Children's Health Insurance: States' SCHIP Enrollment and Spending Experiences and Considerations for Reauthorization
Published: 2007-02-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In August 1997, Congress created the State Children's Health Insurance Program (SCHIP) with the goal of significantly reducing the number of low-income uninsured children, especially those who lived in families with incomes exceeding Medicaid eligibility requirements. Unlike Medicaid, SCHIP is not an entitlement to services for beneficiaries but a capped allotment to states. Congress provided a fixed amount--approximately $40 billion from fiscal years 1998 through 2007--to states with approved SCHIP plans. Funds are allocated to states annually. Subject to certain exceptions, states have 3 years to use each year's allocation, after which unspent funds may be redistributed to states that have already spent all of that year's allocation. GAO's testimony addresses trends in SCHIP enrollment and the current composition of SCHIP programs across the states, states' spending experiences under SCHIP, and considerations GAO has identified for SCHIP reauthorization. GAO's testimony is based on its prior work, particularly testimony before the Senate Finance Committee on February 1, 2007 (see GAO-07-447T). GAO updated this work with the Centers for Medicare & Medicaid Services' (CMS) January 2007 approval of Tennessee's SCHIP program.
section_title: What GAO Found
paragraphs: SCHIP enrollment increased rapidly during the program's early years but has stabilized over the past several years. As of fiscal year 2005, the latest year for which data are available, SCHIP covered approximately 6 million enrollees, including about 639,000 adults, with about 4 million enrollees in June of that year. Many states adopted innovative outreach strategies and simplified and streamlined their enrollment processes in order to reach as many eligible children as possible. States' SCHIP programs reflect the flexibility federal law allows in structuring approaches to providing health care coverage. As of July 2006, states had opted for the following from among their choices of program structures allowed: a separate child health program (18 states), an expansion of a state's Medicaid program (11), or a combination of the two (21). In addition, 41 states opted to cover children in families with incomes at 200 percent of the federal poverty level (FPL) or higher, with 7 of these states covering children in families with incomes at 300 percent of FPL or higher. Thirty-nine states required families to contribute to the cost of their children's care in SCHIP programs through a cost-sharing requirement, such as a premium or copayment; 11 states charged no cost-sharing. As of January 2007, GAO identified 15 states that had waivers in place to cover adults in their programs; these included parents and caretaker relatives of eligible Medicaid and SCHIP children, pregnant women, and childless adults. SCHIP spending was initially low, but now threatens to exceed available funding. Since 1998, some states have consistently spent more than their allotments, while others spent consistently less. States that earlier overspent their annual allotments over the 3-year period of availability could rely on other states' unspent SCHIP funds, a portion of which were redistributed to cover other states' excess expenditures. By fiscal year 2002, however, states' aggregate annual spending began to exceed annual allotments. As spending has grown, the pool of funds available for redistribution has shrunk. As a result, 18 states were projected to have "shortfalls" of SCHIP funds--meaning they had exhausted all available funds--in at least one of the final 3 years of the program. To cover projected shortfalls faced by several states, Congress appropriated an additional $283 million for fiscal year 2006. SCHIP reauthorization occurs in the context of debate on broader national health care reform and competing budgetary priorities, highlighting the tension between the desire to provide affordable health insurance coverage to uninsured individuals, including low-income children, and the recognition of the growing strain of health care coverage on federal and state budgets. As Congress addresses reauthorization, issues to consider include (1) maintaining flexibility within the program without compromising the primary goal to cover children, (2) considering the program's financing strategy, including the financial sustainability of public commitments, and (3) assessing issues associated with equity, including better targeting SCHIP funds to achieve certain policy goals more consistently nationwide.

section_title: Letter
paragraphs: SCHIP enrollment increased rapidly during the program’s early years but has  stabilized over the past several years. As of fiscal year 2005, the latest year  for which data are available, SCHIP covered approximately 6 million  enrollees, including about 639,000 adults, with about 4 million enrollees in  June of that year. Many states adopted innovative outreach strategies and  simplified and streamlined their enrollment processes in order to reach as  many eligible children as possible. States’ SCHIP programs reflect the  flexibility federal law allows in structuring approaches to providing health  care coverage. As of July 2006, states had opted for the following from  among their choices of program structures allowed: a separate child health  program (18 states), an expansion of a state’s Medicaid program (11), or a  combination of the two (21). In addition, 41 states opted to cover children in  families with incomes at 200 percent of the federal poverty level (FPL) or  higher, with 7 of these states covering children in families with incomes at  300 percent of FPL or higher. Thirty-nine states required families to  contribute to the cost of their children’s care in SCHIP programs through a  cost-sharing requirement, such as a premium or copayment; 11 states  charged no cost-sharing. As of February 2007, GAO identified 14 states that  had waivers in place to cover adults in their programs; these included  parents and caretaker relatives of eligible Medicaid and SCHIP children,  pregnant women, and childless adults.
SCHIP spending was initially low, but now threatens to exceed available  funding. Since 1998, some states have consistently spent more than their  allotments, while others spent consistently less. States that earlier overspent  their annual allotments over the 3-year period of availability could rely on  other states’ unspent SCHIP funds, a portion of which were redistributed to  cover other states’ excess expenditures. By fiscal year 2002, however, states’  aggregate annual spending began to exceed annual allotments. As spending  has grown, the pool of funds available for redistribution has shrunk. As a  result, 18 states were projected to have “shortfalls” of SCHIP funds— meaning they had exhausted all available funds—in at least one of the final   3 years of the program. To cover projected shortfalls faced by several states,  Congress appropriated an additional $283 million for fiscal year 2006. www.gao.gov/cgi-bin/getrpt?GAO-07-501T.
To view the full product, including the scope  and methodology, click on the link above.  For more information, contact Kathryn G.  Allen at (202) 512-7118 or allenk@gao.gov.
SCHIP reauthorization occurs in the context of debate on broader national  health care reform and competing budgetary priorities, highlighting the  tension between the desire to provide affordable health insurance coverage  to uninsured individuals, including low-income children, and the recognition  of the growing strain of health care coverage on federal and state budgets.  As Congress addresses reauthorization, issues to consider include   (1) maintaining flexibility within the program without compromising the  primary goal to cover children, (2) considering the program’s financing  strategy, including the financial sustainability of public commitments, and  (3) assessing issues associated with equity, including better targeting SCHIP  funds to achieve certain policy goals more consistently nationwide.
