Children's Health Insurance: State Experiences in Implementing	 
SCHIP and Considerations for Reauthorization (01-FEB-07,	 
GAO-07-447T).							 
                                                                 
In August 1997, Congress created the State Children's Health	 
Insurance Program (SCHIP) with the goal of significantly reducing
the number of low-income uninsured children, especially those who
lived in families with incomes exceeding Medicaid eligibility	 
requirements. Unlike Medicaid, SCHIP is not an entitlement to	 
services for beneficiaries but a capped allotment to states.	 
Congress provided a fixed amount--$40 billion from 1998 through  
2007--to states with approved SCHIP plans. Funds are allocated to
states annually. States have 3 years to use each year's 	 
allocation, after which unspent funds may be redistributed to	 
states that have already spent all of that year's allocation.	 
GAO's testimony addresses trends in SCHIP enrollment and the	 
current composition of SCHIP programs across the states, states' 
spending experiences under SCHIP, and considerations GAO has	 
identified for SCHIP reauthorization. GAO's testimony is based on
its prior work; analysis of the Current Population Survey, a	 
monthly survey conducted by the U.S. Census Bureau (2003-2005);  
information from states' annual SCHIP reports (2002-2005); and	 
SCHIP enrollment and expenditure data from the Centers for	 
Medicare & Medicaid Services (1998-2005).			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-447T					        
    ACCNO:   A65466						        
  TITLE:     Children's Health Insurance: State Experiences in	      
Implementing SCHIP and Considerations for Reauthorization	 
     DATE:   02/01/2007 
  SUBJECT:   Allocation (Government accounting) 		 
	     Allotment						 
	     Children						 
	     Cost overruns					 
	     Cost sharing (finance)				 
	     Federal aid to states				 
	     Federal law					 
	     Federal/state relations				 
	     Health care programs				 
	     Health insurance					 
	     Medicaid						 
	     Medically uninsured				 
	     Program evaluation 				 
	     Policies and procedures				 
	     State Children's Health Insurance			 
	     Program						 
                                                                 

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GAO-07-447T

   

     * [1]Background

          * [2]SCHIP Allotments to States
          * [3]SCHIP Design Choices
          * [4]SCHIP Coverage of Adults

     * [5]SCHIP Enrollment Has Grown Rapidly; States' Rates of Uninsur
     * [6]States' SCHIP Programs Reflect a Variety of Approaches to Pr

          * [7]States Employ All Three Design Approaches, with Coverage Gen
          * [8]Separate Child Health Program Benefit Packages Reflect the F
          * [9]Most SCHIP Programs Require Cost-Sharing, but Amounts Charge
          * [10]Few States Offer Premium Assistance Programs
          * [11]Adult Coverage in SCHIP Is Primarily Accomplished through Wa

     * [12]States' SCHIP Spending Was Initially Low but Now Threatens t

          * [13]Program Spending, Low in SCHIP's Early Years, Exceeded Allot
          * [14]Some States Consistently Spent More than Their Allotted Fund

     * [15]Considerations for SCHIP Reauthorization
     * [16]GAO Contacts and Acknowledgments
     * [17]Related GAO Products

          * [18]Order by Mail or Phone

Testimony

Before the Committee on Finance, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EST
Thursday, February 1, 2007

CHILDREN'S HEALTH INSURANCE

State Experiences in Implementing SCHIP and Considerations for
Reauthorization

Statement of Kathryn G. Allen Director, Health Care

GAO-07-447T

On March 12, 2007, table 3 on page 22 was revised, primarily to eliminate
the state of Utah, which does not use SCHIP funds for adult coverage.
Removing Utah from this table resulted in changes to the text on the
Highlights page, as well as pages 3, 12, 21, 31, 33, and 35.

See next page for more details.

Changes by Line Number

Page                     Line no. Change                                   
Highlights (under "What        15 Replace "January" with "February"        
GAO Found")                                                                
                                  16 Replace "15" with "14"                   
p. 3                           13 Replace "January" with "February"        
                                  14 Replace "15" with "14"                   
p. 12                          14 Replace "January" with "February" and    
                                     "15" with "14"                           
p. 21                          24 Replace "January" with "February"        
                                  25 Replace "15" with "14"                   
p. 22 (table 3) Arkansas        6 In the Childless Adults, remove          
                                     checkmark                                
Illinois                       11 Under Percentage of FPL, delete "200     
                                     (parents);" and (childless"              
Illinois                       12 Under Percentage of FPL, delete          
                                     "adults)"                                
Oregon                         19 Under Pregnant Women, remove checkmark;  
                                     Under Childless Adults, add checkmark    
Utah                           22 Delete this row from the table           
Virginia                       23 Replace "200" with "166"                 
                                  25 Replace "GAO analysis of waiver          
                                     documents and correspondence" with       
                                     "CMS"; and replace "January" with        
                                     "February"                               
p. 31 Footnote 43               1 Replace "January" with "February" and    
                                     "15" with "14"                           
Footnote 43                   2-3 Delete "One state, Utah, had an approved 
                                     waiver but had not yet implemented it."; 
Footnote 43                     3 Replace "additional" with "of the 14"    
p. 33                          23 Replace "January" with "February" and    
                                     "15" with "14"                           
                                  24 Replace "Six" with "Five" and "15" with  
                                     "14"                                     
                                  26 Replace "three" with "two"               
                                  28 Delete ", while Utah had not implemented 
                                     its approved waiver"                     
p. 35                          24 Replace "15" with "14"                   

Mr. Chairman and Members of the Committee:

I am pleased to be here today as you address the reauthorization of the
State Children's Health Insurance Program (SCHIP). In August 1997,
Congress created SCHIP with the goal of significantly reducing the number
of low-income uninsured children.^1 Prior to SCHIP, approximately 19
million Medicaid beneficiaries were children, and combined federal and
state expenditures on their behalf totaled $32 billion. However, there
remained an estimated 9 million to 11.6 million children who were
uninsured at some time during 1997. SCHIP was established to provide
health coverage to uninsured children in families whose incomes exceeded
the eligibility requirements for Medicaid. Without health insurance
coverage, children are less likely to obtain routine medical or dental
care, establish a relationship with a primary care physician, and receive
immunizations or treatment for injuries and chronic illnesses.

SCHIP offers states flexibility in how they provide health insurance
coverage to children. States implementing SCHIP have three approaches in
designing their programs: (1) a Medicaid expansion, which affords
SCHIP-eligible children the same benefits and services that a state's
Medicaid program provides; (2) a separate child health program distinct
from Medicaid that uses, for example, specified public or private
insurance plans; and (3) a combination program, which has a Medicaid
expansion and a separate child health program. At the time of enactment,
Congress appropriated a fixed amount of funds--approximately $40 billion
from 1998 through 2007--to be distributed among states with approved SCHIP
plans. Unlike Medicaid, SCHIP is not an entitlement to services for
beneficiaries, but a capped grant--or allotment--to states. SCHIP funds
are allocated annually to the 50 states, the District of Columbia, and the
U.S. commonwealths and territories.^2 Each state's annual SCHIP allotment
is available as a federal match based on state expenditures and is
available for 3 years, after which time any unspent funds may be
redistributed to states that have already spent their allotments.^3

1Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, S 4901, 111 Stat.
251, 552-570 (Aug. 5, 1997) (adding Title XXI and new sections 2101-2110
to the Social Security Act, codified, as amended, at 42 U.S.C. SS
1397aa-1397jj). For the remainder of this report, we will only refer to
provisions of the U.S. Code when referencing SCHIP requirements.

^2This testimony focuses on SCHIP programs in the 50 states and the
District of Columbia. Tennessee did not have a SCHIP program, as of
October 2002. However, on September 6, 2006, the state submitted a SCHIP
plan for Centers for Medicare & Medicaid Services (CMS) approval.

As Congress considers reauthorization of the SCHIP program, my remarks
will address (1) recent data regarding trends in SCHIP enrollment and the
estimated number of children who remain uninsured, (2) the current
composition of SCHIP programs--including their overall design--across the
states, (3) states' spending experiences under SCHIP, and (4) issues we
have identified for consideration during SCHIP reauthorization. My
testimony is based on prior GAO work;^4 analysis of the Current Population
Survey (CPS) data (from 2003 through 2005), which is a monthly survey
conducted by the U.S. Census Bureau for the Bureau of Labor statistics;
information obtained from states' annual SCHIP reports (from fiscal year
2002 through 2005);^5 and SCHIP enrollment and expenditure data (from
fiscal year 1998 through 2005), from the Centers for Medicare & Medicaid
Services (CMS) in the Department of Health and Human Services (HHS), which
oversees states' Medicaid and SCHIP programs. We considered these data
sufficiently reliable for purposes of reporting overall expenditure trends
in SCHIP. We discussed the highlights of this statement with CMS
officials, and they provided us additional information, which we
incorporated as appropriate. We conducted our work from December 2006
through January 2007 in accordance with generally accepted government
auditing standards.

In summary, SCHIP enrollment increased rapidly during the program's early
years but has stabilized over the past several years. SCHIP programs
reported total enrollment of approximately 6 million
individuals--including about 639,000 adults--as of fiscal year 2005, the
latest year for which data were available, with about 4.0 million
individuals enrolled in June of that year. Nevertheless, about 11.7
percent of children nationwide remain uninsured, many of whom are eligible
for SCHIP or Medicaid. The rate of uninsured children varies widely across
states, ranging from a low of 5.6 percent to a high of 20.4 percent.

