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. 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. 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. 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. 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.