Mr. Chairman and Members of the Subcommittee:  I am pleased to be here today as you address the reauthorization of the  State Children’s Health Insurance Program (SCHIP). In August 1997,  Congress created SCHIP with the goal of significantly reducing the  number of low-income uninsured children. Prior to SCHIP, approximately  19 million Medicaid beneficiaries were children, and combined federal and  state expenditures on their behalf totaled $32 billion. However, there  remained an estimated 9 million to 11.6 million children who were  uninsured at some time during 1997. SCHIP was established to provide  health coverage to uninsured children in families whose incomes  exceeded the eligibility requirements for Medicaid. Without health  insurance coverage, children are less likely to obtain routine medical or  dental care, establish a relationship with a primary care physician, and  receive immunizations or treatment for injuries and chronic illnesses.
SCHIP offers states flexibility in how they provide health insurance  coverage to children. States implementing SCHIP have three choices in  designing their programs: (1) a Medicaid expansion, which affords SCHIP- eligible children the same benefits and services that a state’s Medicaid  program provides; (2) a separate child health program distinct from  Medicaid that uses, for example, specified public or private insurance  plans; or (3) a combination program, which has a Medicaid expansion and  a separate child health program. At the time of enactment, Congress  appropriated a fixed amount of funds—approximately $40 billion from  fiscal years 1998 through 2007—to be distributed among states with  approved SCHIP plans. Unlike Medicaid, SCHIP is not an entitlement to  services for beneficiaries, but a capped grant—or allotment—to states.  SCHIP funds are allocated annually to the 50 states, the District of  Columbia, and the U.S. commonwealths and territories. Each state’s  annual SCHIP allotment is available as a federal match based on state  expenditures and is available for 3 years, after which time any unspent  funds may be redistributed to states that have already spent their  allotments.
As Congress considers reauthorization of the SCHIP program, my remarks  will address (1) recent data regarding trends in SCHIP enrollment and the  estimated number of children who remain uninsured, (2) the current  composition of SCHIP programs—including their overall design—across  the states, (3) states’ spending experiences under SCHIP, and (4) issues  we have identified for consideration during SCHIP reauthorization. My  testimony is based on prior GAO work, particularly testimony before the  Senate Finance Committee on February 1, 2007. We updated this work  based on the Centers for Medicare & Medicaid Services’ (CMS) January  2007 approval of Tennessee’s new SCHIP program. We conducted our  work in February 2007 in accordance with generally accepted government  auditing standards.
In summary, SCHIP enrollment increased rapidly during the program’s  early years but has stabilized over the past several years. SCHIP programs  reported total enrollment of approximately 6 million individuals— including about 639,000 adults—as of fiscal year 2005, the latest year for  which data were available, with about 4 million individuals enrolled in  June of that year. Many states adopted innovative outreach strategies, and  simplified and streamlined their enrollment processes in order to reach as  many eligible children as possible. Nevertheless, about 11.7 percent of  children nationwide remain uninsured, many of whom are eligible for  SCHIP or Medicaid. The rate of uninsured children varies widely across  states, ranging from a low of 5.6 percent to a high of 20.4 percent.
States’ SCHIP programs reflect the flexibility allowed in structuring  approaches to providing health care coverage through a Medicaid  expansion or a separate child health program. In fiscal year 2005, 41 states  had opted to cover children in families with incomes at 200 percent of the  federal poverty level (FPL) or higher, including 7 states that covered  children in families with incomes at 300 percent of FPL or higher. In  addition, 39 states required families to contribute to the cost of their  children’s care in SCHIP programs through some type of cost-sharing  requirement, such as premiums or copayments; 11 states charged no cost- sharing. Few states (9) reported operating premium assistance programs,  which allow states to use SCHIP funds to help pay premiums for available  employer-based health plan coverage, in part because states often find  these programs are difficult to administer. As of February 2007, we  identified 14 states that had approved waivers to cover one or more of  three categories of adults: parents and caretaker relatives of eligible  Medicaid and SCHIP children, pregnant women, and childless adults.
SCHIP program spending was low initially but now threatens to exceed  available funding. Since 1998, some states have consistently spent more  than their allotments, while others have consistently spent less. In the first  years of the program, states that overspent their annual allotments over  the 3-year period of availability could rely on other states’ unspent SCHIP  funds, which were redistributed to cover excess expenditures. Over time,  however, spending has grown, and the pool of funds available for  redistribution has shrunk. As a result, in at least one of the final 3 years of  the program, 18 states were projected to have “shortfalls” of SCHIP  funding—that is, they were expected to exhaust available funds, including  current and prior-year allotments. To cover projected shortfalls faced by  states, Congress appropriated an additional $283 million for fiscal year  2006. As of February 2007, 14 states were projected to exhaust their  allotments in fiscal year 2007.
SCHIP reauthorization is occurring within the context of consideration of  broader national health care reform and competing budgetary priorities.  There is an obvious tension between the desire to provide affordable  health insurance coverage for uninsured individuals, including low-income  children, and the recognition of the high cost that health care coverage  exerts as a growing share of federal and state budgets. As Congress  addresses SCHIP reauthorization, issues that may be considered include  (1) maintaining flexibility within the program without compromising the  primary goal to cover children, (2) considering the program’s financing  strategy, including the financial sustainability of public commitments, and  (3) assessing issues including better targeting SCHIP funds to achieve  certain policy goals more consistently nationwide.
subsections: section_title: Background
paragraphs: In general, SCHIP funds are targeted to uninsured children in families  whose incomes are too high to qualify for Medicaid but are at or below   200 percent of FPL. Recognizing the variability in state Medicaid  programs, federal SCHIP law allows a state to cover children in families  with incomes up to 200 percent of FPL or 50 percentage points above its  existing Medicaid eligibility standard as of March 31, 1997. Additional  flexibility regarding eligibility levels is available, however, as Medicaid and  SCHIP provide some flexibility in how a state defines income for purposes  of eligibility determinations. Congress appropriated approximately   $40 billion over 10 years (from fiscal years 1998 through 2007) for  distribution among states with approved SCHIP plans. Allocations to  states are based on a formula that takes into account the number of low- income children in a state. In general, states that choose to expand  Medicaid to enroll eligible children under SCHIP must follow Medicaid  rules, while separate child health programs have additional flexibilities in  benefits, cost-sharing, and other program elements. Under certain  circumstances, states may also cover adults under SCHIP.