^3In some cases, states have been allowed to retain a portion of unspent
allotments.

^4Related GAO Products are included at the end of this statement.

^5Federal law requires states to assess the operation of their state child
health plans and report to the Secretary of Health and Human Services on
the results of the assessment. In addition, as part of this assessment,
states must evaluate the progress made in reducing the number of
uncovered, low-income children. See 42 U.S.C. S 1397hh.

States' SCHIP programs reflect the flexibility allowed in structuring
approaches to providing health care coverage through a Medicaid expansion
or a separate child health program. In fiscal year 2005, 41 states had
opted to cover children in families with incomes at 200 percent of the
federal poverty level (FPL) or higher; including 7 states that covered
children in families with incomes at 300 percent of FPL or higher. In
addition, 39 states required families to contribute to the cost of their
children's care in SCHIP programs through some type of cost-sharing
requirement, such as premiums or copayments; 11 states charged no
cost-sharing. Few states (9) reported operating premium assistance
programs, which allow states to use SCHIP funds to help pay premiums for
available employer-based health plan coverage, in part because states
often find these programs are difficult to administer. As of February
2007, we identified 14 states that had approved waivers to cover one or
more of three categories of adults: parents of eligible Medicaid and SCHIP
children, pregnant women, and childless adults.

SCHIP program spending was low initially but now threatens to exceed
available funding. Since 1998, some states have consistently spent more
than their allotments, while others consistently spent less. In the first
years of the program, states that overspent their annual allotments over
the 3-year period of availability could rely on other states' unspent
SCHIP funds, which were redistributed to cover excess expenditures. Over
time, however, spending had grown, and the pool of funds available for
redistribution had shrunk. As a result, in at least one of the final 3
years of the program, 18 states were projected to have "shortfalls" of
SCHIP funding--that is, they were expected to exhaust available funds,
including current and prior-year allotments. These 18 states were more
likely than the 32 states without shortfalls to have a Medicaid component
to their SCHIP program, to cover children across a broader range of income
groups, and to cover adults through their programs. To cover projected
shortfalls faced by states, Congress appropriated an additional $283
million for fiscal year 2006.

SCHIP reauthorization is occurring within the context of consideration of
broader national health care reform and competing budgetary priorities.
There is an obvious tension between the desire to provide affordable
health insurance coverage for uninsured individuals, including low-income
children, and the recognition of the high cost that health care coverage
exerts as a growing share of federal and state budgets. As Congress
addresses SCHIP reauthorization, issues that may be considered include (1)
maintaining flexibility within the program without compromising the
primary goal to cover children, (2) considering the program's financing
strategy, including the financial sustainability of public commitments,
and (3) assessing issues including better targeting SCHIP funds to achieve
certain policy goals more consistently nationwide.

Background

In general, SCHIP funds are targeted to uninsured children in families
whose incomes are too high to qualify for Medicaid but are at or below 200
percent of FPL.^6 Recognizing the variability in state Medicaid programs,
federal SCHIP law allows a state to cover children up to 200 percent of
the poverty level or 50 percentage points above its existing Medicaid
eligibility standard as of March 31, 1997.^7 Additional flexibility
regarding eligibility levels is available, however, as Medicaid and SCHIP
provide some flexibility in how a state defines income for purposes of
eligibility determinations.^8 Congress appropriated approximately $40
billion over 10 years (from fiscal year 1998 through 2007) for
distribution among states with approved SCHIP plans. Allocations to states
are based on a formula that takes into account the number of low-income
children in a state. In general, states that choose to expand Medicaid to
enroll eligible children under SCHIP must follow Medicaid rules, while
separate child health programs have additional flexibilities in benefits,
cost-sharing, and other program elements. Under certain circumstances,
states may also cover adults under SCHIP.

SCHIP Allotments to States

SCHIP allotments to states are based on an allocation formula that uses
(1) the number of children, which is expressed as a combination of two
estimates--the number of low-income children without health insurance and
the number of all low-income children, and (2) a factor representing state
variation in health care costs. Under federal SCHIP law and subject to
certain exceptions, states have 3 years to use each fiscal year's
allocation, after which any remaining funds are redistributed among the
states that had used all of that fiscal year's allocation.^9 Federal law
does not specify a redistribution formula but leaves it to the Secretary
of Health and Human Services to determine an appropriate procedure for
redistribution of unused allocations.^10 Absent congressional action,
states are generally provided 1 year to spend any redistributed funds,
after which time funds may revert to the U.S. Treasury. Each state's SCHIP
allotment is available as a federal match based on state expenditures.
SCHIP offers a strong incentive for states to participate by providing an
enhanced federal matching rate that is based on the federal matching rate
for a state's Medicaid program--for example, the federal government will
reimburse at a 65 percent match under SCHIP for a state receiving a 50
percent match under Medicaid.

^6FPL refers to the federal poverty guidelines, which are used to
establish eligibility for certain federal assistance programs. The
guidelines are updated annually to reflect changes in the cost of living
and vary according to family size. For example, in 1998, 200 percent of
FPL for a family of four was $32,900, compared with $41,300 in 2007.

^742 U.S.C. S 1397jj(b). For example, Alabama covered children aged 15 to
18 up to 15 percent of FPL, while Washington covered this same group up to
200 percent of FPL. Therefore, Alabama would be allowed to establish SCHIP
eligibility for children in families with incomes up to 200 percent of
FPL, while Washington would be allowed to go as high as 250 percent FPL.

^8Some states have expanded income eligibility levels for families through
"income disregards," which ignore certain types of family income for
purposes of determining eligibility. Such disregards have been imposed as
high as 100 percent of FPL, which means that a family with an income equal
to 300 percent of FPL is treated as if its income were 200 percent of FPL.

There are different formulas for allocating funds to states, depending on
the fiscal year. For fiscal years 1998 and 1999, the formula used
estimates of the number of low-income uninsured children to allocate funds
to states. For fiscal year 2000, the formula changed to include estimates
of the total number of low-income children as well.^11

SCHIP Design Choices

SCHIP gives the states the choice of three design approaches: (1) a
Medicaid expansion program, (2) a separate child health program with more
flexible rules and increased financial control over expenditures, or (3) a
combination program, which has both a Medicaid expansion program and a
separate child health program. Initially, states had until September 30,
1998, to select a design approach, submit their SCHIP plans, and obtain
HHS approval in order to qualify for their fiscal year 1998 allotment.^12
With an approved state child health plan, a state could begin to enroll
children and draw down its SCHIP funds.

^942 U.S.C. S 1397dd(e),(f).

^1042 U.S.C. S 1397dd(f).

^11For fiscal year 2000, the allocation formula used 75 percent of the
number of uninsured low-income children plus 25 percent of the number of
all low-income children. For fiscal year 2001 and subsequent fiscal years,
the allocation formula evenly weighted the number of uninsured low-income
children (50 percent) and total number of low-income children (50
percent). 42 U.S.C. S 1397dd(b). See also Congressional Research Service
(CRS), SCHIP Original Allotments: Funding Formula Issues and Options
(Washington, D.C.: Apr. 18, 2006).

The design approach a state chooses has important financial and
programmatic consequences, as shown below.

           o Expenditures. In separate child health programs, federal
           matching funds cease after a state expends its allotment, and
           non-benefit-related expenses (for administration, direct services,
           and outreach) are limited to 10 percent of claims for services
           delivered to beneficiaries. In contrast, Medicaid expansion
           programs may continue to receive federal funds for benefits and
           for non-benefit-related expenses at the Medicaid matching rate
           after states exhaust their SCHIP allotments.

           o Enrollment. Separate child health programs may establish
           separate eligibility rules and establish enrollment caps. In
           addition, a separate child health program may limit its own annual
           contribution, create waiting lists, or stop enrollment once the
           funds it budgeted for SCHIP are exhausted. A Medicaid expansion
           must follow Medicaid eligibility rules regarding income,
           residency, and disability status, and thus cannot limit
           enrollment.

           o Benefits. Separate child health programs must use, for example,
           benchmark benefit standards that use specified private or public
           insurance plans as the basis for coverage. However, Medicaid--and
           therefore a Medicaid expansion--must provide coverage of all
           benefits available to the Medicaid population, including certain
           services for children. In particular, Early and Periodic
           Screening, Diagnosis, and Treatment (EPSDT) requires states to
           cover treatments or stabilize conditions diagnosed during routine
           screenings--regardless of whether the benefit would otherwise be
           covered under the state's Medicaid program.^13 A separate child
           health program does not require EPSDT coverage.

           o Beneficiary cost-sharing. Separate child health programs may
           impose limited cost-sharing--through premiums, copayments, or
           enrollment fees--for children in families with incomes above 150
           percent of FPL up to 5 percent of family income annually. Since
           the Medicaid program did not previously allow cost-sharing for
           children, a Medicaid expansion program under SCHIP would have
           followed this rule.^14
			  
			  SCHIP Coverage of Adults

           In general, states may cover adults under the SCHIP program under
           two key approaches.

