Children's Health Insurance: Inspector General Reviews Should Be Expanded to Further Inform the Congress
Published: 2002-03-29T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Congress created the State Children's Health Insurance Program (SCHIP) in 1997 to reduce the number of uninsured children in families with incomes that are too high to qualify for Medicaid. Financed jointly by the states and the federal government, SCHIP encourages state participation by offering a higher federal matching rate than the Medicaid program. Concerns have been raised that states might inappropriately enroll Medicaid-eligible children in SCHIP and thus obtain higher federal matching funds than allowed under Medicaid. The Department of Health and Human Services Office of Inspector General (OIG) concluded that Medicaid-eligible children were not being enrolled in SCHIP by the 13 states that administer separate child health care programs. Furthermore, the issue of appropriate enrollment is not limited to states with completely separate child health programs but also applies to those states with combination programs and Medicaid expansions, which also receive the higher SCHIP matching rate. The OIG could not conclude whether states were reducing the number of uninsured children and meeting the objectives and goals they established in their SCHIP programs. The OIG found that some states had set program goals without considering how they might be measured and that states' staffs often lacked adequate evaluation skills.

section_title: Letter
paragraphs: The Congress created the State Children’s Health Insurance Program  (SCHIP) in 1997 to reduce the number of uninsured children in families  with incomes that are too high to qualify for Medicaid. For SCHIP, the  Congress appropriated $40 billion over 10 years, with funds allocated  annually to the 50 states, the District of Columbia, and the U.S.  commonwealths and territories. Financed jointly by the states and the  federal government, SCHIP offers a strong incentive for states to  participate by offering a higher federal matching rate—that is, the federal  government pays a larger proportion of program expenditures—than the  Medicaid program. While this incentive encourages efforts to reduce the  number of uninsured children through state participation in SCHIP,  concerns existed that states might inappropriately enroll Medicaid-eligible  children in SCHIP and thus obtain higher federal matching funds than  allowed under Medicaid. Inappropriate SCHIP enrollment also can affect  what benefits are available for children because the SCHIP statute allows  states to (1) expand their Medicaid programs, thus affording SCHIP- eligible children the same benefits and services that the state Medicaid  program provides, (2) construct separate child health programs distinct  from Medicaid that could provide more limited benefit packages and could  include copayments that are generally not permitted for children in  Medicaid, or (3) use a combination of both approaches. To address  concerns regarding inappropriate enrollment, the SCHIP statute requires  states to screen all SCHIP applicants for Medicaid eligibility and, if they  are eligible, enroll them in Medicaid.
Even with the requirement for Medicaid screening in place, concerns  remained that children who were eligible for Medicaid might have been  inappropriately enrolled in SCHIP. Additionally, there was interest in  assessing the progress states had made to reduce the number of uninsured  children, including the extent to which states had met objectives and  goals, which they established in their SCHIP programs. In the Medicare,  Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), the  Congress directed the Department of Health and Human Services (HHS)  Office of Inspector General (OIG) to conduct a series of studies on these  issues. BBRA specified that the OIG should review states that provide  SCHIP coverage separately from their Medicaid programs.
BBRA also directed that we review and report on the OIG’s work. In  response, we assessed the OIG’s efforts to inform the Congress on (1)  determining whether Medicaid-eligible children were improperly enrolled  in SCHIP and (2) assessing states’ progress in reducing the number of  uninsured children, including the progress states have made in meeting the  objectives and goals initially established in their SCHIP programs.