subsections: section_title: SCHIP Allotments to States
paragraphs: SCHIP allotments to states are based on an allocation formula that uses  (1) the number of children, which is expressed as a combination of two  estimates—the number of low-income children without health insurance  and the number of all low-income children, and (2) a factor representing  state variation in health care costs. Under federal SCHIP law and subject  to certain exceptions, states have 3 years to use each fiscal year’s  allocation, after which any remaining funds are redistributed among the  states that had used all of that fiscal year’s allocation. Federal law does  not specify a redistribution formula but leaves it to the Secretary of Health  and Human Services (HHS) to determine an appropriate procedure for  redistribution of unused allocations. Absent congressional action, states  are generally provided 1 year to spend any redistributed funds, after which  time funds may revert to the U.S. Treasury. Each state’s SCHIP allotment  is available as a federal match based on state expenditures. SCHIP offers a  strong incentive for states to participate by providing an enhanced federal  matching rate that is based on the federal matching rate for a state’s  Medicaid program—for example, the federal government will reimburse at  a 65 percent match under SCHIP for a state receiving a 50 percent match  under Medicaid.
There are different formulas for allocating funds to states, depending on  the fiscal year. For fiscal years 1998 and 1999, the formula used estimates  of the number of low-income uninsured children to allocate funds to  states. For fiscal year 2000, the formula changed to include estimates of  the total number of low-income children as well.
section_title: SCHIP Design Choices
paragraphs: SCHIP gives the states the choice of three design approaches: (1) a  Medicaid expansion program, (2) a separate child health program with  more flexible rules and increased financial control over expenditures, or  (3) a combination program, which has both a Medicaid expansion program  and a separate child health program. Initially, states had until   September 30, 1998, to select a design approach, submit their SCHIP plans,  and obtain HHS approval in order to qualify for their fiscal year 1998  allotment. With an approved state child health plan, a state could begin to  enroll children and draw down its SCHIP funds.
The design approach a state chooses has important financial and  programmatic consequences, as shown below.
Expenditures. In separate child health programs, federal matching funds  cease after a state expends its allotment, and non-benefit-related expenses  (for administration, direct services, and outreach) are limited to 10 percent  of claims for services delivered to beneficiaries. In contrast, Medicaid  expansion programs may continue to receive federal funds for benefits  and for non-benefit-related expenses at the Medicaid matching rate after  states exhaust their SCHIP allotments.
Enrollment. Separate child health programs may establish separate  eligibility rules and establish enrollment caps. In addition, a separate child  health program may limit its own annual contribution, create waiting lists,  or stop enrollment once the funds it budgeted for SCHIP are exhausted. A  Medicaid expansion must follow Medicaid eligibility rules regarding  income, residency, and disability status, and thus generally cannot limit  enrollment.
Benefits. Separate child health programs must use, for example,  benchmark benefit standards that use specified private or public insurance  plans as the basis for coverage. However, Medicaid—and therefore a  Medicaid expansion—must provide coverage of all benefits available to  the Medicaid population, including certain services for children. In  particular, Early and Periodic Screening, Diagnosis, and Treatment  (EPSDT) requires states to cover treatments or stabilize conditions  diagnosed during routine screenings—regardless of whether the benefit  would otherwise be covered under the state’s Medicaid program. A  separate child health program does not require EPSDT coverage.
Beneficiary cost-sharing. Separate child health programs may impose  limited cost-sharing—through premiums, copayments, or enrollment  fees—for children in families with incomes above 150 percent of FPL up to  5 percent of family income annually. Since the Medicaid program did not  previously allow cost-sharing for children, a Medicaid expansion program  under SCHIP would have followed this rule.
section_title: SCHIP Coverage of Adults
paragraphs: In general, states may cover adults under the SCHIP program under two  key approaches.
First, federal SCHIP law allows the purchase of coverage for adults in  families with children eligible for SCHIP under a waiver if a state can show  that it is cost-effective to do so and demonstrates that such coverage does  not result in “crowd-out”—a phenomenon in which new public programs  or expansions of existing public programs designed to extend coverage to  the uninsured prompt some privately insured persons to drop their private  coverage and take advantage of the expanded public subsidy. The cost- effectiveness test requires the states to demonstrate that covering both  adults and children in a family under SCHIP is no more expensive than  covering only the children. The states may also elect to cover children  whose parents have access to employer-based or private health insurance  coverage by using SCHIP funding to subsidize the cost.
Second, under section 1115 of the Social Security Act, states may receive  approval to waive certain Medicaid or SCHIP requirements or authorize  Medicaid or SCHIP expenditures. The Secretary of Health and Human  Services may approve waivers of statutory requirements or authorize  expenditures in the case of experimental, pilot, or demonstration projects  that are likely to promote program objectives. In August 2001, HHS  indicated that it would allow states greater latitude in using section 1115  demonstration projects (or waivers) to modify their Medicaid and SCHIP  programs and that it would expedite consideration of state proposals. One  initiative, the Health Insurance Flexibility and Accountability Initiative  (HIFA), focuses on proposals for covering more uninsured people while at  the same time not raising program costs. States have received approval of  section 1115 waivers that provide coverage of adults using SCHIP  funding.
section_title: SCHIP Enrollment Has Grown Rapidly; States’ Rates of Uninsured Children Vary Significantly
paragraphs: SCHIP enrollment increased rapidly over the first years of the program,  and has stabilized for the past several years. In 2005, the most recent year  for which data are available, 4.0 million individuals were enrolled during  the month of June, while the total enrollment count—which represents a  cumulative count of individuals enrolled at any time during fiscal year  2005—was 6.1 million. Of these 6.1 million enrollees, 639,000 were adults.  Because SCHIP requires that applicants are first screened for Medicaid  eligibility, some states have experienced increases in their Medicaid  programs as well, further contributing to public health insurance coverage  of low-income children during this same period. Based on a 3-year average  of 2003 through 2005 Current Population Survey (CPS) data, the  percentage of uninsured children varied considerably by state, with a  national average of 11.7 percent.
