CHIP Program: Abolish, Reform, or Absorb into Medicaid?

Introduction

The State Children's Health Insurance Program (SCHIP), commonly referred to as CHIP (Children's Health Insurance Program), is an insurance program run by the Department of Health and Human Services that administers funds to states to enable them to provide quality insurance coverage to eligible children within their jurisdictions. To be eligible for CHIP, a child must come from a family whose income is too low to qualify for private insurance coverage but too high to qualify for Medicaid (Holtz-Eakin, 2014).

With the introduction of the Affordable Care Act (ACA), commonly referred to as ObamaCare, which expanded the list of persons eligible for both Medicaid and CHIP, there came many overlaps between CHIP and other secondary insurance options that threatened budgetary allocations and funding to the former. Owing to this, considerable controversy arose over whether funding for CHIP ought to be reauthorized through FY 2019. One faction argues that reauthorization is warranted because failing to do so could result in health insurance losses for over 2 million CHIP-eligible children. The other faction, however, believes that CHIP participants should simply transition to Medicaid, making expanded funding for CHIP unnecessary.

This paper presents the background of the ACA and examines its effect on the CHIP program. The future for CHIP, it is argued here, lies in restructuring the program and restoring it to its original intent.

Background of the CHIP Program

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 established with the aim of providing insurance coverage to children in families that cannot afford private coverage. It came into being in 1997 following the passage of the Balanced Budget Act through 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. 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).

Importantly, CHIP is an allotment to states, and states therefore retain the discretion to choose benefit requirements and the administrative structure within which the program is run in their jurisdictions (Holtz-Eakin, 2014). Eligibility rules vary from state to state, ranging between 138 and 405% of the Federal Poverty Level (FPL). A majority of states cover incomes above 200% of the FPL. Benefits and cost-sharing requirements also vary by state. Some states require participating families to pay co-pays and monthly premiums depending on their financial status (Holtz-Eakin, 2014). Generally, however, 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, offers 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. Since its enactment in 2007, CHIP helped reduce the number of uninsured children from 15% to 9%, and it continues to enjoy massive support from both Republicans and Democrats at the state and federal levels (Vestal, 2015). In a recent address to the Chamber of Commerce, Republican Senator Orrin Hatch of Utah referred to the CHIP program as "a marvelous program that has worked very, very well" (Vestal, 2015, n.p.).

Funding Challenges and the ACA's Impact

There are two main issues threatening the sustainability of the CHIP program: the issue of funding and the redundancy problem, both of which are a direct result of the ObamaCare health reform.

Funding

CHIP's funding is not permanent, which means that all appropriations must receive Congressional 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 extended the scheduled reauthorization until 2009. The CHIPRA did not merely extend the authorization; it also made significant alterations that expanded the entitlement program — instituting bonus payments by states, removing insurance crowd-out provisions, patching funding shortfalls, and increasing eligibility levels (Holtz-Eakin, 2014). In 2009, lawmakers again extended the CHIP reauthorization to FY 2013, and in 2010, the Affordable Care Act was passed, extending it further to FY 2015 and placing a requirement on states to maintain the already-expanded CHIP eligibility levels through 2019 (Holtz-Eakin, 2014). While both the CHIPRA and the ACA strengthened the CHIP program, they also created an apparent need for Congressional action to address the program's funding after FY 2015.

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 above Medicaid qualification. The ACA altered this niche, changing not only the number of children 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 cost approximately $21 billion in FY 2015, divided into a large sum of $15.4 billion at the start of the year and two smaller sums totaling $5.7 billion across both halves of the year (CBO, 2014). However, the CBO predicted that the $5.7 billion appropriations would not be sufficient to cover the program's total cost given the expansion in eligibility levels occasioned by the ACA, increasing the risk of large state budget deficits in subsequent years (CBO, 2014).

The Funding Gap

The ACA created a provision requiring states to maintain the eligibility levels specified at the time of the Act's passage through 2019 but provided funding for the program only until September 2015. This created an unfunded gap from October 2015 through 2019, during which, in the absence of Congressional action, states could find themselves running their CHIP partnership programs without their federal partner for approximately four years (Holtz-Eakin, 2014). This would mean that states either cover 100% of the total program cost or reduce their funding to Medicaid levels, risking extremely large budget deficits (Holtz-Eakin, 2014). The Government Accountability Office (GAO) estimates that a majority of states would scale back the program in 2020 — the year immediately following the expiration of ACA regulations (GAO, 2012). This is especially the case for states that fund Medicaid coverage for children using CHIP. In the absence of CHIP funding, 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 the program.

Conclusion

The Children's Health Insurance Program (CHIP) has been a subject of debate and controversy in recent years. While there is no doubt that CHIP has done much to reduce the number of uninsured children in the country since its establishment in 1997, lawmakers and policymakers remain divided over whether the country is better off with it or without it. One of the key arguments put forth by those advocating abolition is that CHIP is likely to crowd out private insurance in the long term and ought therefore to be replaced with employer-sponsored and Insurance Exchange plans. Proponents of the program, however, dispute this, arguing that insurance exchanges and employer-sponsored insurance plans are beyond the reach of most Americans, especially the poor. This group has proposed two alternative solutions to abolishment: the integration of CHIP into Medicaid and the restructuring and reauthorization of CHIP funding. The latter of these two alternatives promises to be the more sustainable long-term solution, as it addresses both the funding gap and the redundancy problem while preserving the program's original purpose and state-level flexibility.

References

CBO. (2014). An update to the budget and economic outlook 2014 to 2024. Congressional Budget Office. Retrieved May 6, 2015, from http://www.cbo.gov/sites/default/files/cbofiles/attachments/45653-OutlookUpdate_2014_Aug.pdf

Ewing, M. T. (Ed.). (2008). State children's health insurance program. Nova Publishers.

GAO. (2012). What GAO found. Government Accountability Office. Retrieved May 7, 2015, from http://www.gao.gov/products/GAO-12-648

Holtz-Eakin, D. (2014). The Children's Health Insurance Program: Status and outlook. Testimony before the United States Senate Committee on Finance, Subcommittee on Health. Retrieved May 6, 2015, from http://www.finance.senate.gov/imo/media/doc/Testimony%20of%20Douglas%20Holtz-Eakin%20-%20Senate%20Finance%202014-09-16.pdf

The American Academy of Pediatrics. (2014). Wisconsin: 2014 CHIP factsheet. American Academy of Pediatrics. Retrieved May 7, 2015, from

Vestal, C. (2015). Waiting for the Children's Health Insurance Program. The Pew Charitable Trusts. Retrieved May 5, 2015, from http://www.pewtrusts.org/en-research-and-analysis/blogs/stateline/2015/3/20/waiting-for-the-childrens-health-insurance-program