To examine these issues, we reviewed the OIG’s approach and  methodology for selecting its sample of states for the first in its series of  studies to evaluate states’ performance in screening SCHIP applicants for  Medicaid eligibility and to assess states’ progress in reducing the number  of low-income uninsured children. We examined the OIG’s findings in the  context of other research, including our own work. In some cases, we  reviewed work released after the OIG’s studies were completed and  published to determine the extent to which other research corroborated  the OIG’s findings. Finally, we examined OIG’s recommendations to the  Health Care Financing Administration (HCFA) and the Health Resources  and Services Administration (HRSA), which jointly oversee SCHIP. Our  work was conducted from December 2001 through March 2002 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: States provide health care coverage to low-income uninsured children  largely through two federal-state programs—Medicaid and SCHIP. Since  1965, Medicaid has financed health care coverage for certain categories of  low-income individuals—over half of whom are children. To expand  health coverage for children, the Congress created SCHIP in 1997 for  children living in families whose incomes exceed the eligibility limits for  Medicaid. Although SCHIP is generally targeted at families with incomes at  or below 200 percent of the federal poverty level, each state may set its  own income eligibility limits within certain guidelines. As of February  2002, 16 states have created Medicaid expansion programs, 16 states have  separate child health programs, and 19 states have combination Medicaid  expansions and separate child health components. (See figure 1.)
SCHIP offers significant flexibility in program design and benefits  provided by allowing states to use existing Medicaid structures or create  child health programs that are separate from Medicaid. Medicaid  expansions must follow Medicaid eligibility rules and cost-sharing  requirements, which are generally not allowed for children. A Medicaid  expansion also creates an entitlement by requiring a state to continue  providing services to eligible children even when its SCHIP allotment is  exhausted. In contrast, a state that chooses a separate child health  program approach may introduce limited cost-sharing. Additionally, a  state with a separate child health program under SCHIP may limit its own  annual contribution, create waiting lists, or stop enrollment once the funds  it budgeted for SCHIP are exhausted. States choosing combination  programs take both approaches. For example, Connecticut’s combination  SCHIP program has a limited Medicaid expansion—increasing eligibility  for 17 to 18 year olds up to 185 percent of the federal poverty level.  Additionally, the state created a separate child health program, which  covers all children in families with incomes over 185 percent, up to 300  percent of the federal poverty level.
With regard to program benefits, the choices states make in designing  SCHIP have important implications. For example, a state opting for a  Medicaid expansion under SCHIP must provide the same benefits offered  under its Medicaid program. These benefits are quite broad and include  Early and Periodic Screening, Diagnostic, and Treatment (EPSDT)  services for most children. EPSDT services are designed to target health  conditions and problems for which children are at risk, including iron  deficiency, obesity, lead poisoning, and dental disease. These services are  also intended to detect and correct conditions that can hinder a child’s  learning and development, such as vision and hearing problems. In  contrast, states opting for separate child health programs may depart from  Medicaid requirements and provide benefits based on coverage standards  in the SCHIP legislation. SCHIP separate child health programs generally  cover basic benefits, such as physician services, inpatient and outpatient  hospital services, and laboratory and radiological services. Other benefits,  such as prescription drugs and hearing, mental health, dental, and vision  services, may be provided at the states’ discretion. States also may place  limits on services provided and require cost-sharing, while Medicaid  generally does not permit cost-sharing for children.
In addition to having flexibility in program design and benefits offered,  states participating in SCHIP have a larger proportion of their program  expenditures paid by the federal government than for Medicaid. A state’s  Medicaid program expenditures are matched by the federal government  using a formula that is based on a state’s per capita income in relationship  to the national average. Federal matching rates for SCHIP are  “enhanced”—they are established under a formula that takes 70 percent of  a state’s Medicaid matching rate and adds 30 percentage points, with an  overall federal share that may not exceed 85 percent. For 2001, federal  shares of SCHIP expenditures ranged from 65 to 84 percent, with the  national average federal share equaling about 72 percent. In contrast, 2001  federal shares for Medicaid ranged from 50 to 77 percent of expenditures,  with the national average at about 57 percent. The SCHIP statute requires  states to screen all SCHIP applicants for Medicaid eligibility and, if they  are eligible, enroll them in Medicaid.
subsections: section_title: OIG Studies
paragraphs: BBRA included a mandate that the OIG conduct a study every 3 years,  beginning in fiscal year 2000, to (1) determine the number, if any, of  enrollees in SCHIP who are eligible for Medicaid and (2) assess states’  progress in reducing the number of uninsured low-income children,  including progress in achieving the strategic objectives and performance  goals in their SCHIP plans, which set forth how states intend to use their  SCHIP funds to provide child health assistance.