           o First, federal SCHIP law allows the coverage of adults in
           families with children eligible for SCHIP if a state can show that
           it is cost-effective to do so and demonstrates that such coverage
           does not result in "crowd-out"--a phenomenon in which new public
           programs or expansions of existing public programs designed to
           extend coverage to the uninsured prompt some privately insured
           persons to drop their private coverage and take advantage of the
           expanded public subsidy.^15 The cost-effectiveness test requires
           the states to demonstrate that covering both adults and children
           in a family under SCHIP is no more expensive than covering only
           the children. The states may also elect to cover children whose
           parents have access to employer-based or private health insurance
           coverage by using SCHIP funding to subsidize the cost.

           o Second, under section 1115 of the Social Security Act, states
           may receive approval to waive certain Medicaid or SCHIP
           requirements. The Secretary of Health and Human Services may
           approve waivers of statutory requirements in the case of
           experimental, pilot, or demonstration projects that are likely to
           promote program objectives.^16 In August 2001, HHS indicated that
           it would allow states greater latitude in using section 1115
           demonstration projects (or waivers) to modify their Medicaid and
           SCHIP programs and that it would expedite consideration of state
           proposals. One initiative, the Health Insurance Flexibility and
           Accountability Initiative (HIFA), focuses on proposals for
           covering more uninsured people while at the same time not raising
           program costs. States have received approval of section 1115
           waivers that provide coverage of adults using SCHIP funding.^17
			  
			  SCHIP Enrollment Has Grown Rapidly; Statesï¿½ Rates of Uninsured
			  Children Vary Significantly

           SCHIP enrollment increased rapidly over the first years of the
           program, and has stabilized for the past several years. In 2005,
           the most recent year for which data are available, 4.0 million
           individuals were enrolled during the month of June, while the
           total enrollment count--which represents a cumulative count of
           individuals enrolled at any time during fiscal year 2005--was 6.1
           million. Of these 6.1 million enrollees, 639,000 were adults.
           Because SCHIP requires that applicants are first screened for
           Medicaid eligibility, some states have experienced increases in
           their Medicaid programs as well, further contributing to public
           health insurance coverage of low-income children during this same
           period. Based on a 3-year average of 2003 through 2005 CPS data,
           the percentage of uninsured children varied considerably by state,
           with a national average of 11.7 percent.

           SCHIP annual enrollment grew quickly from program inception
           through 2002 and then stabilized at about 4 million from 2003
           through 2005, on the basis of a point-in-time enrollment count.
           Total enrollment, which counts individuals enrolled at any time
           during a particular fiscal year, showed a similar pattern of
           growth and was over 6 million as of June 2005 (see fig. 1).^18
           Generally, point-in-time enrollment is a subset of total
           enrollment, as it represents the number of individuals enrolled
           during a particular month. In contrast, total enrollment includes
           an unduplicated count of any individual enrolled at any time
           during the fiscal year; thus the data are cumulative, with new
           enrollments occurring monthly.

           Figure 1: SCHIP Enrollment, 1999-2005

           Note: Point-in-time enrollment represents the number of enrollees
           in states' SCHIP programs for the month of December for 1999
           through 2004; for 2005, data for the month of June were used.
           Total enrollment represents the cumulative number of individuals
           who enrolled in the program at any time during the fiscal year. We
           obtained enrollment data from Vernon K. Smith, David Rousseau, and
           Caryn Marks, SCHIP Program Enrollment: June 2005 Update
           (Washington, D.C.: The Kaiser Commission on Medicaid and the
           Uninsured, December 2006); Vernon K. Smith and David M. Rousseau,
           SCHIP Enrollment in 50 States: December 2004 Data Update
           (Washington, D.C.: The Kaiser Commission on Medicaid and the
           Uninsured, September 2005); and Vernon K. Smith, David M.
           Rousseau, and Molly O'Malley, SCHIP Program Enrollment: December
           2003 Update (Washington, D.C.: The Kaiser Commission on Medicaid
           and the Uninsured, July 2004).

           Because states must also screen for Medicaid eligibility before
           enrolling children into SCHIP, some states have noted increased
           enrollment in Medicaid as a result of SCHIP. For example, Alabama
           reported a net increase of approximately 121,000 children in
           Medicaid since its SCHIP program began in 1998. New York reported
           that, for fiscal year 2005, approximately 204,000 children were
           enrolled in Medicaid as a result of outreach activities, compared
           with 618,973 children enrolled in SCHIP. In contrast, not all
           states found that their Medicaid enrollment was significantly
           affected by SCHIP. For example, Idaho reported that a negligible
           number of children were found eligible for Medicaid as a result of
           outreach related to its SCHIP program. Maryland identified an
           increase of 0.2 percent between June 2004 and June 2005.

           Based on a 3-year average of 2003 through 2005 CPS data, the
           percentage of uninsured children varied considerably by state and
           had a national average of 11.7 percent.^19 The percentage of
           uninsured children ranged from 5.6 percent in Vermont to 20.4
           percent in Texas (see fig. 2).^20 Generally, the proportion of
           children without insurance tended to be lower in the Midwest or
           Northeast and higher in the South and the West.
           
			  Figure 2: Percentage of Uninsured Children, by State, 2003-2005
			  
			  Statesï¿½ SCHIP Programs Reflect a Variety of Approaches to
			  Providing Health Care Coverage

           States' SCHIP programs reflect the flexibility allowed in
           structuring approaches to providing health care coverage,
           including their choice among three program designs--Medicaid
           expansions, separate child health programs, and combination
           programs, which have both a Medicaid expansion and a separate
           child health program component. As of fiscal year 2005, 41 state
           SCHIP programs covered children in families whose incomes are up
           to 200 percent FPL or higher, with 7 of the 41 states covering
           children in families whose incomes are at 300 percent FPL or
           higher. States generally imposed some type of cost-sharing in
           their programs, with 39 states charging some combination of
           premiums, copayments, or enrollment fees, compared with 11 states
           that did not charge cost-sharing. Nine states reported operating
           premium assistance programs that use SCHIP funding to subsidize
           the cost of premiums for private health insurance coverage. As of
           February 2007, we identified 14 states with approved section 1115
           waivers to cover adults, including parents, pregnant women, and,
           in some cases, childless adults.
			  
			  States Employ All Three Design Approaches, with Coverage Generally
			  Extending to 200 Percent of FPL

           Of the 50 states currently operating SCHIP programs, as of July
           2006, 11 states had Medicaid expansion programs, 18 states had
           separate child health programs, and 21 states had a combination of
           both approaches (see fig. 3).^21 When the states initially
           designed their SCHIP programs, 27 states opted for expansions to
           their Medicaid programs.^22 Many of these initial Medicaid
           expansion programs served as "placeholders" for the state--that
           is, minimal expansions in Medicaid eligibility were used to
           guarantee the 1998 fiscal year SCHIP allocation while allowing
           time for the state to plan a separate child health program. Other
           initial Medicaid expansions--whether placeholders or part of a
           combination program--also accelerated the expansion of coverage
           for children aged 14 to 18 up to 100 percent of FPL, which states
           are already required to cover under federal Medicaid law.^23

           Figure 3: State SCHIP Design Choices as of July 2006

           A state's starting point for SCHIP eligibility is dependent upon
           the eligibility levels previously established in its Medicaid
           program. Under federal Medicaid law, all state Medicaid programs
           must cover children aged 5 and under if their family incomes are
           at or below 133 percent of FPL and children aged 6 through 18 if
           their family incomes are at or below 100 percent of FPL.^24 Some
           states have chosen to cover children in families with higher
           income levels in their Medicaid programs.^25 Each state's starting
           point essentially creates a "corridor"--generally, SCHIP coverage
           begins where Medicaid ends and then continues upward, depending on
           each state's eligibility policy.^26

           In fiscal year 2005, 41 states used SCHIP funding to cover
           children in families with incomes up to 200 percent of FPL or
           higher, including 7 states that covered children in families with
           incomes up to 300 percent of FPL or higher. In total, 27 states
           provided SCHIP coverage for children in families with incomes up
           to 200 percent of FPL, which was $38,700 for a family of four in
           2005. Another 14 states covered children in families with incomes
           above 200 percent of FPL, with New Jersey reaching as high as 350
           percent of FPL in its separate child health program. Finally, 9
           states set SCHIP eligibility levels for children in families with
           incomes below 200 percent of FPL. For example, North Dakota
           covered children in its separate child health program up to 140
           percent of FPL. (See fig. 4.)

^12In May 1998, Congress extended this deadline, allowing states to
receive fiscal year 1998 funding if they had submitted and received
approval of a state child health plan by September 30, 1999. 1998
Supplemental Appropriations and Rescissions Act, Pub. L. No. 105-174, S
4001, 112 Stat. 1500 (May 1, 1998).

^13While coverage of EPSDT is difficult to measure, federal studies have
generally found state efforts to be inadequate. See GAO, Medicaid:
Stronger Efforts Needed to Ensure Children's Access to Health Screening
Services, [19]GAO-01-749 (Washington, D.C.: July 13, 2001).

^14As of March 31, 2006, states may impose cost sharing for children whom
the state has chosen to cover under Medicaid. 42 U.S.C. S 1396o-1. If a
state imposes cost sharing for Medicaid, a Medicaid expansion program for
SCHIP eligible children would follow this rule.

^1542 U.S.C. S 1397ee(c)(3).

^1642 U.S.C. S 1315.

