Governors resist pressure for alternatives on SCHIP

State governors are resisting administration pressure to consider something other than swift congressional action to fill a funding shortfall for their children’s health insurance programs.

High up the agenda of the National Governors Association (NGA) winter meeting that ended Monday were demands for $745 million in new federal money to keep as many as 14 states from having to take drastic actions to keep their State Children’s Health Insurance Programs (SCHIPs) afloat through the end of the fiscal year.

Georgia Gov. Sonny Perdue (R) has frozen enrollment in his state’s program, which faces an estimated $118 million shortfall this year.

Governors have pressed President Bush for help and sent a letter to congressional leaders in both parties Monday asking for more money this year.

The program expires at the end of the fiscal year and anxiety about short-term funding is only one part of a broader debate about the size and scope of SCHIP that pits congressional Democrats and governors against the administration.

Congressional Democrats are working on a short-term funding bill that could be attached to the supplemental appropriations bill to fund the wars in Iraq and Afghanistan.

The administration says it wants legislative solutions to the financing shortfalls, Health and Human Services (HHS) Secretary Mike Leavitt emphasized at the NGA meeting Monday.

But Leavitt also said the administration is ready for states to collaborate on ways to protect their beneficiaries if new appropriations do not come through.

“We are working on developing contingency plans to assure that people do not lose their healthcare, but I feel confident that working with Congress we can resolve this,” Leavitt said. The administration has also proposed that states with unspent SCHIP allocations transfer them to states with shortfalls, but governors have been cool to the idea.

The governors have sought to portray the SCHIP funding shortfalls as a crisis demanding quick passage of additional funds and say Congress and the administration bear responsibility for preventing low-income children from losing health coverage.

But the governors so far have declined to pursue alternative means to maintain coverage for these children (and, in some cases, their parents) that already exist under law.

An HHS spokeswoman said, “We have offered to work with states, beyond the congressional action … on trying to come up with solutions” that would require administrative amendments to their SCHIP and Medicaid programs.

One solution would be to shift state SCHIP beneficiaries into Medicaid. Although the federal and state governments share Medicaid and SCHIP costs, the children’s program is not an entitlement like Medicaid, so if federal funds dry up, states would be left to foot the entire cost. Under entitlement programs like Medicaid, the federal government’s financial responsibilities are open-ended.

New Jersey Gov. Jon Corzine (D) acknowledged that the states have at their disposal mechanisms other than more federal appropriations.

“That’s a possibility,” Corzine said of transferring SCHIP beneficiaries into Medicaid, adding that money could be diverted from other healthcare programs. “I think there are different strategies of what they can engineer,” he added.

But Corzine said he would prefer more federal dollars this year for his state, which faces an estimated $157 million SCHIP shortfall and expects to run out of money by May. “I think the most important thing is to focus on getting the supplemental done in an expeditious and timely manner … so we don’t have to go through [these] stretch maneuvers,” he said.

In an analysis last Friday of the additional money needed to maintain SCHIP in its current state, the Congressional Budget Office (CBO) assumes that states would move children into Medicaid to deal with the shortfall. The CBO calculates that federal spending on Medicaid would decline by $30 million if $740 million in new money were allocated to SCHIP this year.

Moving SCHIP Kids into Medicaid could be complicated, said Cindy Mann, executive director of the Center for Children and Families at the Georgetown University Health Policy Institute. States must weigh the pros and cons of shifting children from program to program against the possibilities of freezing enrollment, dropping children off the rolls or reducing benefits, she said.

“A state can go back and forth at will,” Mann said, adding that it would be easier in states where SCHIP was established as an expansion of Medicaid than in states that set up entirely separate programs.

The federal government pays a higher rate to states for SCHIP than they do for Medicaid, Mann said.

Medicaid benefits also tend to be more generous than SCHIP benefits, so states that move children into Medicaid would confront a difficult political decision to move them back at a later date, said Joy Johnson Wilson, director of health policy at the National Conference of State Legislatures.

Because of the differences in federal payments for Medicaid and SCHIP, enrolling beneficiaries in Medicaid also would have a disruptive effect on states’ budget projections, Johnson Wilson said.