SCHIP annual enrollment grew quickly from program inception through  2002 and then stabilized at about 4 million from 2003 through 2005, on the  basis of a point-in-time enrollment count. Total enrollment, which counts  individuals enrolled at any time during a particular fiscal year, showed a  similar pattern of growth and was over 6 million as of June 2005 (see   fig. 1). Generally, point-in-time enrollment is a subset of total enrollment,  as it represents the number of individuals enrolled during a particular  month. In contrast, total enrollment includes an unduplicated count of any  individual enrolled at any time during the fiscal year; thus the data are  cumulative, with new enrollments occurring monthly.
Our prior work has shown that certain obstacles can prevent low-income  families from enrolling their children into public programs such as  Medicaid or SCHIP. Primary obstacles included families’ lack of  knowledge about program availability and that, even when children were  eligible to participate, complex eligibility rules and documentation  requirements complicated the application process.
During the early years of SCHIP program operation, we found that many  states developed and deployed outreach strategies in an effort to  overcome these enrollment barriers. Many states adopted innovative  outreach strategies and simplified and streamlined their enrollment  processes in order to reach as many eligible children as possible.  Examples follow.
States launched ambitious public education campaigns that included  multimedia campaigns, direct mailings, and the widespread distribution of  applications.
To overcome the barrier of a long, complicated SCHIP eligibility  determination process, states reduced verification and documentation  requirements that exceeded federal requirements, shortened the length of  applications, and used joint SCHIP-Medicaid applications.
States also located eligibility workers in places other than welfare  offices—schools, child care centers, churches, local tribal organizations,  and Social Security offices—to help families with the initial processing of  applications.
States eased the process by which applicants reapplied for SCHIP at the  end of their coverage period. For example, one state mailed families a  summary of the information on their last application, and asked families to  update any changes to the information.
Because states must also screen for Medicaid eligibility before enrolling  children into SCHIP, some states have noted increased enrollment in  Medicaid as a result of SCHIP. For example, Alabama reported a net  increase of approximately 121,000 children in Medicaid since its SCHIP  program began in 1998. New York reported that, for fiscal year 2005,  approximately 204,000 children were enrolled in Medicaid as a result of  outreach activities, compared with 618,973 children enrolled in SCHIP. In  contrast, not all states found that their Medicaid enrollment was  significantly affected by SCHIP. For example, Idaho reported that a  negligible number of children were found eligible for Medicaid as a result  of outreach related to its SCHIP program. Maryland identified an increase  of 0.2 percent between June 2004 and June 2005.
Based on a 3-year average of 2003 through 2005 CPS data, the percentage  of uninsured children varied considerably by state and had a national  average of 11.7 percent. The percentage of uninsured children ranged  from 5.6 percent in Vermont to 20.4 percent in Texas (see fig. 2).  According to the Congressional Research Service (CRS) analysis of 2005  CPS data, the percentage of uninsured children was higher in the southern  (13.7 percent) and western (13.8 percent) regions of the United States  compared with children living in northeastern (8.5 percent) and  midwestern (8.2 percent) regions. Nearly 40 percent of the nation’s  uninsured children lived in three of the most populous states—California,  Florida, and Texas—each of which had percentages of uninsured children  above the national average.
Variations across states in rates of uninsured children may be linked to a  number of factors, including the availability of employer-sponsored  coverage. We have previously reported that certain types of workers  were less likely to have had access to employer-sponsored insurance and  thus were more likely to be uninsured. In particular, those working part- time, for small firms, or in certain industries such as agriculture or  construction, were among the most likely to be uninsured. Additionally,  states with high uninsured rates and those with low rates often were  distinct with regard to several characteristics. For example, states with  higher than average uninsured rates tended to have higher unemployment  and proportionally fewer employers offering coverage to their workers.  Small employers—those with less than 10 employees—were much less  likely to offer health insurance to their employees than larger employers.
section_title: States’ SCHIP Programs Reflect a Variety of Approaches to Providing Health Care Coverage
paragraphs: States’ SCHIP programs reflect the flexibility allowed in structuring  approaches to providing health care coverage, including their choice  among three program designs—Medicaid expansions, separate child  health programs, and combination programs, which have both a Medicaid  expansion and a separate child health program component. As of fiscal  year 2005, 41 state SCHIP programs covered children in families whose  incomes are up to 200 percent of FPL or higher, with 7 of the 41 states  covering children in families whose incomes are at 300 percent of FPL or  higher. States generally imposed some type of cost-sharing in their  programs, with 39 states charging some combination of premiums,  copayments, or enrollment fees, compared with 11 states that did not  charge cost-sharing. Nine states reported operating premium assistance  programs that use SCHIP funding to subsidize the cost of premiums for  private health insurance coverage. As of February 2007, we identified   14 states with approved section 1115 waivers to cover adults, including  parents and caretaker relatives, pregnant women, and, in some cases,  childless adults.
subsections: section_title: States Employ All Three Design Approaches, with Coverage Generally Extending to 200 Percent of FPL
paragraphs: As of July 2006, of the 50 states currently operating SCHIP programs,   11 states had Medicaid expansion programs, 18 states had separate child  health programs, and 21 states had a combination of both approaches (see   fig. 3). When the states initially designed their SCHIP programs, 27 states  opted for expansions to their Medicaid programs. Many of these initial  Medicaid expansion programs served as “placeholders” for the state—that  is, minimal expansions in Medicaid eligibility were used to guarantee the  1998 fiscal year SCHIP allocation while allowing time for the state to plan  a separate child health program. Other initial Medicaid expansions— whether placeholders or part of a combination program—also accelerated  the expansion of coverage for children aged 14 to 18 up to 100 percent of  FPL, which states are already required to cover under federal Medicaid  law.
A state’s starting point for SCHIP eligibility is dependent upon the  eligibility levels previously established in its Medicaid program. Under  federal Medicaid law, all state Medicaid programs must cover children  aged 5 and under if their family incomes are at or below 133 percent of  FPL and children aged 6 through 18 if their family incomes are at or below  100 percent of FPL. Some states have chosen to cover children in families  with higher income levels in their Medicaid programs. Each state’s  starting point essentially creates a “corridor”—generally, SCHIP coverage  begins where Medicaid ends and then continues upward, depending on  each state’s eligibility policy.