BBRA directed the OIG to review states with approved SCHIP programs  that do not provide health benefits under Medicaid; consequently, the  OIG focused on the 15 states that in 1999 operated separate child health  programs under SCHIP. Of these 15 states, the OIG excluded 2 states— Washington and Wyoming—because the delayed start-up of their  programs resulted in no enrollees in fiscal year 1999, the year that the OIG  reviewed. From the remaining 13 states, the OIG used a two-stage  sampling plan to select 5 states for review. The OIG first divided the 13  states into two strata, selecting Pennsylvania separately as stratum I  because it had a large number of children—81,758—enrolled in its  program in fiscal year 1999. Enrollment across the remaining 12 states  ranged from 1,019 in Montana to 57,300 in North Carolina. The OIG  randomly selected 4 of the 12 states (North Carolina, Oregon, Utah, and  Vermont) for inclusion in its study. (See table 1.)
For the 5 sample states, the OIG reviewed a variety of documents the  states submitted to HCFA, such as their SCHIP plans and SCHIP  evaluation reports, which are states’ assessments of the effectiveness of  their programs. OIG staff conducted site visits and met with officials  responsible for administering SCHIP in all 5 states. The OIG also randomly  selected 100 active SCHIP case files from each of the 5 states in order to  evaluate whether Medicaid-eligible children were incorrectly enrolled in  SCHIP. The OIG did not verify accuracy and completeness of the state  case files; rather, it focused on whether the information in each file  supported the conclusion reached by the state.
section_title: OIG’s Assessment of Appropriate Enrollment Would Benefit From an Expanded Selection of States
paragraphs: In determining whether Medicaid-eligible children were improperly  enrolled in SCHIP, the OIG reported that, based on a sample of 5 states,  SCHIP enrollees in the 13 states with separate child health programs were  generally appropriately enrolled. However, because of variations in the  administration of state programs, generalizing from the 5 states to the 13  states may not be appropriate. In addition, focusing on only those states  with separate SCHIP programs does not capture the experience of the  majority of states or the majority of SCHIP-enrolled children. Ensuring  appropriate enrollment in SCHIP is important regardless of a state’s SCHIP  design, because any child eligible for Medicaid that is incorrectly enrolled  in SCHIP results in a state receiving a higher federal matching rate.  Reviewing states, for example, that operate separate child health programs  as part of a combination program would have increased the proportion of  children under consideration from 16.5 percent to 65 percent of all SCHIP  children enrolled in 1999, and thus provided more comprehensive  information regarding states’ enrollment practices.
subsections: section_title: Alternative Sampling Methodologies May More Fully Account for Variation among States
paragraphs: To determine whether states were improperly enrolling Medicaid-eligible  children in SCHIP, the OIG separated the 13 states with separate child  health programs into two strata. The first stratum was the state of  Pennsylvania, which the OIG intentionally selected because it had the  most children enrolled in SCHIP among the 13 states. Four states were  then randomly selected from the remaining 12 states. Among the 5 states it  reviewed, the OIG identified only a few cases in which Medicaid-eligible  children were inappropriately enrolled. For example, it reported that 1  state had a single case in which a Medicaid-eligible child was enrolled in  SCHIP, while 2 other states had three and five such cases. The report also  found that 2 states did not have any Medicaid-eligible children enrolled in  SCHIP. The OIG concluded from these findings that most SCHIP enrollees  were correctly enrolled in the 13 states administering separate child health  programs.
Variations in states’ enrollment practices, however, raise questions about  the extent to which results from a sample of 5 states can be generalized to  13 states. Had the OIG drawn its random sample of active SCHIP cases  across the 13 states in its sampling universe, it would have been better  able to generalize its results. An OIG official told us that the office chose  to analyze a sample of 5 states rather than all 13 states because of time and  resource constraints. Recognizing that analyzing a pure random sample of  cases across a large number of states may be too resource intensive,  choosing a stratified sample of states may provide more information on  the extent to which accurate enrollment may vary with different states’  practices. Even with a stratified sample, however, generalization to all  states may be problematic.