^17As of October 1, 2005, the Secretary of Health and Human Services was
prohibited from approving new section 1115 waivers that use SCHIP funds to
provide coverage of nonpregnant childless adults. See Deficit Reduction
Act of 2006 (DRA), Pub. L. No. 109-171, S 6102, 120 Stat. 131-132 (Feb. 8,
2006) (codified, as amended, at 42 U.S.C. S 1397gg).

^18The 4 million enrollment count is based on "point-in-time enrollment,"
representing the number of enrollees in states' SCHIP programs for the
month of December for 1999 through 2004; for 2005, data for the month of
June were used. See Vernon K. Smith, David Rousseau, and Caryn Marks,
SCHIP Program Enrollment: June 2005 Update (Washington, D.C.: Kaiser
Commission on Medicaid and the Uninsured, December 2006). The total
enrollment count reflects all enrollees in the SCHIP program for fiscal
years 1999 through 2005. See, for example, the 2005 annual enrollment
report, at
http://www.cms.hhs.gov/NationalSCHIPPolicy/06_SCHIPAnnualReports.asp
(downloaded Jan. 28, 2007).

^19Estimates of the number of uninsured children are derived from the
annual health insurance supplement to the CPS. Health insurance
information is collected through the Annual Social and Economic
Supplement, formerly termed the March supplement.

^20Because sample sizes can be relatively small in less populous states,
state estimates are developed using a 3-year average, which is the same
method used in the formula to allocate funds to states for SCHIP. Since
the authorization of SCHIP in 1997, there have been changes to the CPS. In
March 2001, the CPS sample was expanded, which was expected to result in
more precise state estimates of individuals' health insurance status for
all states.

^21The 50 states include the District of Columbia. Tennessee did not have
a SCHIP program, as of October 1, 2002. On September 6, 2006, however, the
state submitted a SCHIP plan that proposes to cover pregnant women and
children in families with incomes up to 250 percent of FPL.

^22See GAO, Children's Health Insurance Program: State Implementation
Approaches Are Evolving, [21]GAO/HEHS-99-65 (Washington, D.C.: May 14,
1999).

^2342 U.S.C. S 1396a(a)(10)(A)(i)(vii) requires states to provide Medicaid
coverage to children born after September 30, 1983, aged 6 to 18.

^2442 U.S.C. S 1396a(a)(10)(A)(i), (iv), (vi), (vii).

^25States also have the option under federal Medicaid law to extend
coverage of children in families with incomes at or below 185 percent of
FPL, or even at higher income levels under a section 1115 waiver. 42
U.S.C. SS 1315, 1396a(a)(10)(A)(ii)(ix).

^26The corridor represents the FPL levels in states' SCHIP programs above
the levels offered by their Medicaid programs. A state's starting point
for SCHIP eligibility is dependent on the eligibility levels previously
established in their Medicaid programs. However, states' SCHIP programs
may provide coverage to individuals who have incomes at the Medicaid level
if they cannot qualify for Medicaid. For example, states may offer SCHIP
coverage to individuals whose incomes are at the Medicaid level, but who
cannot qualify for Medicaid because they cannot meet citizenship or other
Medicaid eligibility requirements.

Figure 4: Corridor of SCHIP Eligibility for Children Aged 6 through 18
Years, Fiscal Year 2005

Note: The corridor represents the FPL levels in states' SCHIP programs
above the levels offered by their Medicaid programs. A state's starting
point for SCHIP eligibility is dependent on the eligibility levels
previously established in its Medicaid programs. However, states' SCHIP
programs may provide coverage to individuals who have incomes at the
Medicaid level if they cannot qualify for Medicaid. For example, states
may offer SCHIP coverage to individuals whose incomes are at the Medicaid
level, but who cannot qualify for Medicaid because they cannot meet
citizenship or other Medicaid eligibility requirements. In some cases, we
obtained data from Neva Kaye, Cynthia Pernice, and Ann Cullen, Charting
SCHIP III: An Analysis of the Third Comprehensive Survey of State
Children's Health Insurance Programs (Portland, Me.: National Academy for
State Health Policy, September 2006).

aState did not have an FPL eligibility level for SCHIP that was above its
Medicaid eligibility level for this age group because its Medicaid program
also covered children up to this FPL level. The state provided SCHIP
coverage to individuals whose incomes are at the Medicaid level but who
cannot qualify for Medicaid because of citizenship or other requirements.

bTennessee did not have a SCHIP program, as of October 2002. However, on
September 6, 2006, the state submitted a SCHIP plan that proposes to cover
pregnant women and children in families with incomes up to 250 percent of
FPL.

Separate Child Health Program Benefit Packages Reflect the Full Range of SCHIP
Options

Under federal SCHIP law, states with separate child health programs have
the option of using different bases for establishing their benefit
packages. Separate child health programs can choose to base their benefit
packages on (1) one of several benchmarks specified in federal SCHIP law,
such as the Federal Employees Health Benefits Program (FEHBP) or state
employee coverage; (2) a benchmark-equivalent set of services specified in
the statute; (3) coverage equivalent to state-funded child health programs
in Florida, New York, or Pennsylvania; or (4) a benefit package approved
by the Secretary of Health and Human Services (see table 1).

Table 1: Basis for Required Scope of Health Insurance Coverage for States
with Separate Child Health Programs

Basis of coverage         Description                State                 
Benchmark (14 states)     Federal Employees Health   Alabama, California,  
                             Benefits Program (FEHBP)   Connecticut,          
                             Blue Cross Blue Shield     Delaware, Iowa,^a     
                             standard option, or        Kansas, Maryland,     
                             coverage generally         Massachusetts,        
                             available to state         Michigan,             
                             employees, or coverage     Mississippi, New      
                             under the states' health   Hampshire, New        
                             maintenance organization   Jersey, North         
                             with the largest insured   Carolina, Texas       
                             commercial non-Medicaid                          
                             enrollment.                                      
Benchmark-equivalent (12  Basic coverage for         Colorado, Georgia,    
states)                   inpatient and outpatient   Illinois, Indiana,    
                             hospital, physicians'      Iowa,^a Kentucky,     
                             surgical and medical,      Montana, North        
                             laboratory and x-ray, and  Dakota, Rhode Island, 
                             well-baby and well-child   Utah, Virginia, West  
                             care, including            Virginia              
                             age-appropriate                                  
                             immunizations. Coverage                          
                             must be equal to the value                       
                             of benchmark coverage.                           
Existing comprehensive    Coverage equivalent to     Florida, New York,    
state coverage (3 states) state-funded child health  Pennsylvania          
                             programs in Florida, New                         
                             York, or Pennsylvania.                           
Secretary-approved (8     Coverage determined        Arizona, Arkansas,    
states)                   appropriate for targeted   Idaho, Maine, Nevada, 
                             low-income children.       Oregon, Vermont,      
                                                        Wyoming               

Sources: Assistant Secretary for Planning and Evaluation SCHIP Database,
2001; states' annual SCHIP reports for 2002 through 2005; and GAO,
Children's Health Insurance Program: State Implementation Approaches Are
Evolving, [22]GAO/HEHS-99-65 (Washington, D.C.: May 14, 1999).

aState's SCHIP program reports using two bases of coverage--benchmark and
benchmark-equivalent.

In some cases, separate child health programs have changed their benefit
packages, adding and removing benefits over time, as follows:

           o In 2003, Texas discontinued dental services, hospice services,
           skilled nursing facilities coverage, tobacco cessation programs,
           vision services, and chiropractic services. In 2005, the state
           added many of these services (chiropractic services, hospice
           services, skilled nursing facilities, tobacco cessation services,
           and vision care) back into the SCHIP benefit package and increased
           coverage of mental health and substance abuse services.

           o In January 2002, Utah changed its benefit structure for dental
           services, reducing coverage for preventive (cleanings,
           examinations, and x-rays) and emergency dental services in order
           to cover as many children as possible with limited funding. In
           September 2002, the dental benefit package was further
           restructured to include coverage for an accidental dental benefit,
           fluoride treatments, and sealants.
			  
			  Most SCHIP Programs Require Cost-Sharing, but Amounts Charged Vary
			  Considerably

           In 2005, most states' SCHIP programs required families to
           contribute to the cost of care with some kind of cost-sharing
           requirement. The two major types of cost-sharing--premiums and
           copayments--can have different behavioral effects on an
           individual's participation in a health plan.^27 Generally,
           premiums are seen as restricting entry into a program, whereas
           copayments affect the use of services within the program. There is
           research indicating that if cost-sharing is too high, or imposed
           on families whose income is too low, it can impede access to care
           and create financial burdens for families.^28

           In 2005, states' annual SCHIP reports showed that 39 states had
           some type of cost-sharing--premiums, copayments, or enrollment
           fees--while 11 states reported no cost-sharing in their SCHIP
           programs. Overall, 16 states charged premiums and copayments, 14
           states charged premiums only, and 9 states charged copayments only
           (see fig. 5).

           Figure 5: Types of Cost-Sharing under SCHIP, Fiscal Year 2005

           aState charged an enrollment fee.

           bTennessee did not have a SCHIP program, as of October 2002.
           However, on September 6, 2006, the state submitted a SCHIP plan
           that proposes to cover pregnant women and children in families
           with incomes up to 250 percent of FPL.