In fiscal year 2005, 41 states used SCHIP funding to cover children in  families with incomes up to 200 percent of FPL or higher, including   7 states that covered children in families with incomes up to 300 percent  of FPL or higher. In total, 27 states provided SCHIP coverage for children  in families with incomes up to 200 percent of FPL, which was $38,700 for a  family of four in 2005. Another 14 states covered children in families with  incomes above 200 percent of FPL, with New Jersey reaching as high as  350 percent of FPL in its separate child health program. Finally, 9 states  set SCHIP eligibility levels for children in families with incomes below   200 percent of FPL. For example, North Dakota covered children in its  separate child health program up to 140 percent of FPL. (See fig. 4.) (See  app. I for the SCHIP upper income eligibility levels by state, as a  percentage of FPL.)
section_title: Separate Child Health Program Benefit Packages Reflect the Full Range of SCHIP Options
paragraphs: Under federal SCHIP law, states with separate child health programs have  the option of using different bases for establishing their benefit packages.  Separate child health programs can choose to base their benefit packages  on (1) one of several benchmarks specified in federal SCHIP law, such as  the Federal Employees Health Benefits Program (FEHBP) or state  employee coverage; (2) a benchmark-equivalent set of services, as defined  under federal law; (3) coverage equivalent to state-funded child health  programs in Florida, New York, or Pennsylvania; or (4) a benefit package  approved by the Secretary of Health and Human Services (see table 1).
In some cases, separate child health programs have changed their benefit  packages, adding and removing benefits over time, as follows.
In 2003, Texas discontinued dental services, hospice services, skilled  nursing facilities coverage, tobacco cessation programs, vision services,  and chiropractic services. In 2005, the state added many of these services  (chiropractic services, hospice services, skilled nursing facilities, tobacco  cessation services, and vision care) back into the SCHIP benefit package  and increased coverage of mental health and substance abuse services.
In January 2002, Utah changed its benefit structure for dental services,  reducing coverage for preventive (cleanings, examinations, and x-rays)  and emergency dental services in order to cover as many children as  possible with limited funding. In September 2002, the dental benefit  package was further restructured to include dental coverage for accidents,  as well as fluoride treatments and sealants.
section_title: Most SCHIP Programs Require Cost-Sharing, but Amounts Charged Vary Considerably
paragraphs: In 2005, most states’ SCHIP programs required families to contribute to the  cost of care with some kind of cost-sharing requirement. The two major  types of cost-sharing—premiums and copayments—can have different  behavioral effects on an individual’s participation in a health plan.  Generally, premiums are seen as restricting entry into a program, whereas  copayments affect the use of services within the program. There is  research indicating that if cost-sharing is too high, or imposed on families  whose income is too low, it can impede access to care and create financial  burdens for families.
In 2005, states’ annual SCHIP reports showed that 39 states had some type  of cost-sharing—premiums, copayments, or enrollment fees—while   11 states reported no cost-sharing in their SCHIP programs. Overall,   16 states charged premiums and copayments, 14 states charged premiums  only, and 9 states charged copayments only (see fig. 5).
Cost-sharing occurred more frequently in the separate child health  programs than in Medicaid expansion programs. For example, 8 states  with Medicaid expansion programs had cost-sharing requirements,  compared with 34 states operating separate child health program  components. The amount of premiums charged varied considerably  among the states that charged cost-sharing. For example, premiums  ranged from $5.00 per family per month for children in families with  incomes from 150 to 200 percent of FPL in Michigan to $117 per family per  month for children in families with incomes from 300 to 350 percent of  FPL in New Jersey. Federal SCHIP law prohibits states from imposing  cost-sharing on SCHIP-eligible children that totals more than 5 percent of  family income annually. In addition, cost-sharing for children may be  imposed on the basis of family income. For example, we earlier reported  that in 2003, Virginia SCHIP copayments for children in families with  incomes from 133 percent to below 150 percent of FPL were $2 per  physician visit or per prescription and $5 for services for children in  families with higher incomes.
section_title: Few States Offer Premium Assistance Programs
paragraphs: In fiscal year 2005, nine states reported operating premium assistance  programs (see table 2), but implementation remains a challenge.  Enrollment in these programs varied across the states. For example,  Louisiana reported having under 200 enrollees and Oregon reported having  nearly 6,000 enrollees. To be eligible for SCHIP, a child must not be  covered under any other health coverage program or have private health  insurance. However, some uninsured children may live in families with  access to employer-sponsored health insurance coverage. Therefore,  states may choose to establish premium assistance programs, where the  state uses SCHIP funds to contribute to health insurance premium  payments. To the extent that such coverage is not equivalent to the  states’ Medicaid or SCHIP level of benefits, including limited cost-sharing,  states are required to pay for supplemental benefits and cost-sharing to  make up this difference. Under certain section 1115 waivers, however,  states have not been required to provide this supplemental coverage to  participants.
Several states reported facing challenges implementing their premium  assistance programs. Louisiana, Massachusetts, New Jersey, and Virginia  cited administration of the program as labor intensive. For example,  Massachusetts noted that it is a challenge to maintain current information  on program participants’ employment status, choice of health plan, and  employer contributions, but such information is needed to ensure accurate  premium payments. Two states—Rhode Island and Wisconsin—noted the  challenges of operating premium assistance programs, given changes in  employer-sponsored health plans and accompanying costs. For example,  Rhode Island indicated that increases in premiums are being passed to  employees, which makes it more difficult to meet cost-effectiveness tests  applicable to the purchase of family coverage.
section_title: Adult Coverage in SCHIP Is Primarily Accomplished through Waivers
paragraphs: States opting to cover adult populations using SCHIP funding may do so  under an approved section 1115 waiver. As of February 2007, we identified  14 states with approved waivers to cover at least one of three categories of  adults: parents of eligible Medicaid and SCHIP children, pregnant women,  and childless adults. (See table 3.) The Deficit Reduction Act of 2005  (DRA), however, has prohibited the use of SCHIP funds to cover  nonpregnant childless adults. Effective October 1, 2005, the Secretary of  Health and Human Services may not approve new section 1115 waivers  that use SCHIP funds for covering nonpregnant childless adults. However,  waivers for covering these adults that were approved prior to this date are  allowed to continue until the end of the waiver. Additionally, the Secretary  may continue to approve section 1115 waivers that extend SCHIP coverage  to pregnant adults, as well as parents and other caretaker relatives of  children eligible for Medicaid or SCHIP.