The OIG did select a stratified sample and chose one characteristic—size  of a state’s SCHIP program—to develop two strata. While dividing states in  terms of size is potentially useful, additional distinctions may be important  because program characteristics vary considerably from state to state. For  example, states with differing administrative structures (New York uses  health plans to determine eligibility and enroll eligible individuals,  Colorado uses an enrollment contractor, and Oregon uses its Medicaid  staff to determine SCHIP eligibility) could be grouped by certain  characteristics for review. This could help determine whether such  differences in administrative structures have a bearing on appropriate  enrollment in SCHIP.
To examine whether the OIG’s sampling approach reflected variations in  states’ administrative structures, we categorized the 12 states in the  second stratum based on whether they had the same program staff  determine eligibility for both the SCHIP and Medicaid programs, which  can help achieve consistency in eligibility decisions. We found that the  random sample of 4 states did not include any states where different  employees were responsible for determining SCHIP and Medicaid  eligibility, thus raising concerns as to whether conclusions could be  generalized. (See table 2.)
section_title: Increasing the Number of States under Consideration Would Better Inform the Congress
paragraphs: Because the scope of the study was limited to the 13 states with separate  child health programs, the OIG examined 322,534, or 16.5 percent, of the  approximately 2 million children enrolled in SCHIP in fiscal year 1999. A  review that also included separate SCHIP programs in states that opted for  a combination approach under SCHIP would have expanded the available  universe to 26 states and to 65 percent of all SCHIP children enrolled in  1999. Moreover, using the OIG’s general audit authority, the scope of  future reviews could include states with SCHIP Medicaid expansions,  which would provide the Congress with more complete information on the  extent to which states are enrolling low-income children in the  appropriate programs. If this approach had been used in 1999, 23 states  and almost one-fourth of all children enrolled in SCHIP would have been  added. (See table 3.)
section_title: While States’ Evaluations Offered Limited Results, Future OIG Reviews May Benefit from Improved Data Sources
paragraphs: The OIG identified important limitations to states’ evaluations that made it  unable to conclude whether states were making progress in reducing the  number of uninsured children and in meeting the objectives and goals that  they established under SCHIP. For example, the OIG found that states  made inappropriate assumptions in reporting data about the relationship  of SCHIP enrollment to the rates of uninsured, which undermined the  credibility of states’ results, and that states often had poor baseline data  against which to measure progress. The OIG also found that states set  goals without considering how to evaluate progress, and that little  emphasis was placed on evaluation by the states. As a result, the OIG  made recommendations to both HCFA and HRSA on ways that the federal  government could assist and guide states in making improvements in their  analyses. While the initial OIG reviews were inconclusive due to  weaknesses in states’ evaluations, future efforts may benefit from federal  initiatives under way aimed at improving state-level data and analyses of  SCHIP. These initiatives, however, may not have been in place long  enough to benefit the OIG’s next review, since results are due in 2003. As a  result, the OIG may wish to select a different approach—such as  identifying states with more rigorous practices in evaluation, or  augmenting its review with other sources beyond those provided by the  states.
subsections: section_title: Weaknesses in States’ SCHIP Evaluations Limited the OIG’s Ability to Measure Progress
paragraphs: The OIG identified limitations to the 5 states’ SCHIP evaluations and thus  was unable to draw conclusions about states’ progress in reducing the  number of uninsured children or meeting their stated objectives and goals.  For example, the OIG cited concerns regarding the reliability of states’  reports of reductions in the number of uninsured, including inadequate  data and evaluation practices. In cases in which states were unable to  measure objectives that were established at the beginning of their SCHIP  programs, their evaluations generally provided descriptive information on  activities but did not assess the effect that such activities had on achieving  specific goals. (See table 4.) For example, the OIG reported that none of  the 5 states it reviewed attempted evaluations of their outreach programs  or offered explanations of how such programs affected their measurable  progress in enrollment or the number of uninsured children.
