The State Children's Health Insurance Program (CHIP) is a federal-state program that provides health coverage to certain uninsured low-income children and pregnant women in families that have annual income above Medicaid eligibility levels, but have no health insurance. CHIP is jointly financed by the federal government and states, and the states are responsible for administering CHIP. Participation in CHIP is voluntary and all states, the District of Columbia, and the territories participate. The federal government sets basic requirements for CHIP, but states have the flexibility to design their own version of CHIP within the federal government's basic framework. As a result, there is significant variation across CHIP programs. CHIP was established as part of the Balanced Budget Act of 1997 (BBA 97; P.L. 105-33 ) under a new Title XXI of the Social Security Act (SSA). Since that time, other federal laws have provided additional funding, and made significant changes to CHIP. Most notably, the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA; P.L. 111-3 ) increased appropriation levels for CHIP, and changed the formula for allotments (i.e., federal funds allocated to each state for the federal share of their CHIP expenditures), eligibility, and benefit requirements. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) largely maintains the current CHIP structure through FY2019. The law also extends federal appropriations through FY2015 and requires states to maintain their Medicaid and CHIP child eligibility levels through FY2019 as a condition for receiving Medicaid federal matching funds. On April 16, 2015, President Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10 ). MACRA repeals the sustainable growth rate (SGR) mechanism (which overrides the reduction in the Medicare physician fee schedule that was set to begin in April 2015) and extends funding for CHIP, among other provisions. Specifically, MACRA extends CHIP funding for two additional years (i.e., through FY2017) and maintains the current allotment formula with the 23 percentage point increase to the enhanced federal medical assistance percentage (E-FMAP). MACRA also extends the "qualifying state" option, the Child Enrollment Contingency Fund, "Express Lane" eligibility, Outreach and Enrollment Grants, the Pediatric Quality Measures Program, and the Childhood Obesity Demonstration Project. Congress will face a decision with regard to the future of CHIP when federal CHIP funding expires after FY2017. The health insurance market is far different today than when CHIP was established. CHIP was designed to work in coordination with Medicaid to provide health coverage to low-income children. In general, CHIP allows states to cover CHIP children with no health insurance in families with annual income above state Medicaid eligibility levels. Before CHIP was established, no federal program provided health coverage to children with family with annual incomes above Medicaid eligibility levels. The ACA further expanded the options for children in certain low-income families with incomes above CHIP eligibility levels by offering subsidized coverage for insurance purchased through health insurance exchanges. Congress's action or inaction on the CHIP program will affect the health insurance options available to targeted low-income children and their resulting health coverage. This report describes the basic elements of CHIP, focusing on how the program is designed, who is eligible, what services are covered, how enrollees share in the cost of care, and how the program is financed. The report ends with a brief discussion of the future of CHIP. States may design their CHIP programs in three ways. They may cover eligible children under their Medicaid programs (i.e., CHIP Medicaid expansion), create a separate CHIP program, or adopt a combination approach where the state operates a CHIP Medicaid expansion and one or more separate CHIP programs concurrently. In all cases, federal CHIP funding is available to pay for the costs for services provided to CHIP children. State choices for program design impact the coverage that enrollees receive. When states provide Medicaid coverage to CHIP children (i.e., CHIP Medicaid expansion), Medicaid rules (Title XIX of SSA) typically apply. When states provide coverage to CHIP children through separate CHIP programs, Title XXI of SSA rules typically apply. States that want to make changes to their programs beyond what both laws allow may seek approval from the Centers for Medicare and Medicaid Services (CMS) through the use of the Section 1115 waiver authority. Where relevant, differences between Title XIX and Title XXI of the SSA program rules regarding eligibility, benefit coverage, cost sharing, and financing are summarized in Table 1 , and highlighted throughout the report. As of July 1, 2014, 8 states, the District of Columbia, and the territories had CHIP Medicaid expansions, 13 states had separate CHIP programs, and 29 states used a combination approach. (See Appendix A , Table A-1 for 50-state information on CHIP program design.) FY2013 state-reported CHIP enrollment data (the most recent data available) show that the bulk of CHIP enrollees received coverage through separate CHIP programs (approximately 70%). The remainder received coverage through a CHIP Medicaid expansion. This enrollment distribution has largely held true over the course of the program's history (see Figure 1 below). However, this landscape likely will change due to modifications to CHIP eligibility rules enacted under the ACA. (For more information on these and other eligibility related requirements, see the " Eligibility " subsection.) Preliminary FY2014 CHIP enrollment data show about half of CHIP enrollees are in CHIP Medicaid expansion programs and about half are in separate CHIP programs. This section describes CHIP eligibility rules. In general, CHIP extends coverage to certain low-income children and pregnant women without health insurance in families with annual family income too high to qualify them for Medicaid. Specifically, Title XXI of the SSA defines a targeted low-income child as one who is under age 19 with no health insurance, and who would not have been eligible for Medicaid under the federal and state rules in effect when CHIP was first initiated in 1997. (Hereinafter, targeted low-income children are referred to as CHIP children, CHIP-eligible or CHIP-enrolled, as applicable.) States have broad discretion in setting their income eligibility standards, and