Future of CHIP Under Obamacare Is Unclear
The Children’s Health Insurance Program got a big boost under the Affordable Care Act, which called for an increase in federal funding for the program and required states to maintain 2010 enrollment levels through 2019.
But in the waning days of the lame-duck Congress, it is still not clear when or whether funding for the federal-state, low-income children’s health plan known as CHIP will be authorized beyond Sept. 30, when it is set to expire.
At issue is whether the subsidized health plans offered on the state and federal health insurance exchanges created under the ACA are an adequate alternative to CHIP. Program advocates say current exchange insurance policies are no substitute for CHIP coverage, although they may improve over time. The question is how soon.
“CHIP was designed with children in mind,” said Jim Kaufman, vice president of public policy for the Children’s Hospital Association. “That’s the key.” In contrast, he said, ACA insurance exchange policies were designed primarily for adults. “That has very real implications for the quality of care kids receive.”
Advocates for the program have been pressuring Congress for more than a year to reauthorize funding as soon as possible to avoid a gap in the $13 billion program, which more than 8 million kids and their families rely on. At least 39 governors, Democrats and Republicans, are part of the chorus.
“The bottom line is that the CHIP has decreased the number of uninsured children in our state and that there remains a need for the CHIP until low-income working families have a viable alternative to providing care for their children,” Republican Utah Gov. Gary Herbert wrote in a letter to Congress last month.
Enacted in 1997 by a bipartisan vote, CHIP covers kids in families with incomes too high to qualify for Medicaid but too low to afford private insurance. The federal government gives money to states and then allows them wide leeway to tailor programs to meet their residents’ needs.
CHIP continues to enjoy strong bipartisan support among states and members of Congress. Even so, some budget-conscious members of the new Congress are expected to balk at the notion of continuing to spend federal dollars for the program, let alone increase the federal share of funding.
Supporters argue that extending CHIP may not result in a net drain on federal funds, since the families of many of the kids who lose coverage would otherwise seek federal tax subsidies on federal and state health insurance exchanges or sign up for Medicaid.
The federal government pays an average of more than 70 percent of the total bill for CHIP coverage and that level will increase next year, if the program continues. States and other supporters are asking Congress to continue its support for at least four more years of CHIP. After that, states will be released from their obligation under the ACA to maintain current enrollment criteria and could shut down their programs if federal funding is cut off. If Congress abandons the program, most states are unlikely to pay for it on their own.
The House Energy and Commerce Committee on Wednesday held a hearing on the issue. States are eager for quick federal action so they can determine whether to appropriate CHIP matching funds before most state legislatures open their doors in January.
Designed for Kids
The Medicaid and CHIP Payment and Access Commission (MACPAC), a federal agency that provides policy and data analysis to Congress and the White House, has suggested a two-year renewal that could be extended if exchange policies continue to fall short of CHIP standards during that time. At Wednesday’s hearing, MACPAC director Anne Schwartz testified that in fiscal year 2016, the reauthorization would amount to a federal expenditure of $15 billion with the 23 percentage point increase in the federal share the ACA calls for, and $11 billion without the ACA increase.
Under the federal law that created CHIP, states can set up separate CHIP programs or run them as extensions of Medicaid. Nineteen states run separate programs and the rest cover children primarily under expanded Medicaid programs. Some states run both types of programs.
In both cases, the pediatricians and hospitals in the program have been selected because they are particularly suited to serve the needs of low-income kids, and out-of-pocket expenses for parents are lower than the fees charged by employer-offered plans. One difference is that separate CHIP programs typically pay doctors a slightly higher fee than those run through the Medicaid program, often making it easier to get an appointment with a pediatrician.
The benefits package in both types of programs includes dental, vision, hearing and behavioral health services, as well as “early and periodic screening, diagnostic and treatment,” which private insurers on and off the exchange typically do not include. “This is the best benefit package available for kids right now,” Kaufman said.
Another big consideration is that CHIP is more affordable than current exchange policies, at least for now. The worry is that many parents couldn’t afford the out-of-pocket expenses associated with exchange policies, said Joan Alker, director of the Georgetown University Center for Children and Families, which supports CHIP.
