April 25, 2007 — Where to, SCHIP?

Congress will decide on the fate of the State Children's Health Insurance Program
By Vanessa Sumo

This year's "Cover the Uninsured Week," an annual event organized by the Robert Wood Johnson Foundation, has one clear goal: to get Congress to reauthorize the State Children's Health Insurance Program (SCHIP). The program provides health care coverage to children in families who have too much income to qualify for Medicaid, but typically still can't buy private insurance without sacrificing other basic necessities.

Ten years after its creation, SCHIP is broadly considered a success. But the level of federal funds and the formula used to distribute those funds to states may stand in the way of building on that achievement.

Enrollment in SCHIP has grown steadily to over six million children in 2005, adding to 28 million children covered by Medicaid. Together, these programs have reduced the uninsured rate among low-income children by one-third over the past decade, said Barbara Lyons, vice president and deputy director of the Kaiser Commission on Medicaid and the Uninsured, in her testimony before a Senate committee earlier this month.

Moreover, research suggests that SCHIP may have expanded enrollment without significantly crowding out private insurance. A recent study in Health Affairs found that only about 14 percent of children who were newly enrolled in SCHIP had private coverage that they could have kept as an alternative.

Finally, children enrolled in SCHIP and Medicaid were reported as having a much lower rate of "unmet needs" relative to uninsured children. That is, there were fewer children who didn't go to the doctor when they needed care because their parents couldn't afford it.

States attribute much of SCHIP's success in covering low-income children to the "flexibility provided to [them] to determine the structure of and eligibility for their programs," said Lyons in her congressional testimony. If a state wants to expand SCHIP to cover families whose incomes are above 200 percent of the federal poverty level, for example, it can design a program that shares some of the cost with enrollees.

Maryland's Children's Health Program covers families earning up to 200 percent of the federal poverty level at no charge. In addition, it assists children from low-income families earning up to 300 percent of the federal poverty level at a cost of $44 to $55 a month per family.

There are other examples of innovative uses of SCHIP dollars in the Fifth District. Virginia's Family Access to Medical Insurance Security program provides each enrolled child up to $100 per month to help families purchase insurance through their employers. The District of Columbia is using its SCHIP funds to cover parents and guardians as well as children, based on the idea that extending eligibility to parents benefits children's health as well.

SCHIP's simplified enrollment and renewal procedures have encouraged parents to get health insurance for their children and keep them insured. The bonus is that these procedures usually now apply to Medicaid as well, which represents a tremendous change in the way states have handled the enrollment process. "SCHIP has had a profound and positive impact on Medicaid for children," says Genevieve Kenney, a health economist at the Urban Institute.

SCHIP may have benefited Medicaid enrollees in another way. If a parent is thinking of taking a slightly higher paying job, he or she may hold off doing so if it means losing the family's Medicaid benefits. With SCHIP in place, the risk of being uninsured is less of a barrier to a person's upward mobility.

Kenney points out that SCHIP's own eligibility ceiling may create the same dilemma as families' incomes increase. Because access to employer-based insurance tends to increase with income, however, this distortion may be less important.

Along with these benefits, there are some concerns about SCHIP. Policy experts generally agree that the biggest challenge facing SCHIP is the future level of federal funding and how it will be distributed across states. SCHIP funding is capped each fiscal year, unlike entitlement programs like Medicaid which grow in size as more people are covered. The program currently receives $5 billion annually. If lawmakers just maintain this level of funding, the Congressional Budget Office estimates that SCHIP enrollment will fall about 50 percent by 2017.

Moreover, there are concerns the allocation of SCHIP funding doesn't track very well with what the states need to run their programs. "The distribution formula has left some states with more funds than they could spend and other states needing additional funds to keep up with program enrollment and costs," says Lyons.