eligibility varies across states. Children under age 19 represent the vast majority of CHIP program enrollment. States with a CHIP Medicaid expansion program must follow the eligibility rules of the Medicaid program (see Table 1 ). Because CHIP eligibility builds on top of Medicaid eligibility, the Medicaid child eligibility rules that were in effect when CHIP was established in 1997 represent the Medicaid eligibility ceiling for children. States with CHIP Medicaid expansion programs may cover CHIP children by expanding their Medicaid programs in the following ways: (1) by establishing a new optional eligibility group for such children as authorized in Title XXI of SSA, and/or (2) by liberalizing the financial rules for any of several existing Medicaid eligibility categories. Many states with CHIP Medicaid expansion programs chose the latter, opting to cover CHIP children under existing Medicaid eligibility pathways, especially Medicaid's poverty-related child groups, rather than by establishing the Title XXI of SSA optional coverage group. Such a strategy reduces the administrative burden of creating and implementing a new coverage group. Regardless of the state's approach, CHIP children are an optional eligibility group in Medicaid and enrollees must be covered statewide. States are permitted to determine the eligibility criteria for the group of CHIP children who may enroll in separate CHIP programs (see Table 1 ). Title XXI of the SSA allows states to use the following factors in determining eligibility: geography (e.g., sub-state areas or statewide), age (e.g., subgroups under 19), income, residency, disability status (so long as any standard relating to disability status does not restrict eligibility), access to or coverage under other health insurance (to establish whether such access/coverage precludes CHIP eligibility), and duration of CHIP eligibility (states must re-determine eligibility at least annually). States can set the upper income level for CHIP children up to 200% of the federal poverty level (FPL), or 50 percentage points above the applicable pre-CHIP Medicaid income level. However, prior to January 1, 2014, states were able to use income disregards, which effectively permitted states to expand eligibility to children under age 19 at whatever level they chose. Two states, New Jersey, and New York, plus one California county used this income-counting methodology to expand their CHIP programs to 355% FPL, 405% FPL, and 416% FPL, respectively. The income-disregard option was eliminated under the ACA. Beginning January 1, 2014, the ACA required the federal government and states to rely on modified adjusted gross income (MAGI) income counting rules when determining eligibility for CHIP as well as most of Medicaid's nonelderly populations and subsidized exchange coverage. Under the MAGI rules, a state looks at each individual's MAGI, deducts 5% (which the law provides as a standard disregard), and compares that income to the new income standards set by each state. The transition to MAGI effectively limits CHIP upper income eligibility levels for states by eliminating a state's ability to use income disregards to extend coverage to children in families at higher income levels. Also under the ACA, states are permitted to use CHIP federal matching funds to cover children who lose Medicaid eligibility as a result of the elimination of income disregards. As a part of a separate provision, the ACA required states to transition CHIP "stairstep" children aged 6 through 18 in families with annual income less than 133% FPL (based on MAGI) to Medicaid, beginning January 1, 2014. According to a recent Medicaid budget survey, 21 states transitioned children from CHIP to Medicaid in 2014 as a result of this requirement. Of the states impacted by this policy, another study estimates that on average 28% (or approximately 562,000 stairstep children) made this transition in January 2014. The purpose of this transition was to ensure uniform child coverage under Medicaid up to 133% FPL (effectively 138% after adjustment for the 5% disregard) across all states. The ACA also required states to maintain income eligibility levels for CHIP through September 30, 2019, as a condition for receiving payments under Medicaid (notwithstanding the lack of corresponding federal appropriations for FY2018 and FY2019). This provision is often referred to as the ACA Maintenance of Effort (MOE) requirement. (Implications of the MOE requirement for the future of CHIP are discussed in more detail in the financing section below.) Statewide upper income eligibility thresholds for CHIP-funded child coverage vary substantially across states, ranging from a low of 175% FPL to a high of 405% FPL. Appendix A , Table A-1 shows state-reported child upper income eligibility levels based on MAGI (adjusted for the 5% disregard), as of January 1, 2014. To summarize, Table A-1 shows: 18 states and the District of Columbia provide coverage above 301% FPL; of these, two states extend coverage above 400% FPL, including New York (405% FPL) and California (416% FPL in one county); 9 states provide coverage between 251% FPL and 300% FPL; 20 states provide coverage between 201% FPL and 250% FPL; and 3 states extend coverage at levels less than 200% FPL, including Idaho (190% FPL), North Dakota (175% FPL), and Arizona (100%). Despite the fact that 27 states extend CHIP coverage to children in families with annual income greater than or equal to 251% FPL, CMS administrative data show that CHIP enrollment is concentrated among families with annual income at lower levels. FY2013 state-reported administrative data show that approximately 89% of CHIP child enrollees were in families with annual income at or below 200% FPL, and approximately 97% of child enrollees were in families with annual income at or below 250% FPL. (See Table 2 .) Families with higher income levels are more likely to have access to employer-sponsored insurance coverage. With the enactment of the ACA, families may also have access to subsidized coverage through the exchange. However, such coverage is not always affordable for low-income families. (For more information on the definition of affordability of employer-sponsored insurance coverage as it relates to a family's ability to qualify for subsidized exchange coverage, see the discussion of the "family glitch issue" in the subsection entitled " The Future of CHIP .") Figure B-1 through Figure B-4 of Appendix B show the 50-state upper income eligibility levels