A study commissioned by the Robert Wood Johnson Foundation and child advocates First Focus found a substantial increase in estimated out-of-pocket costs for exchange policies when compared to CHIP. Although CHIP premiums and other costs vary widely among states, the report by Wakely Consulting Group found that exchange policies, on average, had higher copays, deductibles and coinsurance charges.
The Family Glitch
About 4 million children—or half of all covered children—would be at risk of losing CHIP coverage in the first year if Congress fails to renew funding, according to preliminary estimates by the Georgetown University center and another family advocacy group, the Center on Budget and Policy Priorities. Of those kids, as many as 2 million would not qualify for exchange subsidies because of what is known as “the family glitch,” according to a report from the U.S. Government Accountability Office.
An apparent drafting error, the “family glitch” in the ACA requires employers to provide “affordable” insurance only for the workers themselves – not for their families. Premiums for individual employee-offered coverage may not exceed 9.5 percent of a worker’s salary. But there is no limit on what employees have to pay for family coverage, which typically costs close to three times as much as individual coverage.
Under the ACA, people with incomes between the federal poverty level ($11,670 for an individual) and 400 percent of the federal poverty level ($45,600 for an individual) whose employers have not offered them “affordable” insurance (with premiums that do not exceed 9.5 percent of the worker’s salary) are eligible for federal subsidies to help them purchase insurance on an exchange. But because of the “family glitch,” those who need family coverage have nowhere to go except CHIP or Medicaid.
Historically, CHIP has covered kids up to 19 years old with family incomes ranging from 138 percent of the federal poverty level ($32,913 for a family of four) to as high as 405 percent ($96,592 for a family of four), depending on the state. In families with incomes below 138 percent of poverty, young children from infancy to 6 years old are covered by Medicaid.
Programs administered through Medicaid would continue to receive federal funding even if CHIP funding is cut off, although the federal share would be lower. At the House committee hearing, MACPAC’s Schwartz clarified that states running CHIP programs as an extension of Medicaid would have to continue those programs until 2019 even if federal CHIP funds are cut off.
However, “states operating separate CHIP programs are not obligated to continue funding their programs if federal CHIP funding is exhausted and will most likely terminate such coverage,” Schwartz said.
Cost and Spending
The current average federal share of Medicaid spending is 57 percent, compared to an average of 70 percent for CHIP, according to data from the Kaiser Family Foundation. If Congress extends the program, the ACA calls for the federal government to cover more than 93 percent of the cost of CHIP.
Across the states, an average of 88 percent of eligible children were enrolled in either CHIP or Medicaid in 2012, compared to only 74 percent of eligible adults enrolled in Medicaid, according to an analysis from the Urban Institute. CHIP’s high enrollment rate is due in part to the high matching rate, but state’s also get bonus payments for enrolling more kids. In 21 states, participation rates are 90 percent or higher, while four states — Alaska, Montana, Nevada and Utah — signed up fewer than 80 percent of those eligible.
Since its enactment, CHIP has been instrumental in lowering uninsured rates among children, according to a new report from the Pew Charitable Trusts (Pew funds Stateline). The number of uninsured kids has fallen from 10.7 million (15 percent of all children) in 1997 to 6.6 million (9 percent) in 2012.
Although costs to states and the federal government have risen because of increased enrollment, the Pew study found CHIP spending per child to be about 40 percent less than employer-sponsored insurance and Medicaid in 2010, the last year for which data were available for all insurance types.
In Alabama, which has one of the highest CHIP enrollment rates in the nation at 91 percent, the ACA-mandated increase in federal funding means the state’s share would drop to zero.
When the Alabama legislature convenes in January, the state’s CHIP agency may be in the awkward position of having to ask for state money without knowing whether Congress will continue the program, said Cathy Caldwell, director of Alabama’s CHIP agency.
Alabama has 63,000 kids enrolled in a separate CHIP program that almost certainly would be shut down if Congress does not approve funding. If that were to happen, Caldwell said, “it would create complete chaos.” She noted that some parents already are hearing about the national debate over federal funding. “They’re saying, ‘Oh no! Are we going to get cut off?’”