What Will Happen If Congress Doesn’t Renew CHIP

If the new Congress defunds the Children’s Health Insurance Program, the impact on states will vary.
by | December 2014
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From its inception in 1997, the Children’s Health Insurance Program has enjoyed a large measure of bipartisan support. After all, who wouldn’t support insuring kids? But given the state of national politics, its reauthorization next year is in some doubt. And if the program isn’t reauthorized, states will be left scrambling to fill budget holes and find ways to maintain coverage for some 4 million children at a cost that could climb into the billions.

MORE: Read the rest of the December issue.

Like Medicaid, the Children’s Health Insurance Program (CHIP) is funded jointly by the states and the federal government. Unlike Medicaid, CHIP insures children from families with higher income levels and comes with a significantly better federal matching rate. On average, the federal government pays 57 percent of the costs for Medicaid but 70 percent of the costs for CHIP. How each state would be affected if CHIP is not renewed varies, since each state runs its program differently. Some states keep their CHIP programs wholly separate from Medicaid; other states have simply expanded Medicaid to encompass CHIP; still others operate a combination of the two depending on income levels.

The eight states that cover all CHIP recipients through Medicaid would see their federal assistance drop to Medicaid levels, costing them about $1 billion collectively, according to Georgetown University’s Health Policy Institute. Those states, which are politically diverse and include California, Maryland, Ohio and South Carolina, would be required to continue covering CHIP recipients because they’re a part of Medicaid, which is an unlimited entitlement program, not a limited block grant like CHIP.

The 14 states that operate totally separate programs, however, wouldn’t even have the benefit of funding reduced to Medicaid levels. Those states would have to pay the entire cost of the program, which would mean upwards of $5 billion. Since their programs are separate, these states are also not under obligation to continue covering CHIP recipients. For the remaining states, the budget implications vary wildly.

Most states won’t yet publicly discuss what they would do if the program is not renewed, but shuttering it would be a likely scenario for some states. Alabama, which operates a totally separate program, is already planning its budget for the next fiscal year, which starts in July. Its CHIP planners are assuming Congress will reauthorize the program, but they admit that could change and they’d likely have to pull funding if federal money evaporates. “Our legislature will come in session in March, so I’m sure at that point in time there will be a lot of discussion and a lot of anxiety if Congress hasn’t taken action,” says Cathy Caldwell, the state’s CHIP director.

That’s a possibility, given how toxic politics are at the national level. Due to something called the “family glitch” in the Affordable Care Act, the reauthorization of CHIP is particularly important. If it’s not reauthorized, millions of kids could end up without health insurance because of a mistake in the law that requires employers to provide affordable coverage to their workers but not necessarily their workers’ families. The program’s more centrist conservative supporters would like to see the Affordable Care Act modified to allow people to get cheaper family coverage. But some Democrats will likely oppose turning CHIP over to the exchanges because those insurance plans are more expensive, and some Republicans will oppose that route because it only serves to further cement a law they’ve pledged to repeal.

That’s why state officials and CHIP advocates are hoping Congress will ultimately decide on an extension. They’re hoping pressure from governors and the negative optics of a standoff over children’s insurance will prod Congress forward. “It doesn’t behoove either side to allow this to go to crisis mode,” says Bruce Lesley, president of First Focus, a child advocacy organization.