for children and pregnant women in Medicaid, CHIP, and subsidized exchange coverage, as of January 1, 2014. Variability exists across states in the income eligibility ranges (i.e., income eligibility floors and ceilings) associated with each of the programs. The federal Medicaid statute establishes mandatory coverage floors (defined as a percentage of the federal poverty level) for its poverty-related pregnant women and children eligibility pathways. However, states are permitted to extend Medicaid coverage above these federal minimum levels; this is why there is variability across states in terms of the income eligibility levels at which CHIP begins. For example, the state of Alabama extends Medicaid eligibility to infants in families with annual income less than or equal to 141% FPL, while the state of Iowa extends Medicaid eligibility to infants in families with annual income less than or equal to 240% FPL. In another example, CHIP coverage for children extends to a higher income eligibility threshold than subsidized health insurance exchange coverage in one county in California and in the state of New York (i.e., 416% FPL and 405% FPL, respectively). It is important to note, however, that not all children with family income at the specified levels are eligible for each of the programs due to program rules that differ for each of these programs. For instance, CHIP is only available to uninsured children, subsidized exchange coverage is not available to individuals with access to minimum essential coverage, and insurance status is not considered when determining Medicaid eligibility. These figures show both the range of CHIP income eligibility relative to the other programs, and how the programs are envisioned to work together in extending coverage to low-income children and families. CHIP in some states covers a relatively small segment of the income eligibility continuum while CHIP in other states covers a larger segment of the continuum. This is particularly true for infants and pregnant woman. States have used the optional Medicaid eligibility pathways to set higher Medicaid income eligibility levels for infants and pregnant women relative to older children (see Figure B-1 through Figure B-4 of Appendix B ). As a result, CHIP has been used to provide health coverage to older uninsured children to a greater extent. In general, the Medicaid program is a much larger program than CHIP. Child enrollment in Medicaid, for example, was 38.7 million as compared to 8.1 million in CHIP in FY2013. The figures in Appendix B , however, are not weighted to reflect program enrollment by state. For example, it is possible that a state with a large uninsured child population but a CHIP program with a relatively narrow income eligibility range may result in a much larger number of CHIP program enrollees than a state with a relatively small uninsured child population and a CHIP program with a much broader income eligibility range. Nineteen states provide coverage to pregnant women under CHIP. The three main ways that states may extend CHIP coverage to pregnant women (regardless of their age) are through (1) the state plan option for pregnant women; (2) the Section 1115 waiver authority; and/or (3) the unborn child pathway. The latter is the predominant pathway used by states for this purpose. As of January 2014, four states (Colorado, New Jersey, Oregon, and Rhode Island) extended coverage to pregnant women under Section 1115 waiver authority or the CHIP pregnant women state plan option. Under CHIPRA, states are permitted to cover pregnant women through a state plan amendment when certain conditions are met (e.g., the Medicaid income standard for pregnant women must be at least 185% FPL but in no case lower than the percentage level in effect on July 1, 2008; no preexisting conditions or waiting periods may be imposed; and CHIP cost-sharing protections apply). The period of coverage associated with the state plan option includes pregnancy through the postpartum period (roughly through 60 days postpartum), and benefits include all services available to CHIP children in the state as well as prenatal, delivery, and postpartum care. Infants born to such pregnant women are deemed eligible for Medicaid or CHIP, as appropriate, and are covered up to age one year. As of January 2014, 15 states provide CHIP coverage to pregnant women ages 19 and older by extending coverage to unborn children as permitted through federal regulation. Coverage available to such women may be limited to prenatal and delivery services, but is still used in 15 states because it permits the extension of CHIP coverage to a pregnant woman regardless of her immigration status. See Figure B-4 for state-specific CHIP eligibility levels for unborn children, pregnant women and deemed newborns, as of January 1, 2014. As is the case with eligibility, CHIP benefit coverage depends on program design (see Table 1 ). States that use CHIP Medicaid expansion programs must provide CHIP-eligible children with the full range of mandatory Medicaid benefits, as well as all optional services that the state chooses to cover as specified in their state Medicaid plans. As an alternative to providing all of the mandatory and selected optional benefits under traditional Medicaid, states may enroll state-specified groups, including children in CHIP Medicaid expansions, in Alternative Benefit Plans (ABPs). When certain conditions are met, states may also provide premium assistance for health insurance offered through private insurance arrangements for Medicaid children (including CHIP children) and their parents. For CHIP children, benefits available through Medicaid's Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) Program must be provided, whether through traditional state plan coverage or otherwise. The EPSDT program covers health screenings and services, including assessments of each child's physical and mental health development; laboratory tests (including lead blood level assessment); appropriate immunizations; health education; and vision, dental, and hearing services. States are required to provide all federally allowed treatment to correct problems identified through screenings. EPSDT sets Medicaid benefit coverage for children (including CHIP children) apart from other sources of health insurance in that it permits coverage of all services listed in Medicaid statute (regardless of whether a given benefit is covered in the state plan) and it effectively eliminates any state-defined limits on the amount, duration, and scope of this benefit. States that offer separate CHIP programs have more latitude in designing their programs. Such states are allowed to determine which services to cover, and may place limits on the services that they offer. Separate CHIP program rules permit states to elect any of three benefit options: 1. Benchmark benefit package: includes one of the following three base benchmark plans: the standard Blue Cross/Blue Shield preferred provider option offered under the Federal Employees Health Benefits Program (FEHBP), the health coverage that is offered and generally available to state employees in the state involved, and/or health coverage that is offered by a health maintenance organization (HMO) with the largest commercial (non-Medicaid) enrollment in the state involved. 