Public Policy Issue: Public Administration

CHIP: To Abolish or Not to Abolish The State Children Health Insurance Plan (SCHIP), commonly referred to as CHIP (Children's Health Insurance Plan), is an insurance plan run by the Department of Health and Human Services, and which administers funds to states to enable them provide quality insurance coverage to eligible children within their jurisdictions. To be eligible for CHIP, a child needs to be from a family whose level of income is too low to qualify for private insurance coverage, but too high to be considered for Medicaid (Holtz-Eakin, 2014).

With the introduction of the Obama Care Policy, however, which expanded the list of persons eligible for both Medicaid and CHIP, there came so many overlaps between CHIP and other secondary insurance options that budgetary allocations and funding to the former were threatened. Owing to this, there is a lot of controversy over whether funding to the CHIP ought to be reauthorized until FY 2019. One faction believes that reauthorization is warranted because failing to reauthorize would wind up in health insurance losses for over 2 million CHIP-eligible children.

The other, however, believes that CHIP participants should simply transition to Medicaid so that there would be no need for expanded funding to CHIP. This paper presents the background of Obama Care Policy and examines the effect of the same on the CHIP Program. The future for CHIP, the author believes, lies in restructuring the program and restoring it to its original intent. We begin by presenting a brief overview of the CHIP program.

Background Studies have shown that a lack of health insurance causes delays in the delivery of care to children and makes it difficult for them to have their medical needs met (Holtz-Eakin, 2014). The CHIP Program is a joint state-federal partnership program that was established with the aim of providing insurance coverage to children in families that cannot afford coverage. It came into being in 1997 following the passage of the Balanced Budget Act in a bipartisan legislative process (Holtz-Eakin, 2014).

It was structured as a block grant, calculating the amount of federal funding to states based on the size of their CHIP-eligible populations (Holtz-Eakin, 2014). Just like Medicaid, CHIP provides states with federal matching funds (the Federal Medical Assistance Percentage), with the federal government meeting approximately 70% of the total cost (Holtz-Eakin, 2014). Important to note, however, is that CHIP is just an allotment to states, and the states, therefore, retain the discretion to choose the benefit requirements and the administrative structure within which the same will be run in their jurisdictions (Holtz-Eakin, 2014).

Owing to this, eligibility rules vary from state to state, ranging between 138 and 405% of the Federal Poverty Level (Holtz-Eakin, 2014). A majority of the states cover incomes above 200% of the FPL (Holtz-Eakin, 2014). The benefits offered too vary by state and so do the cost-sharing requirements. Some states require participating families to pay co-pays and monthly premiums depending on their financial status (Holtz-Eakin, 2014). Generally, nonetheless, CHIP is considered a robust program offering extensive provider networks and rich benefits to participants.

The Wisconsin CHIP Program (formally referred to as BadgerCare Plus), for instance an attractive benefits package that includes services for language, hearing, and speech disorders, occupational and physical therapy, hearing exams and aids, vision exams, and outpatient and inpatient behavioral services, among others (American Academy of Pediatrics, 2014). As of 2013, CHIP had over 6 million participants nationwide, at an average cost of $1, 419 per child.

Vestal (2015) expresses that since its enactment in 2007, CHIP helped reduce the number of uninsured children from 15% to 9%, and continues to enjoy massive support from Republicans and Democrats at both the state and the federal level. In a recent address to the Chamber of Commerce, Republican Senator, Orrin Hatch, of the State of Utah referred to the CHIP Program as "a marvelous program that has worked very, very well" (Vestal, 2015, n.pag).

The Problem There are two main issues threatening the sustainability of the CHIP public policy Program -- the issue of funding and the redundancy problem, both of which are a direct result of ObamaCare Health Reform. Funding CHIP's funding is not permanent, which basically means that all appropriations in relation to funding ought to receive Congressial authorization. During its formation in 1997, CHIP received a ten-year authorization, and was scheduled for reauthorization in 2007.

The passage of the Children's Health Insurance Program Reauthorization Act (CHIPRA) in April 2007, however saw this scheduled reauthorization extended until 2009. The CHIPRA, however, did not only extend the CHIP reauthorization; it also caused some significant alterations that expanded the entitlement program -- it instituted bonus payments by states, removed insurance crowd-out provisions, patched funding shortfalls, and increased eligibility levels (Holtz-Eakin, 2014).

