States Bank on Congress Funding Children's Insurance

Most governors are planning their budgets with the assumption that Congress will renew CHIP funding. But if it doesn't, states will scramble to make up for the loss.
by | February 19, 2015

Facing the loss of billions of dollars in federal matching funds later this year, most states are assuming Congress will renew funding for the Children’s Health Insurance Program, according to a survey from the National Academy for State Health Policy.

Of the 46 CHIP directors who responded to the survey, 33 said their governors are presenting budgets for the next fiscal year -- starting July -- that assume the federal government will continue funding its portion of the program, which serves about eight million low-to-moderate-income children.

Twelve directors said they were unsure, many because their governors hadn’t yet released a budget at the time of the survey in January. One state didn’t answer the survey question.

At stake are billions of dollars in revenue and a loss of insurance coverage for an estimated two million children. Passed in 1997, CHIP has received bipartisan -- but far from universal -- support while cutting the uninsured rate among children in half.

Multiple bills were introduced in the last session of Congress, and committees with jurisdiction over the program have sought input from governors about how to proceed with a reauthorization that takes into account the expansion of insurance coverage through the Affordable Care Act. Two fresh bills were introduced in the House and Senate last week, both offered by Democrats with no Republican co-sponsors yet.

The assumptions from governors despite the uncertain status of reauthorization on Capitol Hill likely reflects budgetary reality, said Maureen Hensley-Quinn, NASHP's program director for children's health coverage. They have to pass a budget in the coming months with or without final word from D.C., and many states anticipate they'll have enough funding to make it through the calendar year, she said.

“States are in a tough position right now where their legislatures are meeting -- depending on the state, but many are meeting now -- and some have deadlines that will end soon,” Hensley-Quinn said.

CHIP is funded jointly by the states and the federal government but at a higher matching rate than Medicaid. The federal government pays 57 percent of the costs for Medicaid, on average, but 70 percent of the costs for CHIP. If Congress fails to act before the new federal fiscal year starting in October, states would likely exhaust their federal funding in the next year, according to NASHP.

A provision of the ACA is likely to make that happen even faster, NASHP predicts, because the health law increases the federal share by 23 percent in October in an effort to bring funding closer to the Medicaid expansion rate of 90 percent. Eighteen CHIP directors reported their governors’ budgets assumed the federal government will maintain the matching-rate increase, while 10 said their budget doesn’t assume an increase and 17 said they’re unsure.

That 23-percent bump will likely play a key part in negotiations between Democrats and Republicans, who will want some changes before reauthorizing the program, said Billy Wynne, a lobbyist who previously worked as health-care counsel on the Senate Finance Committee under former Sen. Max Baucus.

But Wynne said he think states will be able to count on at least a two-year extension, likely without the increased matching rate, because he's heard interest on both sides. That could come in a spring package to avoid cuts to Medicare payments, but it could also come at the last minute as pressure mounts, he said. "Shutting down the Department of Homeland Security [over President Obama's immigration action] is one thing," he said. "Shutting down health care for kids is a whole different thing."    

States varied in response to questions about contingency planning, should the federal government fail to renew funding. Three said they’ve already begun, while 16 said they’ll need to begin making plans in the next several months. Others offered no timeline but said they’d need about a year to transition patients from CHIP to something else.

Exactly what else and how much flexibility states will have are still questionable. Policies on the health exchanges could be unaffordable for many families, and the Department of Health and Human Services has yet to authorize such an approach.

A number of states have moved their CHIP programs into Medicaid, which would require them to maintain coverage because Medicaid is an open-ended entitlement, not a block grant like CHIP. Eight states cover all CHIP recipients through Medicaid, including Ohio, South Carolina, California and Maryland. They would continue to receive federal funding, only at a reduced Medicaid rate.

Fourteen other states operate wholly separate programs, while the rest run mixed programs depending on income levels. The funding loss for states that run CHIP through Medicaid could approach $1 billion, according to Georgetown University. States operating separate CHIP programs would have to come up with upwards of $5 billion to continue running their programs because they wouldn’t have access to even a reduced Medicaid rate if federal funding evaporated.

The National Governors Association sent a letter Wednesday to Republican committee chairmen urging swift reauthorization so states have budgetary certainty. "The future of CHIP is a critical issue--one that should be addressed early in the 114th Congress," the NGA wrote. "Governors urge you to protect children's coverage and give states certainty by moving quickly to maintain support for this important program."