2. Benchmark-equivalent coverage : defined as a package of benefits that has the same actuarial value as one of the base benchmark benefit packages listed above. A state choosing to provide benchmark-equivalent coverage must cover each of the benefits in the "basic benefits category," including inpatient and outpatient hospital and physicians' surgical and medical services, lab, x-ray, and well-baby and well-child care, including age-appropriate immunizations. Benchmark-equivalent coverage must also include at least 75% of the actuarial value of coverage under the benchmark plan for each of the benefits in the "additional service category." These additional services include prescription drugs, vision services, and hearing services. States are encouraged to cover other categories of service not listed above; and/or 3. Secretary-approved coverage : defined as any other health benefits plan that the Secretary of Health and Human Services (HHS) determines will provide appropriate coverage to the targeted population of uninsured children. Regardless of the choice of program design, all states must cover emergency services, well baby and well child care including age-appropriate immunizations, and dental services. If offered, mental health services must meet federal mental health parity requirements. As with Medicaid, abortions cannot be covered, except in the case of a pregnancy resulting from rape or incest, or when an abortion is necessary to save the mother's life. Finally, when certain conditions are met (e.g., CHIP minimum benefits and CHIP cost-sharing protections), states can also offer premium assistance to pay a beneficiary's share of costs for group (employer-based) health insurance for CHIP children and their parents. According to a recent study of CHIP benefit coverage, 11 states offered premium assistance programs with CHIP federal matching funds in 2013. Data from this study that looked at benefit coverage in 42 separate CHIP programs (in 38 states) indicate that in 2013: 25 states chose Secretary-approved coverage; 9 states offered benchmark-equivalent coverage; 3 states offered coverage available in the largest HMO in the state; 3 states offered existing state-based coverage; 1 state offered FEHBP-equivalent coverage; and 1 state offered state employee coverage. According to this study, benefits offered under separate CHIP programs ranged from benefit coverage modeled after the state's Medicaid plan to more limited benefit coverage available through the commercial market. The study also found that coverage for basic medical services (e.g., physician, hospital, laboratory, and radiological services) were largely covered without "significant" limitations. States did impose limitations on other types of services (e.g., physical, occupational and speech therapy; orthodontia; hearing aids; and corrective lenses). Finally, only a few services were not covered at all (e.g., care coordination for children with special needs, non-emergency medical transportation). In FY2013, managed care was the predominant delivery system under CHIP. Administrative data show that approximately 84% of separate CHIP enrollees received coverage under some form of managed care, while the remaining 16% received coverage under a fee-for-service arrangement. As with eligibility and benefits, cost-sharing rules depend on a state's CHIP program design (see Table 1 ). Cost sharing refers to the out-of-pocket payments made by beneficiaries of a health insurance plan, and may include premiums (usually on a monthly basis), enrollment fees, deductibles, copayments, coinsurance, and other similar charges. CHIP Medicaid expansion children must follow the cost-sharing rules of the Medicaid program. Under these rules, the majority of such children are exempt from cost sharing. However, CHIP Medicaid expansion children may still be subject to service-related cost sharing for non-emergency care provided in an emergency room and for non-preferred prescription drugs. In addition, CHIP Medicaid expansion children enrolled in certain Medicaid waiver programs may be subject to cost sharing. If a state implements a separate CHIP program, premiums or enrollment fees may be imposed for program participation, but the maximum allowable amount is dependent on annual family income. Preventive services and pregnancy-related assistance are exempt from cost sharing for all CHIP families regardless of income, and special rules also apply to Indian children. Families with annual income under 150% FPL : Premiums may not exceed the amounts set forth in federal Medicaid regulations. Additionally, these families may be charged service-related cost sharing, but such cost sharing is limited to (1) nominal amounts defined in federal Medicaid regulations for the subgroup with annual income below 100% FPL, and (2) slightly higher amounts defined in CHIP regulations for families with annual income between 100%-150% FPL. Families with annual income above 150% FPL : Cost sharing (program participation fees and service-related cost sharing) may be imposed in any amount, provided that cost sharing for higher-income children is not less than cost sharing for lower-income children, subject to the out-of-pocket aggregate limit of 5% of annual family income on all types of cost sharing combined. In addition, states are required to inform families of these limits and provide a mechanism for families to stop paying once the cost-sharing limits have been reached. The above-referenced study on 42 separate CHIP programs (in 38 states) indicates that only 2 states (Oregon and South Dakota) did not impose any form of cost sharing in 2013. Thirty separate CHIP programs imposed premiums or program participation