In 2009, lawmakers again extended the CHIP reauthorization to FY 2013, and in 2010, the Affordable Care Act (ACA, commonly referred to s ObamaCare) was passed, extending the same further to FY 2015, and placing a requirement upon states to maintain the already-expanded CHIP eligibility levels in existence at the time of the program's establishment through 2019 (Holtz-Eakin, 2014). Well, both the CHIPRA and the ACA strengthened the CHIP Program; however, they also created an apparent need for Congressional action that would take care of the program's funding after FY 2015.

The influence of ObamaCare on the funding aspect of CHIP can thus be examined from two perspectives -- the expansion of eligibility levels and the funding gap created by differing expiration dates for maintenance of eligibility levels and federal funding. Expansion of Eligibility Levels: CHIP was originally intended to serve a specific niche of the population -- children from families that could not afford private insurance but whose income levels were beyond Medicaid qualification.

The ACA, however, altered this niche, changing not only the number of children that are eligible for coverage, but also the requirements for covering them. This had the effect of among other things, increasing the number of CHIP-eligible children. The Congressional Budget Office estimates that the CHIP program will cost approximately $21 billion in FY 2015 (CBO, 2014). It divides this appropriation into three parts -- a large sum of $15.4 billion at the start of the year, and two small sums adding up to $5.7 billion at either half of the year (CBO, 2014).

However, the CBO predicts that the $5.7 billion appropriations will not be enough to cover the total cost of the program given the expansion in eligibility levels occasioned by the passage of the ObamaCare policy, and this increases the risk of having large state budget deficits in the coming years (CBO, 2014). The Funding Gap: as mentioned elsewhere in this text, the ACA creates a provision requiring states to maintain the eligibility levels specified at the time of the Act's passage through 2019. However, it only provides funding for the program until September, 2015.

This creates an unfunded gap from October 2015, through 2019, where in the absence of Congressional action, states could find themselves running their CHIP partnership program on their own without their federal partner for approximately four years (Holtz-Eakin, 2014. This would mean either that states cover 100% of the total program cost or they reduce their funding of the same to Medicaid levels and risk winding up in extremely large budget deficits (Holtz-Eakin, 2014).

The Government Accountability Office (GAO) estimates that a majority of the states will actually scale back the program in 2020 -- the year immediately following the expiration of the ACA regulations (GAO, 2012). This is especially the case for states that fund Medicaid coverage for children using CHIP. In the absence of funding from CHIP, such states could find themselves covering over 460,000 children that would otherwise be left without insurance coverage at a lower matching rate (Holtz-Eakin, 2014).

As Vestal (2015) points out, approximately 2 million current CHIP participants could find themselves uninsured due to this funding gap if Congress does not renew CHIP. The Overlapping Coverage Problem Turns out funding is not the only issue affecting the CHIP program as a policy for making health insurance affordable to a greater number of people -- the issue of overlapping coverage options is equally significant.

The ACA, as Vestal (2015) points out, in addition to expanding CHIP eligibility levels, also created insurance Exchange programs that provide health insurance premium subsidies to families that fall between 138 and 400% FPL -- the very same FPL range served by CHIP (Vestal, 2015). This leads to the instant conclusion that the CHIP program may be no longer necessary since families have the option of participating in the Insurance Exchange plan in their state, which is not only subsidized, but also marketed as comprehensive and affordable coverage (Vestal, 2015).

This rightfully explains just why the issue of CHIP continues to draw so much controversy. Politicians remain divided over what the best way forward is -- whether we are better off without CHIP or with it.

Recommended Actions Three possible solutions have been suggested to help resolve the stalemate: i) Abolish CHIP funding and replace it with employer-sponsored insurance or Exchange plans ii) Have states incorporate CHIP into their Medicaid programs so they are funded and administered as one iii) Reauthorize and restructure the CHIP program Abolish CHIP Funding and Replace the Program with Employer-Sponsored Insurance or Exchange Plans Opponents of the CHIP program argue that the only way to avoid the redundancy caused by overlapping coverage options is by discontinuing the CHIP program and substituting it with employer-sponsored insurance or Insurance Exchange Policies (Vestal, 2015).

Lawmakers, while not disputing the fact that CHIP has done a lot to make health insurance affordable to a greater number of people, remain divided over the issue of whether or not the same ought to be dissolved. Speaking in a recent hearing in the House Energy and Commerce Committee U.S. Rep., Fred Upton, the Michigan Republican, raised concern that CHIP coverage could end up crowding private health coverage in the long-term, and that hence, it ought to be abolished (Vestal, 2015).