           Cost-sharing occurred more frequently in the separate child health
           programs than in Medicaid expansion programs. For example, 8
           states with Medicaid expansion programs had cost-sharing
           requirements, compared with 34 states operating separate child
           health program components.^29 The amount of premiums charged
           varied considerably among the states that charged cost-sharing.
           For example, premiums ranged from $5.00 per family per month for
           children in families with incomes from 150 to 200 percent of FPL
           in Michigan to $117 per family per month for children in families
           with incomes from 300 to 350 percent of FPL in New Jersey. Federal
           SCHIP law prohibits states from imposing cost-sharing on
           SCHIP-eligible children that totals more than 5 percent of family
           income annually.^30 In addition, cost-sharing for children may be
           imposed on the basis of family income. For example, we earlier
           reported that in 2003, Virginia SCHIP copayments for children in
           families with incomes from 133 percent to below 150 percent of FPL
           were $2 per physician visit or per prescription and $5 for
           services for children in families with higher incomes.^31
			  
			  Few States Offer Premium Assistance Programs

           In fiscal year 2005, nine states reported operating premium
           assistance programs (see table 2), but implementation remains a
           challenge. Enrollment in these programs varied across the states.
           For example, Louisiana reported having under 200 enrollees and
           Oregon reported having nearly 6,000 enrollees.^32 To be eligible
           for SCHIP, a child must not be covered under any other health
           coverage program or have private health insurance. However, some
           uninsured children may live in families with access to
           employer-sponsored health insurance coverage. Therefore, states
           may choose to establish premium assistance programs, where the
           state uses SCHIP funds to contribute to health insurance premium
           payments.^33 To the extent that such coverage is not equivalent to
           the states' Medicaid or SCHIP level of benefits, including limited
           cost-sharing, states are required to pay for supplemental benefits
           and cost-sharing to make up this difference. Under certain section
           1115 waivers, however, states have not been required to provide
           this supplemental coverage to participants.

^27Opinions differ over the extent to which different types of
cost-sharing are appropriate and useful tools for managing health care
utilization among low-income populations. Premiums are sometimes viewed as
promoting personal responsibility by having the beneficiary participate in
the cost of coverage. Proponents of cost-sharing believe that copayments
can make individuals more price-conscious consumers of health care
services, which may reduce the use of unnecessary services. Others believe
that cost-sharing requirements may limit service use, such as physician
visits, causing individuals to defer necessary treatment, resulting in
more severe conditions and potentially higher expenses. See GAO, Medicaid
and SCHIP: States' Premium and Cost Sharing Requirements for
Beneficiaries, [23]GAO-04-491 (Washington, D.C.: Mar. 31, 2004).

^28See Tricia Johnson, Mary Rimsza, and William G. Johnson, "The Effects
of Cost-Shifting in the State Children's Health Insurance Program,"
American Journal of Public Health (April 2006); Leighton Ku and Teresa A.
Coughlin, The Use of Sliding Scale Premiums in Subsidized Insurance
Programs (Washington, D.C.: The Urban Institute, March 1, 1997); and
Samantha Artiga and Molly O'Malley, Increasing Premiums and Cost Sharing
in Medicaid and SCHIP: Recent State Experiences (Washington, D.C.: The
Kaiser Commission on Medicaid and the Uninsured, May 2005).

^29States that opt for Medicaid expansions must follow Medicaid rules--and
cost-sharing for children is generally not allowed.

^3042 U.S.C. S 1397cc(e). Federal SCHIP regulations include other limits
on cost-sharing. For example, states with separate child health programs
are not permitted to impose any cost-sharing on covered well-baby and
well-child care services. Additionally, states may require cost-sharing
for children in families with incomes at or below 150 percent of FPL, but
premium amounts cannot exceed the maximum charges that are permitted under
Medicaid. States are also prohibited from charging cost-sharing to
American Indians or Alaska Natives. 42 C.F.R. SS 457.520, et. seq.

^31 [24]GAO-04-491 .

^32Data for premium assistance program enrollment for Louisiana were
obtained from CMS's 2005 annual SCHIP report and for Oregon from Neva
Kaye, Cynthia Pernice, and Ann Cullen, Charting SCHIP III: An Analysis of
the Third Comprehensive Survey of State Children's Health Insurance
Programs (Portland, Me.: National Academy for State Health Policy,
September, 2006).

Table 2: Premium Assistance Programs in Nine States, Fiscal Year 2005

                             Authority  Population               
                             for         covered   Supplemental  
                 Design of   premium      under    coverage for  
                 SCHIP       assistance authority  benefits or   
State         program     program     Children  cost-sharing     Adults    
Idaho         Combination Section                             No           
                             1906                                             
                             Section                                          
                             1115 HIFA                                        
Illinois      Combination Section                     a       No           
                             1115 HIFA                                        
Louisiana     Medicaid    Section                             Yes, for     
                 expansion   1906                                benefits and 
                                                                 cost-sharing 
Massachusetts Combination Premium                             No           
                             assistance                                       
                             under                                            
                             SCHIP plan                                       
                             Section                                          
                             1115                                             
                             non-HIFA                                         
New Jersey    Combination Section                             Yes, for     
                             1115                                benefits and 
                             non-HIFA                            cost-sharing 
Oregon        Separate    Section                             No           
                 program     1115 HIFA                                        
Rhode Island  Combination Premium                             Yes, for     
                             assistance                          benefits and 
                             under                               cost-sharing 
                             SCHIP plan                                       
                             Family                                           
                             coverage                                         
                             under                                            
                             SCHIP plan                                       
                             Section                                          
                             1115                                             
                             non-HIFA                                         
                             Section                                          
                             1906                                             
Virginia^b    Combination Premium                             Yes, for     
                             assistance                          benefits^c   
                             under                                            
                             SCHIP plan                                       
                             Section                                          
                             1115 HIFA                                        
                             Section                                          
                             1906                                             
Wisconsin     Medicaid    Section                             Yes, for     
                 expansion   1115                                benefits and 
                             non-HIFA                            cost-sharing 

Sources: CMS; states' Annual SCHIP Reports for 2005; and Neva Kaye,
Cynthia Pernice, and Ann Cullen, Charting SCHIP III: An Analysis of the
Third Comprehensive Survey of State Children's Health Insurance Programs
(Portland, Me.: National Academy for State Health Policy, September 2006).

aCoverage of adults under Illinois' program became effective January 1,
2006.

bVirginia offered a SCHIP premium assistance program from October 2001
until July 31, 2005, entitled the Employer Sponsored Health Insurance
(ESHI) program. On August 1, 2005, the ESHI program was replaced by a new
SCHIP premium assistance program entitled Family Access to Medical
Insurance Security (FAMIS) Select. CMS approved this program on July 1,
2005, as part of a section 1115 waiver.

cVirginia's supplemental payments were limited to immunizations not
covered by the employer/private health plan.

^33States may establish premium assistance programs under separate child
health programs or under Medicaid programs, including as part of a section
1115 waiver. See 42 U.S.C. SS 1315, 1396e; 42 C.F.R. S 457.810.

Several states reported facing challenges implementing their premium
assistance programs. Louisiana, Massachusetts, New Jersey, and Virginia
cited administration of the program as labor intensive. For example,
Massachusetts noted that it is a challenge to maintain current information
on program participants' employment status, choice of health plan, and
employer contributions, but such information is needed to ensure accurate
premium payments. Two states--Rhode Island and Wisconsin--noted the
challenges of operating premium assistance programs, given changes in
employer-sponsored health plans and accompanying costs. For example, Rhode
Island indicated that increases in premiums are being passed to employees,
which makes it more difficult to meet cost-effectiveness tests applicable
to the purchase of family coverage.^34

Adult Coverage in SCHIP Is Primarily Accomplished through Waivers

States opting to cover adult populations using SCHIP funding may do so
under an approved section 1115 waiver. As of February 2007, we identified
14 states with approved waivers to cover at least one of three categories
of adults: parents of eligible Medicaid and SCHIP children, pregnant
women, and childless adults. (See table 3.) The DRA, however, has
prohibited the use of SCHIP funds to cover nonpregnant childless
adults.^35 Effective October 1, 2005, the Secretary of Health and Human
Services may not approve new section 1115 waivers that use SCHIP funds for
covering nonpregnant childless adults. However, waivers for covering these
adults that were approved prior to this date are allowed to continue until
the end of the waiver. Additionally, the Secretary may continue to approve
section 1115 waivers that extend SCHIP coverage to pregnant adults, as
well as parents and other caretaker relatives of children eligible for
Medicaid or SCHIP.

^34The cost-effectiveness test requires the states to demonstrate that
covering both adults and children in a family under SCHIP is not more
expensive than covering only the children.

^35DRA, Pub. L. No. 109-171, S 6102, 120 Stat. 131-132 (Feb. 8, 2006)
(codified as amended at 42 U.S.C. S 1397gg).

Table 3: States Covering Adults in SCHIP under Section 1115 Waivers,
Categories of Covered Adults, and Upper Income Eligibility Thresholds as a
Percentage of FPL

                      Covered adults                  
                        Pregnant Childless Percentage 
State        Parents  women   adults^a      of FPL 
Arkansas                                                               200 
Arizona                                                 200 (parents); 100 
                                                           (childless adults) 
Colorado                                                               200 
Idaho                                                                  185 
Illinois                                                               185 
Michigan                                                                35 
Minnesota                                                              200 
Nevada                                                  200 (parents); 185 
                                                             (pregnant women) 
New Jersey                                                             200 
New Mexico                                                             200 
Oregon                                                                 185 
Rhode Island                                            185 (parents); 250 
                                                             (pregnant women) 
Virginia                                                               166 
Wisconsin                                                              200 

Sources: CMS, as of February 2007.

aThe DRA prohibited the use of SCHIP funds to cover nonpregnant childless
adults. Effective October 1, 2005, the Secretary of Health and Human
Services may not approve new section 1115 waivers that use SCHIP funds for
covering nonpregnant childless adults. However, waivers approved prior to
that date are allowed to continue until the end of the waiver.