fees. According to the study, the median monthly premium per child ranged from $10 for families with annual income less than 150% FPL (in 9 programs) to $33 for families with annual income greater than 301% FPL (in 14 programs). Twenty-eight separate CHIP programs imposed service-related cost sharing in amounts that ranged from a low of $0.50 for an office visit or prescription drug in Georgia, to $200.00 for an inpatient hospital visit in Alabama. While Title XXI sets the annual aggregate limit for all cost sharing charges at 5% of a family's annual income, the study found that 20 programs had cost-sharing limits lower than the 5% cap. The federal government and the states jointly finance CHIP. The federal government reimburses states for a portion of every dollar they spend on CHIP (for both CHIP Medicaid expansions and separate CHIP programs) up to state-specific limits called allotments. In FY2013, CHIP expenditures totaled $13.2 billion. The federal share totaled $9.2 billion and the state share was $4.0 billion. The federal government pays about 70% of CHIP expenditures, and the federal government's share of CHIP expenditures (including both services and administration) is determined by the enhanced federal medical assistance percentage (E-FMAP) rate. The E-FMAP rate is derived each year by the HHS Secretary using a set formula, and it varies by state. By statute, the E-FMAP (or federal matching rate) can range from 65% to 85%, and in FY2015, the E-FMAP ranges from 65% (13 states) to 82% (Mississippi). See Table A-2 for states' E-FMAP rates for FY2015. The ACA included a provision to increase the E-FMAP rate by 23 percentage points (not to exceed 100%) for most CHIP expenditures from FY2016 through FY2019. This would increase the statutory range of the E-FMAP rate to 88% through 100%. With this 23 percentage point increase, the federal share of CHIP will be significantly higher, which means states are expected to spend through their limited federal CHIP funding (i.e., state CHIP allotments) faster when the enhanced rate takes effect. There are three aspects of CHIP federal funding: the national total appropriation amounts, state allotments, and expenditures. The federal appropriation is the total amount of federal funds appropriated for CHIP in a fiscal year. The state allotments are the federal funds allocated to each state for the federal share of their CHIP expenditures. Federal CHIP expenditures are the actual amount of federal funds spent on CHIP. As Figure 2 shows, in FY2013, the federal appropriation for CHIP was $17.4 billion, the CHIP allotments to states totaled $8.9 billion, and CHIP federal expenditures totaled $9.2 billion. In FY2013, the federal appropriation was significantly higher than the state CHIP allotments because the formula establishing the state CHIP allotment amounts does not factor in the federal appropriation (explained in more detail below). Also, the FY2013 CHIP federal expenditures were slightly higher than the state CHIP allotments. States have two years to spend their allotment funds, and the FY2013 federal CHIP expenditures consist of federal funding from each of the FY2012 and FY2013 state CHIP allotments. The federal appropriation for CHIP is provided in Section 2104(a) of the Social Security Act. This amount is the overall annual ceiling on federal CHIP spending to the states, the District of Columbia, and the territories. CHIPRA increased the annual appropriation amounts substantially beginning in FY2009 and provided appropriations through FY2013. Then, the ACA provided annual appropriation amounts for an additional two years (i.e., through FY2015). MACRA extended the federal appropriations through FY2017, and FY2017 is the last year for which a CHIP appropriation amount is provided. For FY2016 and FY2017, the annual appropriation amounts are $19.3 billion and $20.4 billion, respectively. If the federal appropriation is not large enough to cover state allotments in any given year, the state allotments would be reduced proportionally. Since FY2009, the federal appropriation amount has been more than sufficient to cover the state allotments. State allotments are the federal funds allocated to each state for the federal share of their CHIP expenditures. CHIPRA established a new allocation of federal CHIP funds among the states based largely on states' actual use of and projected need for CHIP funds. There are two formulas for determining state allotments: an even-year formula and an odd-year formula. In even years, such as FY2014, state CHIP allotments are each state's previous year allotment plus any Child Enrollment Contingency Fund (described below) payments from the previous year adjusted for health care inflation and child population growth in the state. For even years, the formula for CHIP allotments can be adjusted to reflect CHIP eligibility or benefit expansions and increase the allotment amount. In odd years, state CHIP allotments are each state's previous year spending (including federal CHIP payments from the state CHIP allotment, Child Enrollment Contingency Fund payments, and redistribution funds) adjusted using the same growth factor as the even year formula (i.e., health care inflation and child population growth in the state). Since the odd-year formula is based on states' actual use of CHIP funds, it is called the "re-basing year" because a state's CHIP allotment can either increase or decrease depending on each state's CHIP expenditures in the previous year. State CHIP allotment funds are available to states for two years. As noted above, this explains why federal expenditures are higher than the state allotments in Figure 2 because the FY2013 federal CHIP expenditures include federal funding from states' FY2012 and FY2013 allotments. In addition, the aggregate state CHIP allotment amounts have been lower than the annual federal appropriation amount because the allotment formulas do not factor in the annual federal appropriation amount, which means the aggregate state allotment amounts could add up to an amount greater than or less than the federal appropriation amount. Since FY2009, the aggregate state CHIP allotment amounts have been significantly lower than the federal appropriation amount. The allotment is available to states to cover the federal share of both CHIP benefit and administrative expenditures. However, no more than 10% of the federal CHIP funds that a state draws down from its CHIP allotment can be spent on non-benefit expenditures including expenditures for