section_title: States’ SCHIP Spending Was Initially Low but Now Threatens to Exceed Available Funding
paragraphs: SCHIP program spending was low initially, as many states did not  implement their programs or report expenditures until 1999 or later, but  spending was much higher in the program’s later years and now threatens  to exceed available funding. Beginning in fiscal year 2002, states together  spent more federal dollars than they were allotted for the year and thus  relied on the 3-year availability of SCHIP allotments or on redistributed  SCHIP funds to cover additional expenditures. But as spending has grown,  the pool of funds available for redistribution has shrunk. Some states  consistently spent more than their allotted funds, while other states  consistently spent less. Overall, 18 states were projected to have  shortfalls—that is, they were expected to exhaust available funds,  including current and prior-year allotments—in at least 1 year from 2005  through 2007. To cover projected shortfalls that several states faced,  Congress appropriated an additional $283 million for fiscal year 2006. As  of January 2007, 14 states are projected to exhaust their allotments in  fiscal year 2007.
subsections: section_title: Program Spending, Low in SCHIP’s Early Years, Exceeded Allotments by 2002
paragraphs: SCHIP program spending began low, but by fiscal year 2002, states’  aggregate annual spending from their federal allotments exceeded their  annual allotments. Spending was low in the program’s first 2 years because  many states did not implement their programs or report expenditures until  fiscal year 1999 or later. Combined federal and state spending was   $180 million in 1998 and $1.3 billion in 1999. However, by the end of the  program’s third fiscal year (2000), all 50 states and the District of  Columbia had implemented their programs and were drawing down their  federal allotments. Since fiscal year 2002, SCHIP spending has grown by  an average of about 10 percent per year. (See fig. 6.)
From fiscal year 1998 through 2001, annual federal SCHIP expenditures  were well below annual allotments, ranging from 3 percent of allotments  in fiscal year 1998 to 63 percent in fiscal year 2001. In fiscal year 2002, the  states together spent more federal dollars than they were allotted for the  year, in part because total allotments dropped from $4.25 billion in fiscal  year 2001 to $3.12 billion in fiscal year 2002, marking the beginning of the  so-called “SCHIP dip.” However, even after annual SCHIP appropriations  increased in fiscal year 2005, expenditures continued to exceed allotments  (see fig. 7). Generally, states were able to draw on unused funds from prior  years’ allotments to cover expenditures incurred in a given year that were  in excess of their allotment for that year, because, as discussed earlier, the  federal SCHIP law gave states 3 years to spend each annual allotment. In  certain circumstances, states also retained a portion of unused allotments.
States that have outspent their annual allotments over the 3-year period of  availability have also relied on redistributed SCHIP funds to cover excess  expenditures. But as overall spending has grown, the pool of funds  available for redistribution has shrunk from a high of $2.82 billion in  unused funds from fiscal year 1999 to $0.17 billion in unused funds from  fiscal year 2003. Meanwhile, the number of states eligible for  redistributions has grown from 12 states in fiscal year 2001 to 40 states in  fiscal year 2006. (See fig. 8.)
Congress has acted on several occasions to change the way SCHIP funds  are redistributed. In fiscal years 2000 and 2003, Congress amended  statutory provisions for the redistribution and availability of unused  SCHIP allotments from fiscal years 1998 through 2001, reducing the  amounts available for redistribution and allowing states that had not  exhausted their allotments by the end of the 3-year period of availability to  retain some of these funds for additional years. Despite these steps,   $1.4 billion in unused SCHIP funds reverted to the U.S. Treasury by the  end of fiscal year 2005.
Congress has also appropriated additional funds to cover states’ projected  SCHIP program shortfalls. The DRA included a $283 million appropriation  to cover projected shortfalls for fiscal year 2006. CMS divided these funds  among 12 states as well as the territories.
In the beginning of fiscal year 2007, Congress acted to redistribute unused  SCHIP allotments from fiscal year 2004 to states projected to face  shortfalls in fiscal year 2007. The National Institutes of Health Reform Act  of 2006 makes these funds available to states in the order in which they  experience shortfalls. In January 2007, CRS projected that although   14 states will face shortfalls, the $147 million in unused fiscal year 2004  allotments will be redistributed to the five states that are expected to  experience shortfalls first. The NIH Reform Act also created a  redistribution pool of funds by redirecting fiscal year 2005 allotments from  states that at midyear (March 31, 2007) have more than twice the SCHIP  funds they are projected to need for the year.
section_title: Some States Consistently Spent More than Their Allotted Funds
paragraphs: Some states consistently spent more than their allotted funds, while other  states consistently spent less. From fiscal years 2001 through 2006,   40 states spent their entire allotments at least once, thereby qualifying for  redistributions of other states’ unused allotments; 11 states spent their  entire allotments in at least 5 of the 6 years that funds were redistributed.  Moreover, 18 states were projected to face shortfalls—that is, they were  expected to exhaust available funds, including current and prior-year  allotments—in at least 1 of the final 3 years of the program. (See fig. 9.)  As of January 2007, 14 states were projected to exhaust their allotments in  fiscal year 2007.
When we compared the 18 states that were projected to have shortfalls  with the 32 states that were not, we found that the shortfall states were  more likely to have a Medicaid component to their SCHIP program, to  have a SCHIP eligibility corridor broader than the median, and to cover  adults in SCHIP under section 1115 waivers (see table 4). It is unclear,  however, to what extent these characteristics contributed to states’ overall  spending experiences with the program, as many other factors have also  affected states’ program balances, including prior coverage of children  under Medicaid, and SCHIP eligibility criteria, benefit packages,  enrollment policies, outreach efforts, and payment rates to providers. In  addition, we and others have noted that the formula for allocating funds to  states has flaws that led to underestimates of the number of eligible  children in some states and thus underfunding. Fifteen of the 18 shortfall  states (83 percent) had Medicaid expansion programs or combination  programs that included Medicaid expansions, which generally follow  Medicaid rules, such as providing the full Medicaid benefit package and  continuing to provide coverage to all eligible individuals even after the  states’ SCHIP allotments are exhausted. The shortfall states tended to  have a broader eligibility corridor in their SCHIP programs, indicating that,  on average, the shortfall states covered children in SCHIP from lower  income levels, from higher income levels, or both. For example,   33 percent of the shortfall states covered children in their SCHIP programs  above 200 percent of FPL, compared with 25 percent of the nonshortfall  states. Finally, 6 of the 18 shortfall states (33 percent) were covering  adults in SCHIP under section 1115 waivers by the end of fiscal year 2006,  compared with 6 of the 32 nonshortfall states (19 percent).