In his view, Congress cannot afford to reauthorize CHIP because such a move would cost the taxpayer more in the long-term given that "families who qualify for exchange subsidies or have employer-sponsored coverage would instead opt for CHIP at greater expense to the federal government" (Vestal, 2015, n.pag). Proponents of CHIP, however, dispute this claim, arguing that the taxpayer stands to lose more if Congress fails to renew the program because then, the burden of uninsured children would increase (Vestal, 2015).

It has been rather difficult to quantify the actual burden to the taxpayer in this regard, particularly because the administrative structure and eligibility criteria upon which the program is administered vary from state to state, and this makes it likely that the number of children who fall uninsured will largely depend on how the state has structured its CHIP, Medicaid, and private insurance plans. Proponents of CHIP further argue that state-funded Insurance Exchange plans are inferior to the federally-funded CHIP program and cannot be taken as its substitutes (Vestal, 2015).

Vestal (2015) bases this idea on the fact that since these policies are associated with higher out-of-pocket expenses, they are beyond the reach of most Americans. Another major concern raised by those rooting for the reauthorization and consequently, the continuance of CHIP program is that most employer-sponsored insurance policies provide health benefits to employees alone (as required by the ACA), and not to their families, resulting in what is referred to as the 'family glitch' (Vestal, 2015).

What makes the situation even worse is that if a worker is deemed to have been adequately-covered at their place of work, they and their family are no longer eligible for state-funded Insurance Exchanges. With this, they are left with nowhere to go but CHIP or Medicaid.

It is estimated that if CHIP funding is discontinued, approximately 2.28 million children would lose access to health insurance owing to the effect of the family glitch; out of these, 1.6 million are current participants in the CHIP Program and another 645,000 are uninsured currently but meet the eligibility criteria for CHIP (Holtz-Eakin, 2014) Encourage States to Incorporate CHIP into their Medicaid Programs Rather than have states running the CHIP program on a stand-alone basis, attempts can be made to have them use CHIP funding to expand their Medicaid programs, in which case the rules that govern Medicaid would apply, and with the two programs running and being funded as one, children in CHIP would be eligible for Medicaid coverage.

This approach is not new to the United States -- approximately eight states currently make use of the same (Cardwell et al., 2014). Unlike the first suggestion (abolishment of CHIP), this suggestion does not call for the abolition and total disappearance of the CHIP program; it only places it within the helm of Medicaid. In other words, CHIP would continue to receive federal funds, but rather than go into funding CHIP benefits, these funds will be used to expand the eligibility levels of the Medicaid program (Cardwell et al., 2014).

Under this arrangement, therefore, CHIP and Medicaid are funded separately, but they operate as one and Medicaid benefits are thus made available to both Medicaid-eligible and CHIP-eligible families (Cardwell et al., 2014). This would essentially mean that states negate the funding problem that is threatening the sustainability of CHIP because alternative funds could be drawn from the Medicaid kitty, which is often significantly larger than that of CHIP (Cardwell et al., 2014).

Moreover, it would mean that states avoid a situation where millions of children (both current and eligible CHIP participants) either lose their access to health insurance or are locked out from accessing the same owing to funding difficulties. Basically, therefore, this approach would save the taxpayer the burden of a large uninsured population, and would at the same time help states mitigate the risk of having large budgetary deficits in case Congress fails to renew funding to CHIP before September this year.

However, it would also have one major drawback in that it does little, if anything, to resolve the redundancy problem. CHIP would continue to overlap subsidized Insurance Exchanges, and we could essentially end up with a situation where private health coverage is crowded out in the long-term. Moreover, there is the risk of the taxpayer facing a greater financial burden in the long-term as families with employer-sponsored coverage or the relevant qualification for exchange subsides increasingly opt for CHIP.

Using CHIP to fund Medicaid would, therefore, in my view, reduce the financial burden of the states in the short-term, but would not be a sustainable solution in the long-term. Restructure and Reauthorize the CHIP program This, in my view, would be the best way forward because it would take care of both the funding issue and the redundancy problem.

In his testimony to the Rockefeller-chaired Senate Commerce Committee in 2014, Douglas Holtz-Eakin, one of the commissioners of the Congressionally-chartered Financial Crisis Inquiry Commission, points out that the most sustainable solution in the current stalemate lies in Congress reviewing the CHIP program and restoring it to its original intent (Holtz-Eakin, 2014). He posits that due to the changes caused to the program design by the Affordable Care Act, the program has deviated from its initial target design, and a straight reauthorization would, therefore, be a miscalculated move (Holtz-Eakin, 2014).

In order to address the inherent issues, Congress should not only reauthorize the CHIP program, but also restructure it to i) target a specific niche of the population as was originally-intended; and ii) preserve the specific features that made it successful in the first place before it was ruined by ACA.