administration, translation services, and outreach efforts. If a state's CHIP allotment for the current year, in addition to any allotment funds carried over from the prior year, is insufficient to cover the projected CHIP expenditures for the current year, a few different shortfall funding sources are available. These include Child Enrollment Contingency Fund payments, redistribution funds, and Medicaid funds. Since FY2009, only one state and one territory have received shortfall funding. Child Enrollment Contingency Fund payments are available to states with both a funding shortfall and CHIP enrollment (for children) that exceeds a target level. As a result, not all states with funding shortfalls are eligible for Child Enrollment Contingency Fund payments. The contingency fund formula is based on a state's growth in CHIP enrollment and per capita spending. This means that a state may receive a payment from the fund that does not equal its actual shortfall. Iowa is the only state that has received Child Enrollment Contingency Fund payments since FY2009 when the funds were first available. After two years, any unused state CHIP allotment funds are redistributed to shortfall states. For redistribution funds, a shortfall state is defined as a state that will not have enough money to meet projected costs in the current year after counting (1) the current year's state allotment, (2) unspent funds from the prior year's state allotment, and (3) available Child Enrollment Contingency Fund payments. If redistributed funds are insufficient to meet the needs of all shortfall states, each shortfall state receives a proportionate share of the available funds based on the shortfall in each state. Since FY2009, only Puerto Rico has received redistribution funds. For states that designed their CHIP program as a CHIP Medicaid expansion or a combination program, if the state is still facing a shortfall after receiving Child Enrollment Contingency Fund payments and redistribution funds, they may receive federal Medicaid matching funds to fund the shortfall in the Medicaid expansion portion of its CHIP program. When Medicaid funds are used to fund CHIP, the state receives the lower regular FMAP rate (i.e., federal Medicaid matching rate) rather than the higher E-FMAP rate provided for other CHIP expenditures. However, while federal CHIP funding is capped, federal Medicaid funding is open-ended, which means there is no upper limit or cap on the amount of federal Medicaid funds a state may receive. In a few situations, federal CHIP funding is used to finance Medicaid expenditures. For instance, certain states significantly expanded Medicaid eligibility for children prior to the enactment of CHIP in 1997. These states are allowed to use their CHIP allotment funds to fund the difference between the Medicaid and CHIP matching rates (i.e., FMAP and E-FMAP rates respectively) to finance the cost for children in Medicaid above 133% FPL. In addition, states may use CHIP allotment funds and receive the more generous E-FMAP rates for (1) expenditures for children aged 6 to 18 in families with annual income up to 133% FPL that had been enrolled in separate CHIP programs who were transitioned to Medicaid on January 1, 2014, as part of the ACA and (2) children that moved from CHIP to Medicaid due to the application of the 5% income disregard. Figure 3 shows actual CHIP expenditures (including both the federal and state share) for FY1998 through FY2013 and projected CHIP expenditures for FY2014 and FY2015. See Table A-2 for CHIP expenditures by state for FY2013. With federal funding for CHIP set to end after FY2017, Congress will need to decide whether to continue the CHIP program. In considering the future of CHIP, it is helpful to recall why the program was created in 1997: to provide affordable health coverage at a time when there were few other insurance coverage options for low-income children outside of Medicaid. The health insurance market is far different today, with the enactment of the ACA. Now, if CHIP funding is exhausted, current CHIP-eligible children potentially could be eligible for Medicaid, for subsidized coverage in the health insurance exchanges, or for their parent's employer-sponsored insurance coverage, but not all CHIP-eligible children would be eligible for these programs and some could end up being uninsured without the availability of CHIP. Some argue that it is important to continue providing child-specific safety net coverage because each of the low-income subsidy programs (e.g., CHIP, Medicaid, and subsidized exchange coverage) plays a unique role in the health care delivery system. For instance, greater cost-sharing protections exist for the programs that target families at the lower ends of the income-eligibility spectrum. In addition, some are wary of providing coverage for children in the health insurance exchanges because the exchanges are new and there is little evidence about how coverage in the exchanges compares to CHIP coverage. With FY2017 being the final year for which federal CHIP funding is provided in statute, Congress's action or inaction will determine the future of CHIP and of health coverage for CHIP children. In considering the future of CHIP, Congress has a number of policy options, including extending federal CHIP funding and continuing the program or letting CHIP funding expire. If Congress decides to extend federal CHIP funding, there are a number of policy options to consider, including the length of the funding extension and whether to make programmatic changes. Funding could be extended for just a few years (e.g., two or four years) or indefinitely, and the extension could maintain, phase down, or eliminate the 23 percentage point increase to the E-FMAP rate. In addition, the extension could make programmatic changes to eligibility, benefit coverage, or other aspects of the program. Although FY2017 is the last year for which federal CHIP funding is provided under current law, states are expected to have federal CHIP spending in FY2018 because states will have access to unspent funds from their FY2017 allotments and to unspent FY2016 allotments redistributed to shortfall states (if any). If Congress takes no action and CHIP funding runs out, states need to adhere to the MOE requirements that are in effect through FY2019. The MOE requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving Medicaid payments (notwithstanding the lack of corresponding federal CHIP appropriations for FY2016 through FY2019). The MOE