an outreach system under
which families eligible for assistance under this title
are assisted in enrolling in the State program and
are enrolled at a wide variety of locations, including
through of traditional providers of care;
‘‘(3) ensure that every subsidy eligible children
have the opportunity to apply for assistance under
the State program under this title pursuant to State
law;
‘‘(4) if the State determines that a child is eligi-
ble for cost-sharing assistance under this title, notify
the health plan in which such child is participating
in a timely manner of such eligibility;
‘‘(5) provide to any subsidy eligible child whose
claim for assistance under the State program is de-
nied or is not acted on within a reasonable period
of time, an opportunity under State law for an ad-
ministrative hearing on such denial or inaction be-
fore the State agency;
‘‘(6) provide to the public, a general description
of the rules (including the objective criteria used) es-
tablished by the State for making decisions concern-
ing eligibility for assistance under the State pro-
gram; and
‘‘(7) use funds received under this title only in
accordance with the provisions of this title.
‘‘(b) DESIGNATION OF STATE AGENCY.—A partici-
pating State may designate an appropriate State agency
to administer the State program under this title.
‘‘PART B—ASSISTANCE
‘‘Subpart 1—Assistance to Families
‘‘SEC. 2821. ELIGIBILITY DETERMINATIONS.
‘‘(a) IN GENERAL.—The following requirements shall
apply with respect to eligibility determinations for assist-
ance under this title:
‘‘(1) APPLICATIONS.—A State program shall
provide that an individual may file an application for
assistance in any manner determined appropriate by
the State. Such applications shall—
‘‘(A) be in an understandable form and
generally accessible to individuals;
‘‘(B) require the provision of information
necessary to make a determination as to wheth-
er a child is eligible for assistance; and
‘‘(C) require attachment of such docu-
mentation as deemed necessary by the Sec-
retary in order to verify eligibility for assist-
ance.
‘‘(2) TERM.—The State program may provide
for a determination of eligibility under this section
to be effective for a 6-month period or longer.
‘‘(b) 
COORDINATION.—Eligibility 
determinations
made pursuant to this section may be coordinated with
determinations of eligibility for State-administered health
programs to the extent that such coordination brings
about administrative efficiencies.
‘‘SEC. 2822. ASSISTANCE TO FAMILIES.
‘‘(a) STATE APPLICABLE INCOME CRITERIA.—For
purposes of this title, the applicable income criteria used
by the State for purposes of determining whether a child
is a subsidy eligible child, shall be based on the income
of the family of the subsidy eligible child expressed as a
percentage of the poverty line for a family of the size in-
volved. In establishing the applicable eligibility criteria and
subsidy level, the State shall give priority to families in
the State with the lowest family incomes, except that the
State shall establish a higher income criterion for families
with a disabled child.
‘‘(b) PAYMENTS.—
‘‘(1) IN GENERAL.—The amount of the assist-
ance available to a subsidy eligible child shall be
paid directly to—
‘‘(A) in the case of a child enrolled in a
qualifying children’s policy, the health insur-
ance issuer offering the qualifying children’s
policy (unless such plan is a group health plan
in which case such payment may be made di-
rectly to the group health plan or the health in-
surance issuer offering health insurance cov-
erage through the group health plan, or to the
individual); or
‘‘(B) in the case of an individual receiving
benefits under a qualifying children’s direct
service benefit option, to the provider and the
health insurance issuer if applicable with whom
the State has contracted under section 2803.
‘‘(2) INDIVIDUAL RESPONSIBILITY.—An individ-
ual shall be responsible for any portion of the pre-
mium or cost sharing not subsidized by the State.
‘‘(c) SPECIAL RULE.—
‘‘(1) IN GENERAL.—If a subsidy eligible child
enrolls in a group health plan, a premium subsidy
under this title shall be applied only to the amount
of the employee contribution for coverage for a sub-
sidy eligible child.
‘‘(2) RULE
OF
CONSTRUCTION.—Nothing in
this section shall be construed to require that an em-
ployer provide a qualifying children’s policy to an eli-
gible child regardless of whether such child is eligible
for a subsidy under this title.
‘‘(d) LIMITATION.—Nothing in this title shall be con-
strued to require that a State provide assistance to sub-
sidy eligible children under this part in an amount that
exceeds the total amount available to the State under sec-
tion 2826 (including State matching funds) for carrying
out the program under this title. If the State determines
that such available amount is not sufficient to provide pre-
mium subsidies and other assistance under this part to
all subsidy eligible children in the State, the State may
adjust the applicable eligibility criteria appropriately or
adjust the State program in another manner specified by
the Secretary prior to the program year.
‘‘SEC. 2823. PENALTIES FOR MATERIAL MISREPRESENTA-
TION AND FALSE INFORMATION.
‘‘A participating State shall establish penalties to be
applied to any individual who knowingly and willfully
makes a material misrepresentation of information or pro-
vides false information in an application for assistance
under this part, and shall otherwise enforce the provisions
of this title as determined appropriate by the State.
‘‘SEC. 2824. AGGREGATE FEDERAL GRANT PAYMENTS.
‘‘(a) PAYMENT SCHEDULE.—
‘‘(1) STATE AMOUNT.—
‘‘(A) IN GENERAL.—A participating State
shall be eligible to receive a grant in an amount
under this title that bears the same relationship
to the amount appropriated for such year under
section 2825 (and available after the reserva-
tion under paragraph (7)), as the total number
of uninsured eligible children in the State in a
base year as determined appropriate by the Sec-
retary bears to the total number of uninsured
eligible children in all participating States in
such base year.
‘‘(B) 
STATE
ALLOCATION
ADJUST-
MENTS.—
‘‘(i) STUDY.—Not later than Septem-
ber 30, 1998, the Secretary shall conduct
a study, and prepare and submit to the ap-
propriate committees of Congress a report,
concerning methodology for providing the
State allotment under subparagraph (A)
that takes into account an equitable ad-
justment to the formula based on vari-
ations in costs among States.
‘‘(ii) IMPLEMENTATION
OF
METH-
ODOLOGY.—If determined appropriate and
feasible by the Secretary, the Secretary
shall, not later than January 1, 1999, im-
plement by regulation a methodology for
the determination of the maximum amount
under subparagraph (A) that takes into ac-
count the relative number of uninsured eli-
gible children in a State in the base year
described in subparagraph (A) and the rel-
ative cost of the delivery of services to
those children.
‘‘(2) PAYMENT.—Subject to paragraph (1), the
Secretary shall provide for payment under a grant to
each participating State for each calendar quarter,
beginning with any quarter beginning on or after
April 1, 1998, of an amount equal to—
‘‘(A)(i) 100 percent of the total amount es-
timated by the Secretary to have been expended
by the State during such prior quarter for pre-
mium and cost-sharing assistance under this
title for enrollment in qualifying children’s poli-
cies and for coverage under the qualifying chil-
dren’s direct service benefit option through the
programs operated under part A; less
‘‘(ii) the State matching amount as deter-
mined under paragraph (3) for such prior quar-
ter; and
‘‘(B) 50 percent of the total amount esti-
mated by the Secretary to be expended by the