Children's Health Insurance Is Safe Now, But Uncertainty Awaits

The program that insures millions of lower-income kids has been extended for two more years, but questions about its long-term role in a post-Obamacare world still persist.
by | April 21, 2015

State directors of the Children’s Health Insurance Program (CHIP) breathed a sigh of relief last week when President Obama signed a two-year extension into law. But the question of how or whether to continue the program in the long term remains unanswered.

CHIP was set to expire at the end of September, which would have left an estimated two million children without access to affordable coverage and billions in state budget holes. But it’s likely that the program will face the same questions about its place within the health-care landscape again in 2017.

Congress passed CHIP, which now serves 8 million children, in 1997 along bipartisan lines to help low- to moderate-income families who earn too much to qualify for Medicaid. Like Medicaid, the program is funded jointly between the states and the federal government, though the state matching rate is higher on average. Unlike Medicaid, CHIP is a block-grant program with limited funding, which has allowed states to limit enrollment more, making it more popular with conservatives than Medicaid.

Critics argue that CHIP isn't necessary now that the Affordable Care Act (ACA) offers subsidies for families who don't qualify for Medicaid but still make below a certain threshold. Supporters, though, say CHIP is still needed because Obamacare plans generally charge patients far more in out-of-pocket costs. Without the program, Congress would have to extend the ACA’s benefits to millions more families to avoid coverage lapses.

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Obamacare requires employers to provide “affordable” plans for workers but doesn’t apply that to family coverage, which often costs several times the amount of individual coverage. The ACA also bars people who get coverage from their employer from getting subsidized coverage for their whole family. If CHIP expires and lawmakers do nothing to change the ACA’s affordability definition, it’s estimated that this so-called “family glitch” could cost about 2 million children their health coverage.

In any discussion about CHIP, fixing the family glitch is a top priority. The cost of doing so isn’t certain, but a 2011 study from the University of California-Berkeley estimated an additional $380 million to $820 million in one year alone.

If Congress Lets CHIP Expire

If Congress fixes the family glitch and lets CHIP expire in 2017, two major issues would remain.

The first is affordability. Most states limit what CHIP recipients have to pay to 5 percent of their income; however some require that payments not exceed a fixed dollar amount, and twelve require no out-of-pocket costs at all. A study last year by Wakely Consulting Group compared the costs between CHIP plans and ACA plans at two income levels and found that CHIP is always cheaper. For example, people making 160 percent of the federal poverty line would pay a maximum of $950 with CHIP plans with 5-percent limits and $2,250 with ACA plans, while people making 210 percent of the federal poverty line would pay no more than $1,995 with CHIP and $5,200 with Obamacare.

“Moving to the exchange would definitely mean higher cost-sharing [and] higher out-of-pocket costs, and it could result in some disruption of care if the plans didn’t have the same provider types,” said Lisa Lee, Kentucky’s CHIP director.

The second major issue is the difference in benefits, which can mean huge cost differences. ACA plans have more coverage limits in areas like audiology, over-the-counter medications, speech therapy and other specialties. For example, unlike many Obamacare plans, most states' CHIP plans offer eye glasses at no cost at certain income levels.

If Congress Keeps CHIP

The other possibility is that lawmakers decide to keep CHIP in some form. Republicans, who are likely to hold onto the House in 2016, hinted in a proposal earlier this year that they want a scaled-down program that stops covering children above 300 percent of the poverty line and scales covreage back for those at or above 250 percent. Currently, 17 states cover children with family incomes of at least 300 percent of the federal poverty line. If Congress goes that route in 2017, it would still face calls to end the family glitch. In any event, CHIP directors say, those conversations need to start now.

“Two years for a lot of folks might sound like a lot of lead time," said Sharon Carte, West Virginia’s CHIP director, "but in terms of budget cycles and the rate review that has to occur [for ACA plans], you really have maybe 18 months to get changes in place in order to be ready for that transition.”