Of particular concern were limitations in measuring how well states are  meeting the primary objective of the SCHIP program—reducing the  number of uninsured. As noted by the OIG, states—and other  researchers—have been hampered by limited reliable state-level data  regarding children’s insurance status. When SCHIP was enacted, estimates  of the number of low-income uninsured children were derived from the  annual health insurance supplement to the Current Population Survey  (CPS), the only nationwide source of information on uninsured children by  state. CPS is based on a nationally representative sample and is considered  adequate to produce national estimates. However, CPS data have well- recognized shortcomings, particularly with regard to state-level estimates,  which can be unreliable and exhibit volatility from year to year because of  small samples of uninsured low-income children, particularly in states  with smaller populations. For example, using the 1994 through 1996 CPS  data, estimates of the number of uninsured children in Delaware ranged  from 12,000 to 32,000. In part because of these data limitations, some  states—including 3 of the states sampled by the OIG—moved to special  surveys or studies that were conducted locally in an effort to develop  more precise estimates of the number of uninsured children.
Despite efforts by states to better estimate the number of uninsured  children, the OIG cited concerns regarding states’ analyses. For example,  the OIG reported that some states estimated reductions in the number of  uninsured children by subtracting the number of SCHIP enrollees from  their original baseline estimates. However, such an approach does not  ensure that increases in SCHIP lead to reductions in the number of  uninsured because increases in SCHIP enrollment can result from children  moving from private insurance coverage to public insurance under SCHIP,  an effect known as “crowd-out.” Additionally, changing economic factors  can further complicate assessments of a state’s progress in reducing the  number of uninsured children. For example, a state may significantly  increase enrollment in SCHIP but—because of declines in the economy  and increased unemployment—continue to see an increase in the number  of uninsured. Under these circumstances, “progress” in reducing the  number of uninsured may be more difficult to identify.
Based on its findings, the OIG recommended that HCFA identify a core set  of evaluation measures that will enable all SCHIP states to provide useful  information. It further recommended that HCFA and HRSA provide  guidance and assistance to states in conducting useful evaluations of their  programs. The OIG noted that SCHIP staffs would benefit from assistance  and training regarding the type of data to collect and how to conduct  evaluations. HCFA concurred with these recommendations and cited  efforts under way to improve states’ evaluations of their SCHIP  programs.
section_title: Subsequent OIG Reviews May Benefit from Efforts to Improve Data Sources
paragraphs: Several federal efforts are under way that should help improve states’ data  sources and their evaluations of the extent to which their SCHIP programs  are reducing the number of uninsured children. If implemented on a timely  basis, efforts such as the following should help inform the OIG’s  subsequent evaluations.
The Congress appropriated $10 million each year beginning in fiscal year  2000 to increase the sample size of CPS. Beginning in 2001, larger sample  sizes are being phased into CPS, which should help improve the accuracy  of state-level CPS estimates of uninsured children.
CMS is working with states to develop consistent performance measures  for SCHIP, with a focus on ensuring appropriate methodology and  consistency of data.
As a condition of their state SCHIP plans, some states are required to  assess whether the SCHIP program is “crowding out” private health  insurance in their states. These studies could help assess the extent to  which SCHIP is drawing its enrollment from uninsured children—or from  children who were previously insured.
BBRA requires HHS to conduct an evaluation of SCHIP to determine the  effectiveness of the program and to provide information to guide future  federal and state policy. To comply with BBRA, HHS plans a series of  reports addressing a variety of major topic areas, ranging from program  design to access and utilization; the first report is expected in spring 2002.  HHS plans to use multiple research strategies, including case studies,  surveys, and focus groups, to address questions of interest.