States' SCHIP Spending Was Initially Low but Now Threatens to Exceed Available
Funding

SCHIP program spending was low initially, as many states did not implement
their programs or report expenditures until 1999 or later, but spending
was much higher in the program's later years and now threatens to exceed
available funding. Beginning in fiscal year 2002, states together spent
more federal dollars than they were allotted for the year and thus relied
on the 3-year availability of SCHIP allotments or on redistributed SCHIP
funds to cover additional expenditures. But as spending has grown, the
pool of funds available for redistribution has shrunk. Some states
consistently spent more than their allotted funds, while other states
consistently spent less. Overall, 18 states were projected to have
shortfalls--that is, they were expected to exhaust available funds,
including current and prior-year allotments--in at least 1 year from 2005
through 2007. These shortfall states were more likely to have a Medicaid
component to their SCHIP program, cover children across a broader range of
income groups, and cover adults through section 1115 waivers than were the
32 states that were not projected to have shortfalls. In addition, the
shortfall states that covered adults generally began covering them earlier
than nonshortfall states. To cover projected shortfalls that several
states faced, Congress appropriated an additional $283 million in fiscal
year 2006.

Program Spending, Low in SCHIP's Early Years, Exceeded Allotments by 2002

SCHIP program spending began low, but by fiscal year 2002, states'
aggregate annual spending from their federal allotments exceeded their
annual allotments. Spending was low in the program's first 2 years because
many states did not implement their programs or report expenditures until
fiscal year 1999 or later. Combined federal and state spending was $180
million in 1998 and $1.3 billion in 1999. However, by the end of the
program's third fiscal year (2000), all 50 states and the District of
Columbia had implemented their programs and were drawing down their
federal allotments. Since fiscal year 2002, SCHIP spending has grown by an
average of about 10 percent per year. (See fig. 6.)

Figure 6: Combined State and Federal SCHIP Expenditures, Fiscal Year
1998-2006

Note: Tennessee did not have a SCHIP program as of October 2002. However,
on September 6, 2006, the state submitted a SCHIP plan that proposes to
cover pregnant women and children in families with incomes up to 250
percent of FPL.

From fiscal year 1998 through 2001, annual federal SCHIP expenditures were
well below annual allotments, ranging from 3 percent of allotments in
fiscal year 1998 to 63 percent in fiscal year 2001. In fiscal year 2002,
the states together spent more federal dollars than they were allotted for
the year, in part because total allotments dropped from $4.25 billion in
fiscal year 2001 to $3.12 billion in fiscal year 2002, marking the
beginning of the so-called "SCHIP dip."^36 However, even after annual
SCHIP appropriations increased in fiscal year 2005, expenditures continued
to exceed allotments (see fig. 7). Generally, states were able to draw on
unused funds from prior years' allotments to cover expenditures incurred
in a given year that were in excess of their allotment for that year,
because, as discussed earlier, the federal SCHIP law gave states 3 years
to spend each annual allotment. In certain circumstances, states also
retained a portion of unused allotments.

^36The SCHIP dip refers to the decrease in SCHIP appropriations for fiscal
years 2002 through 2004, which was necessary to address budgetary
constraints applicable at the time the BBA was enacted.

Figure 7: SCHIP Allotments and Federal Expenditures, Fiscal Year 1998-2007

Notes: Fiscal year 2007 expenditures are estimates based on budgets
submitted by the states to CMS in November 2006. Expenditures may exceed
allotments in any single year because allotments are available for 3 years
and may be expended in years later than allotted.

States that have outspent their annual allotments over the 3-year period
of availability have also relied on redistributed SCHIP funds to cover
excess expenditures. But as overall spending has grown, the pool of funds
available for redistribution has shrunk from a high of $2.82 billion in
unused funds from fiscal year 1999 to $0.17 billion in unused funds from
fiscal year 2003. Meanwhile, the number of states eligible for
redistributions has grown from 12 states in fiscal year 2001 to 40 states
in fiscal year 2006. (See fig. 8.)

Figure 8: Unused SCHIP Allotments from Fiscal Year 1998 through 2003 and
Number of States Eligible for Redistribution, Fiscal Year 2001-2006

Note: States are eligible to receive redistribution in a particular fiscal
year if they have expended all of their allotment for that year.

Congress has acted on several occasions to change the way SCHIP funds are
redistributed. In fiscal years 2000 and 2003, Congress amended statutory
provisions for the redistribution and availability of unused SCHIP
allotments from fiscal years 1998 through 2001,^37 reducing the amounts
available for redistribution and allowing states that had not exhausted
their allotments by the end of the 3-year period of availability to retain
some of these funds for additional years. Despite these steps, $1.4
billion in unused SCHIP funds reverted to the U.S. Treasury by the end of
fiscal year 2005.

Congress has also appropriated additional funds to cover states' projected
SCHIP program shortfalls. The DRA included a $283 million appropriation to
cover projected shortfalls for fiscal year 2006.^38 CMS divided these
funds among 12 states as well as the territories.

In the beginning of fiscal year 2007, Congress acted to redistribute
unused SCHIP allotments from fiscal year 2004 to states projected to face
shortfalls in fiscal year 2007.^39 The National Institutes of Health
Reform Act of 2006 makes these funds available to states in the order in
which they experience shortfalls. In January 2007, the Congressional
Research Service (CRS) projected that although 14 states will face
shortfalls, the $147 million in unused fiscal year 2004 allotments will be
redistributed to the five states that are expected to experience
shortfalls first. The NIH Reform Act also created a redistribution pool of
funds by redirecting fiscal year 2005 allotments from states that at
midyear (March 31, 2007) have more than twice the SCHIP funds they are
projected to need for the year.^40

37The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA) allowed states that used their fiscal year 1998 and 1999
allotments to receive redistributed funds and allowed states that had not
used these allotments to retain a portion of remaining funds. BIPA also
extended the availability of all redistributed and retained funds through
the end of fiscal year 2002. BIPA, Pub. L. No. 106-554, S 1(a)(6), 114
Stat. 2763, 2763A-578--580 (Dec. 21, 2000) (codified, as amended, at 42
U.S.C. S 1397dd(g)). The State Children's Health Insurance Program
Allotments Extension Act (SCHIP Extension Act) further extended the
availability of redistributed and retained allotments from fiscal years
1998 and 1999 another 2 years, to the end of fiscal year 2004. The law
also established a new method for reallocating unspent allotments from
fiscal years 2000 and 2001, allowing states that did not expend these
funds to retain 50 percent of the funds and redistributing the remaining
50 percent to states that had spent their allotments. In addition, the law
established authority for certain states--generally, states that covered
at least one category of children other than infants up to at least 185
percent of FPL *to use up to 20 percent of original fiscal year allotments
for 1998 through 2001 for Medicaid eligible children with family income
over 150 percent of FPL. SCHIP Extensions Act, Pub. L. No. 108-74, SS
1(a)(4), 1(b), 117 Stat. 895-896 (Aug. 15, 2003) (codified, as amended, at
42 U.S.C. S 1397dd(g), 1397ee(g)).

^38DRA, Pub. L. No. 109-171, S 6101(a), 120 Stat. 130 (Feb. 8, 2006)
(codified, as amended, at 42 U.S.C. S 1397dd(d)).

^39National Institutes of Health Reform Act of 2006 (NIH Reform Act), Pub.
L. No. 109-482, S 201, 120 Stat. 3675 (Jan. 15, 2007) (to be codified at
42 U.S.C. S 1397dd(h)).

Some States Consistently Spent More than Their Allotted Funds

Some states consistently spent more than their allotted funds, while other
states consistently spent less. From fiscal years 2001 through 2006, 40
states spent their entire allotments at least once, thereby qualifying for
redistributions of other states' unused allotments; 11 states spent their
entire allotments in at least 5 of the 6 years that funds were
redistributed. Moreover, 18 states were projected to face shortfalls--that
is, they were expected to exhaust available funds, including current and
prior-year allotments--in at least 1 of the final 3 years of the
program.^41 (See fig. 9).

^40These states are required to contribute half of their remaining 2005
allotments, up to a maximum of $20 million, to the redistribution pool.
NIH Reform Act, Pub. L. No. 109-482, S 201, 120 Stat. 3675 (Jan. 15, 2007)
(to be codified at 42 U.S.C. S 1397dd(h)). CRS estimates the
redistribution pool to have $125 million available.

^41In fiscal years 2005 and 2006, CMS projected that 13 states would face
shortfalls of SCHIP funds in one or both of those years, and in October
2006, CRS projected that 17 states would face shortfalls in fiscal year
2007. The 17 states CRS identified include 12 of the 13 states CMS
identified, for a total of 18 states identified as facing shortfalls in
fiscal years 2005, 2006, and/or 2007.

