Healthcare funding put on hold amid wrangling over Iraq bill

As congressional Democrats and the White House wrestle over the funding and conduct of the Iraq war, state governors and low-income children could be left in the lurch waiting for money to maintain a popular healthcare program.

As many as 14 states are projected to run out of federal funds for their State Children’s Health Insurance Programs (SCHIP) before the end of the current fiscal year on Sept. 30. Congress has agreed to set aside hundreds of millions of dollars to bail out these states, but the funding is included in the supplemental appropriations bill for the conflicts in Iraq and Afghanistan.

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Absent these funds, states will be left to their own devices to prevent children from being thrown off the benefit rolls.

Last week, President Bush vetoed the first version of the supplemental bill passed by Congress, objecting to the Democrats’ attempts to tie the funds to changes in his war policy. That bill would have allocated $750 million to fill the projected near-term SCHIP shortfalls.

On Tuesday, the National Governors Association (NGA) delivered to congressional leaders a letter emphasizing the importance of these SCHIP appropriations to the states.

“We write to urge you to take whatever action necessary to ensure that a bipartisan funding proposal that protects those currently served by the program gets enacted quickly,” the governors wrote, adding that they want to see the SCHIP allocation signed into law before Memorial Day, May 28.

NGA Chairwoman and Arizona Gov. Janet Napolitano (D), NGA Vice Chairman and Minnesota Gov. Tim Pawlenty (R),
New Jersey Gov. Jon Corzine (D) and Vermont Gov. Jim Douglas (R) signed the letter. Minnesota and New Jersey are among the states that could run out of SCHIP money this year, according to the Kaiser Commission on Medicaid and the Uninsured.

The latest version of the supplemental appropriations measure, which was headed toward votes in Congress yesterday after press time, would provide $650 million for SCHIP, $100 million less than the first Iraq bill.

A House Appropriations Committee spokeswoman said that the Department of Health and Human Services (HHS) had reevaluated how much the shortfalls would cost the federal government. HHS also estimates that only 11 states face shortfalls.The Congressional Budget Office concurred with HHS’s analysis, leading the committee to dial down its appropriation, the panel’s spokeswoman said.

President Bush already has indicated that he would veto the new version of the Iraq bill.

States have been angling for additional federal money since last year. They contend that without these dollars, some governors would be forced to take steps such as restricting enrollment in their SCHIP programs, which provide healthcare benefits to low-income children and some adults.

In the meantime, Congress has also begun the work of drafting a five-year, $50 billion reauthorization and expansion of SCHIP. The entire program also expires at the end of the fiscal year. Democratic leaders in both chambers have identified SCHIP reauthorization as of one of their primary domestic policy issues for 2007.

SCHIP is jointly financed by federal and state dollars. The federal contribution is based on a fixed annual allocation, or block grant, to each state. By contrast, federal spending on entitlement programs like Medicare and Medicaid is mandatory and open-ended.

States that run short of federal money have several options to keep their programs running, but all are politically painful.

For example, states can freeze enrollment at the current level by not allowing otherwise eligible children to sign up. They can also implement stricter requirements for eligibility or use state funds to fill the gap in hopes of later federal help.

In addition, states that created their SCHIP programs as offshoots of their Medicaid programs — as opposed to establishing entirely separate entities — can shift children into Medicaid. But Medicaid provides states with a smaller percentage of funding for their care than does SCHIP.

Georgia already has taken several of these steps while the state awaits federal help, and as time marches on, other states will have to do the same, according to Bruce Lesley, the president of First Focus, a children’s advocacy organization.

“A slew of other states are now right behind” Georgia, Lesley said, predicting that the number of states actually out of federal money will mount by late summer.

In February, HHS Secretary Mike Leavitt said at an NGA meeting in Washington that the department would try to help states while the appropriations were pending.

But the Centers for Medicare and Medicaid Services (CMS), which manages Medicare, Medicaid and SCHIP, is limited in what it can do without new legislation to mitigate the consequences of the funding shortfall, CMS spokeswoman Mary Kahn said.

“Either there will be an appropriation or there won’t be,” Kahn said. “There’s no federal contingency plan.”

Kahn noted, however, that CMS could help states expedite moving their children from SCHIP to Medicaid. In the future, the agency also could help states undo the change and return the children to the SCHIP rolls, and allocate the corresponding higher federal payments.