requirements impact CHIP Medicaid expansion programs and separate CHIP programs differently. For CHIP Medicaid expansion programs , when federal CHIP funding is exhausted, the CHIP-eligible children in these programs continue to be enrolled in Medicaid but financing switches from CHIP to Medicaid. This switch would cause the federal share of expenditures to decrease from the E-FMAP rate to the regular FMAP rate, which means the cost of covering these children would increase for states. For separate CHIP programs , states are provided a couple of exceptions to the MOE: (1) after September 1, 2015, states may enroll CHIP-eligible children into qualified health plans in the health insurance exchanges or (2) states may impose waiting lists or enrollment caps in order to limit CHIP expenditures. In addition, in the event that a state's CHIP allotment is insufficient to fund CHIP coverage for all eligible children, a state must establish procedures to screen children for Medicaid eligibility, and enroll those who are Medicaid-eligible. For children not eligible for Medicaid, the state must establish procedures to enroll CHIP children in qualified health plans in the health insurance exchanges that have been certified by the HHS Secretary. If no additional federal CHIP appropriations are provided, CHIP children in CHIP Medicaid expansion programs (roughly half of CHIP enrollees) would continue to receive coverage through the Medicaid program through FY2019, but coverage of CHIP children in separate CHIP programs (roughly half of CHIP enrollees) who are not eligible for Medicaid is reliant on whether the children have access to qualified health plans that are certified by the HHS Secretary. Under the MOE, if states do not receive a CHIP allotment, after establishing procedures to enroll all Medicaid eligible children in Medicaid, states are only required to establish procedures to enroll children in qualified health plans certified by the HHS Secretary. If there are no certified plans, the MOE does not obligate states to provide coverage to these children. If there are certified plans, not all CHIP children will be eligible for subsidized exchange coverage due to the "family glitch," among other reasons. Under each of the policy options outlined above under " If Federal CHIP Funding Expires ," at least some CHIP enrollees would continue to have coverage through CHIP, Medicaid, the health insurance exchanges, or the employer-sponsored insurance market. However, not all CHIP children would continue to have coverage under each of the policy options. If the federal CHIP program funding is permitted to expire before (or after) the MOE requirements that are in effect through FY2019, the coverage landscape is expected to change for some portion of the current CHIP enrollees. Although the specific results of coverage projections may look different in future years, it is possible to learn from the information they offer. In anticipation of the FY2015 congressional debate regarding the future of CHIP, the Urban Institute conducted an analysis for MACPAC to generate estimates of the sources of coverage for children in separate CHIP programs who were projected to lose CHIP coverage if federal CHIP funding was exhausted in FY2016. The analysis found that if federal CHIP funding was not renewed and states exhausted their FY2015 federal allotments, approximately two-thirds of current separate CHIP-enrolled children would move to their parent's employer-sponsored insurance coverage (i.e., approximately 1.2 million, or 32.6%) or to subsidized exchange coverage (i.e., approximately 1.4 million, or 36.5%). The remaining one-third of such children (approximately 1.1 million, or 30.9%) would become uninsured in FY2016. For the children who would receive coverage under alternative coverage options, there would be variation among the coverage in terms of benefits, cost sharing, and financing. With respect to benefit coverage, a recent MACPAC analysis of benefits available under separate CHIP programs, Medicaid, exchange plans, and employer-sponsored insurance found the following: Covered benefits vary within each source—between states for Medicaid and CHIP and among plans for exchange plans and employer-sponsored insurance. Most CHIP, Medicaid, exchange plans, and employer-sponsored insurance plans cover major medical benefits, such as inpatient and outpatient care, physician services, and prescription drugs. Although Medicaid and CHIP cover pediatric dental services, dental benefits are offered as a separate, stand-alone insurance product in most exchanges. CHIP and Medicaid cover many services that are not always available in exchange plans. For example, all CHIP and Medicaid programs cover audiology exams, and 95% of CHIP programs cover hearing aids. However, only 37% of exchange plan essential health benefit benchmarks cover audiology exams, and only 54% cover hearing aids. For other benefits, such as applied behavioral analysis therapy and autism services, coverage varies. MACPAC's analysis of affordability of exchange coverage for children currently covered by CHIP found that the out-of-pocket costs for CHIP generally are higher than under Medicaid but significantly lower than in the exchanges or under employer-sponsored insurance. When comparing out-of-pocket costs across coverage types, MACPAC found that for families with employer-sponsored insurance, "projected premiums could average $3,751 per year or 9.1% of family income. Families with subsidized coverage on the exchange might see smaller or no premium costs, but they would face much higher cost-sharing amounts (in the form of deductibles and service-level cost-sharing) than under CHIP." With respect to financing, under CHIP and Medicaid the coverage for CHIP enrollees would continue to be jointly financed by the federal government and states, but moving CHIP children into Medicaid would increase the state share of expenditures for these children. Under the option to move CHIP children into the health insurance exchanges, the federal government alone would fund the subsidized coverage, without any contribution from states. For employer-sponsored insurance coverage, premiums are largely shared by the employer and its employees. Appendix A. CHIP Data by State Table A-1 provides FY2013 data by state regarding CHIP program type, income eligibility levels, and enrollment. Table A-2 shows FY2015 CHIP E-FMAP rates and FY2013 CHIP expenditures (including both federal and state expenditures). Appendix B. Upper Income Eligibility Levels in Medicaid, CHIP, and Subsidized Exchange Coverage State-by-state income eligibility level for Medicaid, CHIP, and subsidized exchange coverage for infants, children aged 1 to 5, children aged 6 to 18, and pregnant women and unborn children are provided in Figure B-1 , Figure B-2 , Figure B-3 , and Figure B-4 (respectively). Most children and pregnant women in families with income under 400% of the federal poverty level (FPL) are eligible for Medicaid, CHIP, or subsidized exchange coverage. The income eligibility levels for Medicaid and CHIP vary by state and population (i.e., age of child or pregnant women), and subsidized exchange coverage is available for most children and pregnant women with incomes between 100% FPL and 400% FPL that do not have access to other minimum essential coverage, such as Medicaid or CHIP.