Figure 9: States that Did or Did Not Spend Allotments and/or Were
Projected to Have Shortfalls

Note: The years refer to the fiscal years in which unspent allotments from
3 years prior became available for redistribution. Under federal SCHIP
law, subject to certain exceptions, states were given 3 years to spend
each allotment, after which any unspent funds were to be redistributed
among states that had spent their entire allotments. States projected to
have shortfalls were projected to exhaust available funds, including
current and prior-year allotments. Shortfalls for 2005 and 2006 were
projected by CMS in those years. Shortfalls for 2007 were projected by CRS
in October 2006 on the basis of states' budget data from August 2006. CRS
has since updated its projections and, as of January 2007, was no longer
projecting shortfalls for Louisiana, North Carolina, or South Dakota.
States that had spent their entire 2004 allotments had not been announced
by the Secretary of Health and Human Services as of January 25, 2007.

aAlthough Tennessee did not have a SCHIP program as of October 2002, it
continued to be allotted SCHIP funds. On September 6, 2006, the state
submitted a SCHIP plan that proposes to cover pregnant women and children
in families with incomes up to 250 percent of FPL.

When we compared the 18 states that were projected to have shortfalls with
the 32 states that were not, we found that the shortfall states were more
likely to have a Medicaid component to their SCHIP program, to have a
SCHIP eligibility corridor broader than the median,^42 and to cover adults
in SCHIP under section 1115 waivers (see table 4). Fifteen of the 18
shortfall states (83 percent) had Medicaid expansion programs or
combination programs that included Medicaid expansions, which must follow
Medicaid rules, such as providing the full Medicaid benefit package and
continuing to provide coverage to all eligible individuals even after the
states' SCHIP allotments are exhausted. The shortfall states tended to
have a broader eligibility corridor in their SCHIP programs, indicating
that, on average, the shortfall states covered children in SCHIP from
lower income levels, from higher income levels, or both. For example, 33
percent of the shortfall states covered children in their SCHIP programs
above 200 percent of FPL, compared with 25 percent of the nonshortfall
states. Finally, 6 of the 18 shortfall states (33 percent) were covering
adults in SCHIP under section 1115 waivers by the end of fiscal year 2006,
compared with 6 of the 32 nonshortfall states (19 percent).

^42The SCHIP eligibility corridor is defined as the difference between the
highest and lowest income levels (expressed as a percentage of FPL)
eligible for SCHIP within a specified age group. For example, if a state
covers children aged 6 and older with family incomes from 100 percent to
200 percent of FPL, the eligibility corridor for this age group is 100
percentage points (200 minus 100). In 2006, the median SCHIP eligibility
corridor for children aged 6 and older was 100 percentage points.

Table 4: Selected SCHIP Program Characteristics of Shortfall and
Nonshortfall States

                                                 Percentage of states
                                         Shortfall states Nonshortfall states
SCHIP program characteristic                    (n=18)              (n=32)
Medicaid expansion or combination                                          
programs                                                     83         53 
Eligibility corridor for children                                          
aged 6 and older that is broader than                                      
the median^a                                                 28         16 
Adult coverage in SCHIP under section                                      
1115 waivers before FY 2007^b                                33         19 

Source: GAO analysis, as of January 29, 2007, of data obtained from CMS,
CRS, and NASHP.

Note: Shortfall states are states that were identified by CMS or CRS as
being unable to cover their projected SCHIP expenditures with available
funds in fiscal years 2005, 2006, and/or 2007 in the absence of
redistributions or additional appropriations. Nonshortfall states are
states that were not projected to experience such shortfalls in any of the
3 years. Tennessee did not have a SCHIP program as of October 2002.
However, on September 6, 2006, the state submitted a SCHIP plan that
proposes to cover pregnant women and children in families with incomes up
to 250 percent of FPL.

aThe SCHIP eligibility corridor is defined as the difference between the
highest and lowest income levels (expressed as a percentage of FPL)
eligible for SCHIP within a specified age group. For example, if a state
covers children aged 6 and older with family incomes from 100 percent to
200 percent of FPL, the eligibility corridor for this age group is 100
percentage points (200 minus 100). In 2006, the median SCHIP eligibility
corridor for children aged 6 and older was 100 percentage points.

bIn fiscal year 2007, two nonshortfall states implemented SCHIP-funded
coverage for adults*Arkansas on October 1, 2006, and Nevada on December 1,
2006.

On average, the shortfall states that covered adults began covering them
earlier than nonshortfall states and enrolled a higher proportion of
adults. At the end of fiscal year 2006, 12 states covered adults under
section 1115 waivers using SCHIP funds.^43 Five of these 12 states began
covering adults before fiscal year 2003, and all 5 states faced shortfalls
in at least 1 of the final 3 years of the program. In contrast, none of
the 5 states that began covering adults with SCHIP funds in the period
from fiscal year 2004 through 2006 faced shortfalls.^44 On average, the
shortfall states covered adults more than twice as long as nonshortfall
states (5.1 years compared with 2.3 years by the end of fiscal year 2006).

^43As of February 2007, we had identified 14 states with approved section
1115 waivers to cover adults with their SCHIP allotments (see table 3). In
fiscal year 2007, two of the 14 states began covering adults under
SCHIP*Arkansas on October 1, 2006, and Nevada on December 1, 2006.

^44Three states began covering adults under section 1115 waivers in fiscal
year 2003; one faced shortfalls and two did not.

Shortfall states also enrolled a higher proportion of adults. Nine states,
including six shortfall states, covered adults using SCHIP funds
throughout fiscal year 2005.^45 In these nine states, adults accounted for
an average of 45 percent of total enrollment. However, in the shortfall
states, the average proportion was more than twice as high as in
nonshortfall states. Adults accounted for an average of 55 percent of
enrollees in the shortfall states, compared with 24 percent in the
nonshortfall states. (See table 5.)

^45On July 1, 2005, three additional states (Idaho, New Mexico, and
Virginia) began using SCHIP funds to cover adults under section 1115
waivers.

Table 5: SCHIP Total Enrollment in States Using SCHIP Funds to Cover
Adults under Section 1115 Waivers throughout Fiscal Year 2005

                                            Total enrollment
                                                       Adults as a percentage
State^a                   Total   Children   Adults             of total^b
Shortfall states^c                                                         
Arizona                      201,626    88,005          113,621         56 
Illinois                     457,426   281,432          175,994         38 
Minnesota                     40,087     5,076           35,011         87 
New Jersey                   196,418   129,591           66,827         34 
Rhode Island                  51,313    27,144           24,169         47 
Wisconsin                    165,973    57,165          108,808         66 
Nonshortfall states^d                                                      
Colorado                      61,105    59,530            1,575          3 
Michigan                     190,540    89,257          101,283         53 
Oregon                        64,088    52,722           11,366         18 
Summary                                                                    
Shortfall states (6)       1,112,843   588,413          524,430         55 
Nonshortfall states (3)      315,733   201,509          114,224         24 
All states (9)             1,428,576   789,922          638,654         45 

Source: GAO analysis of CMS data.

aAs of February 2007, we had identified 14 states with approved section
1115 waivers to cover adults with their SCHIP allotments. Five of these 14
states were omitted from the table. Idaho, New Mexico, and Virginia
implemented section 1115 waivers for adults on July 1, 2005, and are
omitted from the table because only partial-year data are available for
them for fiscal year 2005. The remaining two states had not implemented
their waivers as of 2005: Arkansas and Nevada implemented section 1115
coverage for adults in fiscal year 2007.

bSummary data shown in this column are averages of the state percentages.

cShortfall states are states that were identified by CMS or the
Congressional Research Service (CRS) as being unable to cover their
projected SCHIP expenditures with available funds in fiscal years 2005,
2006, and/or 2007.

dNonshortfall states are states that were not projected to experience such
shortfalls in any of the 3 years.

While analyses of states as a group reveal some broad characteristics of
states' programs, examining the experiences of individual states offers
insights into other factors that have influenced states' program balances.
States themselves have offered a variety of reasons for shortfalls and
surpluses. These examples, while not exhaustive, highlight a few factors
that have shaped states' financial circumstances under SCHIP, including
the following:

           o Inaccuracies in the CPS-based estimates on which states'
           allotments were based. North Carolina, a shortfall state, offers a
           case in point. In 2004, the state had more low-income children
           enrolled in the program than CPS estimates indicated were
           eligible. To curb spending, North Carolina shifted children
           through age 5 from the state's separate program to a Medicaid
           expansion, reduced provider payments, and limited enrollment
           growth.

           o Annual funding levels that did not reflect enrollment growth.
           Iowa, another shortfall state, noted that annual allocations
           provided too many funds in the early years of the program and too
           few in the later years. Iowa did not use all its allocations in
           the first 4 years and thus the state's funds were redistributed to
           other states. Subsequently, however, the state has faced
           shortfalls as its program matured.

           o Impact of policies designed to curb or expand program growth.
           Some states have attempted to manage program growth through
           ongoing adjustments to program parameters and outreach efforts.
           For example, when Florida's enrollment exceeded a predetermined
           target in 2003, the state implemented a waiting list and
           eliminated outreach funding. When enrollment began to decline, the
           state reinstituted open enrollment and outreach. Similarly,
           Texas*commensurate with its budget constraints and projected
           surpluses*has tightened and loosened eligibility requirements and
           limited and expanded benefits over time in order to manage
           enrollment and spending.
			  