On average, the shortfall states that covered adults began covering them  earlier than nonshortfall states and enrolled a higher proportion of adults.  At the end of fiscal year 2006, 12 states covered adults under section 1115  waivers using SCHIP funds. Five of these 12 states began covering adults  before fiscal year 2003, and all 5 states faced shortfalls in at least 1 of the  final 3 years of the program. In contrast, none of the 4 states that began  covering adults with SCHIP funds in the period from fiscal year 2004  through 2006 faced shortfalls. On average, the shortfall states covered  adults more than twice as long as nonshortfall states (5.1 years compared  with 2.3 years by the end of fiscal year 2006).
Shortfall states also enrolled a higher proportion of adults. Nine states,  including six shortfall states, covered adults using SCHIP funds  throughout fiscal year 2005. In these nine states, adults accounted for an  average of 45 percent of total enrollment. However, in the shortfall states,  the average proportion was more than twice as high as in nonshortfall  states. Adults accounted for an average of 55 percent of enrollees in the  shortfall states, compared with 24 percent in the nonshortfall states. (See  table 5.)
While analyses of states as a group reveal some broad characteristics of  states’ programs, examining the experiences of individual states offers  insights into other factors that have influenced states’ program balances.  States themselves have offered a variety of reasons for shortfalls and  surpluses. These examples, while not exhaustive, highlight additional  factors that have shaped states’ financial circumstances under SCHIP.
Inaccuracies in the CPS-based estimates on which states’  allotments were based. North Carolina, a shortfall state, offers a case in  point. In 2004, the state had more low-income children enrolled in the  program than CPS estimates indicated were eligible. To curb spending,  North Carolina shifted children through age 5 from the state’s separate  child health program to a Medicaid expansion, reduced provider  payments, and limited enrollment growth.
Annual funding levels that did not reflect enrollment growth. Iowa,  another shortfall state, noted that annual allocations provided too many  funds in the early years of the program and too few in the later years. Iowa  did not use all its allocations in the first 4 years and thus the state’s funds  were redistributed to other states. Subsequently, however, the state has  faced shortfalls as its program matured.
Impact of policies designed to curb or expand program growth.
Some states have attempted to manage program growth through ongoing  adjustments to program parameters and outreach efforts. For example,  when Florida’s enrollment exceeded a predetermined target in 2003, the  state implemented a waiting list and eliminated outreach funding. When  enrollment began to decline, the state reinstituted open enrollment and  outreach. Similarly, Texas⎯commensurate with its budget constraints and  projected surpluses⎯has tightened and loosened eligibility requirements  and limited and expanded benefits over time in order to manage  enrollment and spending.
section_title: Considerations for SCHIP Reauthorization
paragraphs: Children without health insurance are at increased risk of foregoing  routine medical and dental care, immunizations, treatment for injuries,  and treatment for chronic illnesses. Yet, the states and the federal  government face challenges in their efforts to continue to finance health  care coverage for children. As health care consumes a growing share of  state general fund or operating budgets, slowdowns in economic growth  can affect states’ abilities—and efforts—to address the demand for public  financing of health services. Moreover, without substantive programmatic  or revenue changes, the federal government faces near- and long-term  fiscal challenges as the U.S. population ages because spending for  retirement and health care programs will grow dramatically. Given these  circumstances, we would like to suggest several issues for consideration  as Congress addresses the reauthorization of SCHIP. These include the  following:    Maintaining flexibility without compromising the goals of SCHIP.
The federal-state SCHIP partnership has provided an important  opportunity for innovation on the part of states for the overall benefit of  children’s health. Providing three design choices for states—Medicaid  expansions, separate child health programs, or a combination of both  approaches—affords them the opportunity to focus on their own unique  and specific priorities. For example, expansions of Medicaid offer  Medicaid’s comprehensive benefits and administrative structures and  ensure children’s coverage if states exhaust their SCHIP allotments.  However, this entitlement status also increases financial risk to states. In  contrast, SCHIP separate child health programs offer a “block grant”  approach to covering children. As long as the states meet statutory  requirements, they have the flexibility to structure coverage on an  employer-based health plan model and can better control program  spending than they can with a Medicaid expansion.
However, flexibility within the SCHIP program, such as that available  through section 1115 waivers, may also result in consequences that can  run counter to SCHIP’s goal—covering children. For example, we  identified 14 states that have authority to cover adults with their federal  SCHIP funds, with several states covering more adults than children.  States’ rationale is that covering low-income parents in public programs  such as SCHIP and Medicaid increases the enrollment of eligible children  as well, with the result that fewer children go uninsured. Federal SCHIP  law provides that families may be covered only if such coverage is cost- effective; that is, covering families costs no more than covering the SCHIP- eligible children. We earlier reported that HHS had approved state  proposals for section 1115 waivers to use SCHIP funds to cover parents of  SCHIP- and Medicaid-eligible children without regard to cost- effectiveness. We also reported that HHS approved state proposals for  section 1115 waivers to use SCHIP funds to cover childless adults, which  in our view was inconsistent with federal SCHIP law and allowed SCHIP  funds to be diverted from the needs of low-income children. We  suggested that Congress consider amending the SCHIP statute to specify  that SCHIP funds were not available to provide health insurance coverage  for childless adults. Under the DRA, Congress prohibited the Secretary of  Health and Human Services from approving any new section 1115 waivers  to cover nonpregnant childless adults after October 1, 2005, but allowed  waivers approved prior to that date to continue.