Summary: The State Children's Health Insurance Program (CHIP) is a means-tested program that provides health coverage to targeted low-income children and pregnant women in families that have annual income above Medicaid eligibility levels but have no health insurance. CHIP is jointly financed by the federal government and states, and the states are responsible for administering CHIP. In FY2013, CHIP enrollment totaled 8.4 million individuals and CHIP expenditures totaled $13.2 billion. Under the CHIP program, the federal government sets basic requirements for CHIP, but states have the flexibility to design their own version of CHIP within the federal government's basic framework. As a result, there is significant variation across CHIP programs. Currently, state upper-income eligibility limits for children range from a low of 175% of the federal poverty level (FPL) to a high of 405% of FPL. States may also extend CHIP coverage to pregnant women when certain conditions are met. States may design their CHIP programs in three ways: a CHIP Medicaid expansion, a separate CHIP program, or a combination approach where the state operates a CHIP Medicaid expansion and one or more separate CHIP programs concurrently. CHIP benefit coverage and cost-sharing rules depend on program design. CHIP Medicaid expansions must follow the federal Medicaid rules for benefits and cost sharing, which entitles CHIP enrollees to Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) coverage (effectively eliminating any state-defined limits on the amount, duration, and scope of any benefit listed in Medicaid statute) and exempts the majority of children from any cost sharing. For separate CHIP programs, the benefits are permitted to look more like private health insurance, and states may impose cost sharing, such as premiums or enrollment fees, with a maximum allowable amount that is tied to annual family income. The federal government reimburses states for a portion of every dollar they spend on CHIP (including both CHIP Medicaid expansions and separate CHIP programs) up to state-specific annual limits called allotments. The federal share of FY2013 total expenditures was $9.2 billion and the state share was $4.0 billion. CHIP was enacted in 1997. Since that time, Congress has extended federal CHIP funding. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) extended CHIP funding through FY2015. On April 16, 2015, President Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10). MACRA repeals the sustainable growth rate (SGR) mechanism (which overrides the reduction in the Medicare physician fee schedule that was set to begin in April 2015) and extends funding for CHIP, among other provisions. Specifically, MACRA extends CHIP funding for two additional years (i.e., through FY2017) and maintains the current allotment formula, including a 23 percentage point increase to the enhanced federal medical assistance percentage (E-FMAP). MACRA also extends the "qualifying state" option, the Child Enrollment Contingency Fund, "Express Lane" eligibility, Outreach and Enrollment Grants, the Pediatric Quality Measures Program, and the Childhood Obesity Demonstration Project. Although MACRA adds two additional years to federal funding for CHIP (through FY2017), states still need to adhere to the ACA's maintenance of effort (MOE) requirements that are in effect through FY2019. The MOE requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving federal Medicaid payments (notwithstanding the lack of corresponding federal CHIP appropriations for FY2018 and FY2019). The MOE requirements impact CHIP Medicaid expansion programs and separate CHIP programs differently. For CHIP Medicaid expansion programs, when federal CHIP funding is exhausted, the CHIP-eligible children in these programs continue to be enrolled in Medicaid but financing switches from CHIP to Medicaid. For separate CHIP programs, states are provided a couple of exceptions to the MOE: (1) after September 1, 2015, states may enroll CHIP-eligible children into qualified health plans in the health insurance exchanges or (2) states may impose waiting lists or enrollment caps in order to limit CHIP expenditures. In addition, in the event that a state's CHIP allotment is insufficient to fund CHIP coverage for all eligible children, a state must establish procedures to screen children for Medicaid eligibility, and enroll those who are Medicaid-eligible. For children not eligible for Medicaid, the state must establish procedures to enroll CHIP children in qualified health plans in the health insurance exchanges that have been certified by the Secretary of Health and Human Services (HHS) to be "at least comparable" to CHIP in terms of benefits and cost sharing. Congress will face a decision with regard to the future of CHIP when federal CHIP funding expires after FY2017. If Congress does not act and federal CHIP funding ends, some CHIP enrollees likely would continue to have coverage through Medicaid as a result of the MOE requirements, but others would need to find another source of health insurance coverage (e.g., employer-sponsored health insurance or through the health insurance exchanges), and some likely would be uninsured. Congress's action or inaction on the CHIP program may affect health insurance options and resulting coverage for targeted low-income children that are eligible for the current CHIP program. This report describes the basic elements of CHIP, focusing on how the program is designed, who is eligible, what services are covered, how enrollees share in the cost of care, and how the program is financed. The report ends with a brief discussion of the future of CHIP.