As the OIG continues to analyze states’ progress in SCHIP, its future  reviews are likely to benefit from improvements in state-level estimates of  the number of uninsured children and evaluations of program  implementation. Moreover, improvements in states’ analyses and available  data should help the OIG identify and address areas in need of additional  review. However, to the extent that these improvements are not in place  by the time the OIG undertakes its second analysis due in 2003, it may  benefit from expanding its scope of work to identify and assess states with  more rigorous analyses. The OIG may also wish to review other sources  that have assisted states in making evaluation improvements. For  example, while some states have received private grant funds to help with  SCHIP enrollment, they have also received technical assistance for the  purpose of conducting evaluations on the success of their enrollment  strategies. Other states have paired with universities or research  organizations to improve their information on the uninsured. By also  drawing on the experience of states with strong evaluations or data  sources, the OIG will be better able to identify approaches that could  further strengthen federal and states’ approaches and inform the Congress  on progress in implementing SCHIP.
section_title: Conclusions
paragraphs: Through its periodic evaluations of states’ efforts to ensure appropriate  SCHIP enrollment and to reduce the number of uninsured children, the  OIG is in a position to provide objective information to the Congress and  others about the program’s operation and success. To better capture the  experience of all states, regardless of the design of their SCHIP programs,  the OIG should expand its scope beyond the 13 states in its first review to  also include states that operate separate child health programs within  SCHIP combination programs and consider including Medicaid expansion  programs as well. This would provide a broader base for understanding  how well states are screening for Medicaid eligibility and identifying issues  related to reducing the number of uninsured children. Such an expansion  of scope may also help identify states with more rigorous evaluations of  their SCHIP programs, and thus provide information on effective  approaches to SCHIP evaluation as well as more complete information for  the Congress.
section_title: Recommendations to the HHS Inspector General
paragraphs: In order to better inform the Congress on states’ efforts to implement  SCHIP, we recommend that the HHS inspector general    expand the scope of the statutorily required periodic reviews to include all  states with separate child health programs, including those with  combination programs, and    consider using its general audit authority to explore whether issues of  appropriate SCHIP enrollment also exist among states that have opted for  Medicaid expansions under SCHIP, and should therefore be included in  future OIG reviews.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided the inspector general of HHS an opportunity to comment on  a draft of this report. In its comments, the OIG concurred with our  recommendations, and agreed that expanding the scope of its inspections  to include combination programs that include separate child health  programs would give a greater breadth of information. It also agreed that  including SCHIP Medicaid expansions would broaden the perspective and  present more conclusive information regarding the status of states’ SCHIP  programs.
The OIG also provided general comments regarding its approach and  possible approaches to designing future reviews. For example, the OIG  stated that it would consider including differing state processes as a factor  in its next sample design. The OIG also noted the importance of focusing  on states’ measurement of their own program performance. We agree with  the OIG that properly conducted state evaluations serve a vital function  and we believe that continued review of these efforts by the OIG is an  important contribution to better understanding states’ progress under  SCHIP. In response to the OIG’s oral and written comments, we revised  the report to better clarify the scope of the BBRA mandate. The full text of  the OIG’s written comments is reprinted in appendix I.
We are sending copies of this report to the inspector general of the  Department of Health and Human Services and other interested parties.
We will also make copies available to others on request. If you or your  staffs have questions about this report, please contact me on (202) 512- 7118 or Carolyn Yocom at (202) 512-4931. JoAnn Martinez-Shriver and   Behn Miller also made contributions to this report.
section_title: Appendix I: Comments from the Department of Health and Human Services’ Office of Inspector General
section_title: Related GAO Products
paragraphs: Medicaid and SCHIP: States’ Enrollment and Payment Policies Can  Affect Children’s Access to Care. GAO-01-883. Washington, D.C.: Sept. 10,  2001.
Children’s Health Insurance: SCHIP Enrollment and Expenditure  Information. GAO-01-993R. Washington, D.C.: July 25, 2001.
Medicaid and SCHIP: Comparisons of Outreach, Enrollment Practices,  and Benefits. GAO/HEHS-00-86. Washington, D.C.: April 14, 2000.
Children’s Health Insurance Program: State Implementation Approaches  are Evolving. GAO/HEHS-99-65. Washington, D.C.: May 14, 1999.