SCHIP’s intent, financing fuel federal-state discord

Some governors view the Bush administration’s proposal for the reauthorization of the State Children’s Health Insurance Program (SCHIP) as a retreat from the jointly designed expansions of the program during its 10 years of existence.
The administration, on the other hand, considers the states’ requests for additional federal funding for the expansions as a departure from both the original intent of the program and agreements on how to finance the expansions drawn up between state and federal authorities.

Some governors seem to see this stance as an abdication of the federal responsibility to maintain coverage at the level established through the expansion waivers. Moreover, some governors have stressed, those waivers were approved by the administration.

SCHIP must be reauthorized this year and congressional Democrats are setting aside $50 billion in their budget to enlarge the program. In the meantime, Congress is preparing to appropriate about $750 million to help maintain programs in 14 states with projected funding shortfalls this year.

Since the implementation of SCHIP, the Department of Health and Human Services (HHS) has approved 16 such waivers that expanded coverage to include children from higher-income families and some adults.

But the administration’s latest budget request seeks to limit the federal government’s spending on SCHIP to coverage of children from families with incomes below 200 percent of the federal poverty level. States that want to extend the program to other children, their parents or even childless adults should find their own way to pay for that, the administration contends.
Underpinning the dispute is a question about what the roles of Washington and the states should be in addressing the larger issue of the uninsured at a time when a growing number of states, federal lawmakers and presidential candidates are considering plans for universal coverage.

Unlike under entitlement programs such as Medicare and Medicaid, SCHIP is funded through block grants to states. The total annual federal funding for the program is spelled out in the law and the allotments to states are based on a statutory formula. The federal payment rate to states for SCHIP, however, is higher than it is for Medicaid, making the program a more attractive candidate for expansion.

Under the waivers process, states can petition HHS for permission to use unspent SCHIP dollars to expand their programs rather than forfeit the money to the federal treasury, where it may be redirected to other states. States with Medicaid programs that cover more children than other states, for example, might use less of their SCHIP block grant and seek to dedicate those leftover funds to higher-income kids or to adults.

Governors are particularly sensitive about denying benefits to people already enrolled in programs such as SCHIP. Citing the refusal of Washington to dedicate more money to the program could help governors deflect political criticism if they decide they must scale back SCHIP.

The political tension over financing SCHIP was on display at a meeting of the National Governors Association (NGA) last month.

HHS Secretary Mike Leavitt laid out the administration’s position that states with expanded SCHIP programs seeking more funding had painted themselves into a corner.

“To speak candidly about this, one of the problems that has put states in a position where they run out of allotment before they run out of time is that, in many cases, states chose to continue to enroll people with the anticipation that they’d be able to get the unused allotment from other states,” Leavitt said.

Governors attending the meeting countered that HHS was as responsible for those expansions as they were.

“This is not something which governors went out and ran a million different directions out of the corral and suddenly you looked up and saw what we were doing. This was done hand-in-glove with HHS through waivers that were structured for that particular purpose,” Tennessee Gov. Phil Bredesen (D) said to Leavitt at the NGA meeting.

“Many of us feel like we’ve been encouraged to do that,” New Jersey Gov. Jon Corzine (D) said. Vermont Gov. Jim Douglas (R) credited SCHIP expansions with being an important component of his state’s efforts to reduce the number of uninsured.
On the occasions of those waivers being approved, HHS was quick to share the credit in helping the states to cover more people.

In a press release issued Feb. 5, 2003, for example, then-HHS Secretary Tommy Thompson is quoted as saying, “Working with governors, we’ve made tremendous progress in reaching millions of children with needed health coverage. … Since President Bush took office, we have given states more flexibility and freedom to develop SCHIP plans that best meet the needs of their residents. The strategy is working for children across America, but we must and will do more.”

Tom Scully, the top official at the Centers for Medicare and Medicaid Services at the time, said, however, that the agreements between HHS and the states were not intended to be open-ended.

“We were trying to be creative and cover as many people as we could. ... We basically hung out a banner,” Scully, now a lobbyist with Alston & Bird and a partner at the investment firm Welsh, Carson, Anderson & Stowe, said.

But Scully stressed HHS approved the expansions based on the availability of existing federal dollars, not the promise of future funding. “There was a finite pot of money before” that is no longer available to many of the states that extended SCHIP to more people, he said.

The waivers were approved as demonstration projects, not permanent expansions of SCHIP, an HHS spokeswoman said. These waivers stated that the expansions were to use unspent federal funds and that alternative financing would be needed when those dollars ran out, she said.