It is important to consider the implications of states’ use of allowable  flexibility for other aspects of their programs. For example, what  assurances exist that SCHIP funds are being spent in the most cost- effective manner, as required under federal law? In view of current federal  fiscal constraints, to what extent should SCHIP funds be available for  adult coverage? How has states’ use of available flexibility to establish  expanded financial eligibility categories and covered populations affected  their ability to operate their SCHIP programs within the original  allotments provided to them?
Considering the federal financing strategy, including the financial  sustainability of public commitments. As SCHIP programs have  matured, states’ spending experience can help inform future federal  financing decisions. CRS testified in July 2006 that 40 states were now  spending more annually than they received in their annual original SCHIP  allotments. While many of them did not face shortfalls in 2006 because of  available prior-year balances, redistributed funds, and the supplemental  DRA appropriation, 14 states are currently projected to face shortfalls in  2007. With the pool of funds available for redistribution virtually  exhausted, the continued potential for funding shortfalls for many states  raises some fundamental questions about SCHIP financing. If SCHIP is  indeed a capped grant program, to what extent does the federal  government have a responsibility to address shortfalls in individual states,  especially those that have chosen to expand their programs beyond  certain parameters? In contrast, if the policy goal is to ensure that states  do not exhaust their federal SCHIP allotments, by providing for the  continuing redistribution of funds or additional federal appropriations,  does the program begin to take on the characteristics of an entitlement  similar to Medicaid? What overall implications does this have for the  federal budget?
Assessing issues associated with equity. The 10 years of SCHIP  experience that states now have could help inform any policy decisions  with respect to equity as part of the SCHIP reauthorization process.  Although SCHIP generally targets children in families with incomes at or  below 200 percent of FPL, 9 states are relatively more restrictive with their  eligibility levels, while 14 states are more expansive, ranging as high as   350 percent of FPL. Given the policy goal of reducing the rate of uninsured  among the nation’s children, to what extent should SCHIP funds be  targeted to those states that have not yet achieved certain minimum  coverage levels? Given current and future federal fiscal constraints, to  what extent should the federal government provide federal financial  participation above certain thresholds? What broader implications might  this have for flexibility, choice, and equity across state programs?
Another consideration is whether the formulas used in SCHIP—both the  formula to determine the federal matching rate and the formula to allocate  funds to states—could be refined to better target funding to certain states  for the benefit of covering uninsured children. Because the SCHIP formula  is based on the Medicaid formula for federal matching funds, it has some  inherent shortcomings that are likely beyond the scope of consideration  for SCHIP reauthorization.
For the allocation formula that determines the amount of funds a state will  receive each year, several analysts, including CRS, have noted alternatives  that could be considered. These include altering the methods for  estimating the number of children at the state level, adjusting the extent to  which the SCHIP formula for allocating funds to states includes the  number of uninsured versus low-income children, and incorporating  states’ actual spending experiences to date into the formula. Considering  the effects of any one or combination of these—or other—policy options  would likely entail iterative analysis and thoughtful consideration of  relevant trade-offs.
Mr. Chairman, this concludes my prepared remarks. I would be pleased to  respond to any questions that you or other members of the Subcommittee  may have.
section_title: GAO Contacts and Acknowledgments
paragraphs: For future contacts regarding this testimony, please contact   Kathryn G. Allen at (202) 512-7118 or at allenk@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this testimony. Carolyn L. Yocom, Assistant Director;  Nancy Fasciano; Kaycee M. Glavich; Paul B. Gold; JoAnn Martinez-Shriver;  and Elizabeth T. Morrison made key contributions to this statement.
section_title: Appendix I: SCHIP Upper Income Eligibility by State, Fiscal Year 2005
paragraphs: Appendix I: SCHIP Upper Income Eligibility  by State, Fiscal Year 2005 expressed as a percentage of FPL  200 expressed as a percentage of FPL  While Tennessee has not had a SCHIP program since October 2002, in January 2007, CMS  approved Tennessee’s SCHIP plan, which covers pregnant women and children in families with  incomes up to 250 percent of FPL. According to state information, the program will be implemented in  early 2007.
section_title: Related GAO Products
paragraphs: Children’s Health Insurance: State Experiences in Implementing SCHIP  and Considerations for Reauthorization. GAO-07-447T. Washington, D.C.:  February 1, 2007.
Children’s Health Insurance: Recent HHS-OIG Reviews Inform the  Congress on Improper Enrollment and Reductions in Low-Income,  Uninsured Children. GAO-06-457R. Washington, D.C.: March 9, 2006.  21st Century Challenges: Reexamining the Base of the Federal  Government. GAO-05-325SP. Washington, D.C.: February 2005.
Medicaid and SCHIP: States’ Premium and Cost Sharing Requirements  for Beneficiaries. GAO-04-491. Washington, D.C.: March 31, 2004.
SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with  Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004.
Medicaid Formula: Differences in Funding Ability among States Often  Are Widened. GAO-03-620. Washington, D.C.: July 10, 2003.
Medicaid and SCHIP: States Use Varying Approaches to Monitor  Children’s Access to Care. GAO-03-222. Washington, D.C.: January 14,  2003.
Health Insurance: States’ Protections and Programs Benefit Some  Unemployed Individuals. GAO-03-191. Washington, D.C.: October 25,  2002.
Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver  Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.
Children’s Health Insurance: Inspector General Reviews Should Be  Expanded to Further Inform the Congress. GAO-02-512. Washington, D.C.:  March 29, 2002.
Long-Term Care: Aging Baby Boom Generation Will Increase Demand  and Burden on Federal and State Budgets. GAO-02-544T. Washington,  D.C.: March 21, 2002.
Medicaid and SCHIP: States' Enrollment and Payment Policies Can  Affect Children's Access to Care. GAO-01-883. Washington, D.C.:  September 10, 2001.
Children’s Health Insurance: SCHIP Enrollment and Expenditure  Information. GAO-01-993R. Washington, D.C.: July 25, 2001.
Medicaid: Stronger Efforts Needed to Ensure Children’s Access to Health  Screening Services. GAO-01-749. Washington, D.C.: July 13, 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.
Medicaid: Demographics of Nonenrolled Children Suggest State Outreach  Strategies. GAO/HEHS-98-93. Washington, D.C.: March 20, 1998.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.