			  Considerations for SCHIP Reauthorization

           Children without health insurance are at increased risk of
           forgoing routine medical and dental care, immunizations, treatment
           for injuries, and treatment for chronic illnesses. Yet, the states
           and the federal government face challenges in their efforts to
           continue to finance health care coverage for children. As health
           care consumes a growing share of state general fund or operating
           budgets, slowdowns in economic growth can affect states'
           abilities--and efforts--to address the demand for public financing
           of health services. Moreover, without substantive programmatic or
           revenue changes, the federal government faces near- and long-term
           fiscal challenges as the U.S. population ages because spending for
           retirement and health care programs will grow dramatically.^46
           Given these circumstances, we would like to suggest several issues
           for consideration as Congress addresses the reauthorization of
           SCHIP. These include the following:

           o Maintaining flexibility without compromising the goals of SCHIP.
           The federal-state SCHIP partnership has provided an important
           opportunity for innovation on the part of states for the overall
           benefit of children's health. Providing three design choices for
           states--Medicaid expansions, separate child health programs, or a
           combination of both approaches--affords them the opportunity to
           focus on their own unique and specific priorities. For example,
           expansions of Medicaid offer Medicaid's comprehensive benefits and
           administrative structures and ensure children's coverage if states
           exhaust their SCHIP allotments. However, this entitlement status
           also increases financial risk to states. In contrast, SCHIP
           separate child health programs offer a "block grant" approach to
           covering children. As long as the states meet statutory
           requirements, they have the flexibility to structure coverage on
           an employer-based health plan model and can better control program
           spending than they can with a Medicaid expansion.

           However, flexibility within the SCHIP program, such as that
           available through section 1115 waivers, may also result in
           consequences that can run counter to SCHIP's goal--covering
           children. For example, we identified 14 states that have authority
           to cover adults with their federal SCHIP funds, with several
           states covering more adults than children. States' rationale is
           that covering low-income parents in public programs such as SCHIP
           and Medicaid increases the enrollment of eligible children as
           well, with the result that fewer children go uninsured.^47 Federal
           SCHIP law provides that families may be covered only if such
           coverage is cost-effective; that is, covering families costs no
           more than covering the SCHIP-eligible children. We earlier
           reported that HHS had approved state proposals for section 1115
           waivers to use SCHIP funds to cover parents of SCHIP- and
           Medicaid-eligible children without regard to
           cost-effectiveness.^48 We also reported that HHS approved state
           proposals for section 1115 waivers to use SCHIP funds to cover
           childless adults, which in our view was inconsistent with federal
           SCHIP law and allowed SCHIP funds to be diverted from the needs of
           low-income children.^49 We suggested that Congress consider
           amending the SCHIP statute to specify that SCHIP funds were not
           available to provide health insurance coverage for childless
           adults. Under the DRA, Congress prohibited the Secretary of Health
           and Human Services from approving any new section 1115 waivers to
           cover nonpregnant childless adults after October 1, 2005, but
           allowed waivers approved prior to that date to continue.^50

           It is important to consider the implications of states' use of
           allowable flexibility for other aspects of their programs. For
           example, what assurances exist that SCHIP funds are being spent in
           the most cost-effective manner, as required under federal law? In
           view of current federal fiscal constraints, to what extent should
           SCHIP funds be available for adult coverage? How has states' use
           of available flexibility to establish expanded financial
           eligibility categories and covered populations affected their
           ability to operate their SCHIP programs within the original
           allotments provided to them?

           o Considering the federal financing strategy, including the
           financial sustainability of public commitments. As SCHIP programs
           have matured, states' spending experience can help inform future
           federal financing decisions. CRS testified in July 2006 that 40
           states were now spending more annually than they received in their
           annual original SCHIP allotments.^51 While many of them did not
           face shortfalls in 2006 because of available prior-year balances,
           redistributed funds, and the supplemental DRA appropriation, 14
           states are currently projected to face shortfalls in 2007. With
           the pool of funds available for redistribution virtually
           exhausted, the continued potential for funding shortfalls for many
           states raises some fundamental questions about SCHIP financing. If
           SCHIP is indeed a capped grant program, to what extent does the
           federal government have a responsibility to address shortfalls in
           individual states, especially those that have chosen to expand
           their programs beyond certain parameters? In contrast, if the
           policy goal is to ensure that states do not exhaust their federal
           SCHIP allotments, by providing for the continuing redistribution
           of funds or additional federal appropriations, does the program
           begin to take on the characteristics of an entitlement similar to
           Medicaid? What overall implications does this have for the federal
           budget?

           o Assessing issues associated with equity. The 10 years of SCHIP
           experience that states now have could help inform any policy
           decisions with respect to equity as part of the SCHIP
           reauthorization process. Although SCHIP generally targets children
           in families with incomes at or below 200 percent of FPL, 9 states
           are relatively more restrictive with their eligibility levels,
           while 14 states are more expansive, ranging as high as 350 percent
           of FPL. Given the policy goal of reducing the rate of uninsured
           among the nation's children, to what extent should SCHIP funds be
           targeted to those states that have not yet achieved certain
           minimum coverage levels? Given current and future federal fiscal
           constraints, to what extent should the federal government provide
           federal financial participation above certain thresholds? What
           broader implications might this have for flexibility, choice, and
           equity across state programs?

           Another consideration is whether the formulas used in SCHIP--both
           the formula to determine the federal matching rate and the formula
           to allocate funds to states--could be refined to better target
           funding to certain states for the benefit of covering uninsured
           children. Because the SCHIP formula is based on the Medicaid
           formula for federal matching funds, it has some inherent
           shortcomings that are likely beyond the scope of consideration for
           SCHIP reauthorization.^52
			  
^46GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [45]GAO-05-325SP (Washington, D.C.: February 2005); and GAO,
Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden
on Federal and State Budgets, [46]GAO-02-544T (Washington, D.C.: Mar. 21,
2002).

^47See Leighton Ku and Matthew Broaddus, Coverage of Parents Helps
Children, Too (Washington, D.C.: Center on Budget and Policy Priorities,
Oct. 20, 2006), 2.

^48GAO, Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver
Projects Raise Concerns, [47]GAO-02-817 (Washington, D.C.: July 12, 2002).

^49See [48]GAO-02-817 and GAO, SCHIP: HHS Continues to Approve Waivers
That Are Inconsistent with Program Goals, [49]GAO-04-166R (Washington,
D.C.: Jan. 5, 2004).

^50DRA, Pub. L. No. 109-171, S 6102, 120 Stat. 131-132 (Feb. 8, 2006)
(codified, as amended, at 42 U.S.C. S 1397gg).

^51Congressional Research Service, Federal SCHIP Financing: Testimony
Before the Senate Finance Health Subcommittee, (Washington, D.C.: July 25,
2006).

^52The Medicaid formula uses a state's per capita income (PCI) in relation
to national PCI to determine the federal share of matching funds for a
state's allowable Medicaid spending. We earlier reported, however, that
the use of PCI as a measure of states' funding ability is problematic
because it does not accurately represent states' funding ability or
account for the size and cost of serving states' poverty populations. See
GAO, Medicaid Formula: Differences in Funding Ability among States Often
Are Widened, [50]GAO-03-620 (Washington, D.C.: July 10, 2003). We also
recently reported on potential strategies to help make the Medicaid
formula more responsive to economic downturns, which could have
implications for the SCHIP formula. GAO, Medicaid: Strategies to Help
States Address Increased Expenditures during Economic Downturns,
[51]GAO-07-97 (Washington, D.C.: Oct. 18, 2006).

           For the allocation formula that determines the amount of funds a
           state will receive each year, several analysts, including CRS,
           have noted alternatives that could be considered. These include
           altering the methods for estimating the number of children at the
           state level, adjusting the extent to which the SCHIP formula for
           allocating funds to states includes the number of uninsured versus
           low-income children, and incorporating states' actual spending
           experiences to date into the formula. Considering the effects of
           any one or combination of these--or other--policy options would
           likely entail iterative analysis and thoughtful consideration of
           relevant trade-offs.

           Mr. Chairman, this concludes my prepared remarks. I would be
           pleased to respond to any questions that you or other members of
           the Committee may have.
			  
			  GAO Contacts and Acknowledgments

           For future contacts regarding this testimony, please contact
           Kathryn G. Allen at (202) 512-7118 or at [email protected] .
           Contact points for our Offices of Congressional Relations and
           Public Affairs may be found on the last page of this testimony.
           Carolyn L. Yocom, Assistant Director; Nancy Fasciano; Kaycee M.
           Glavich; Paul B. Gold; JoAnn Martinez-Shriver; and Elizabeth T.
           Morrison made key contributions to this statement.
			  
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           21st Century Challenges: Reexamining the Base of the Federal
           Government. [27]GAO-05-325SP . Washington, D.C.: February 2005.

           Medicaid and SCHIP: States' Premium and Cost Sharing Requirements
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           Medicaid and SCHIP: Comparisons of Outreach, Enrollment Practices,
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           Children's Health Insurance Program: State Implementation
           Approaches Are Evolving. [38]GAO/HEHS-99-65 . Washington, D.C.:
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[email protected].

Highlights of [53]GAO-07-447T , a testimony before the Committee on
Finance, U.S. Senate

February 1, 2007

CHILDREN'S HEALTH INSURANCE

State Experiences in Implementing SCHIP and Considerations for
Reauthorization

In August 1997, Congress created the State Children's Health Insurance
Program (SCHIP) with the goal of significantly reducing the number of
low-income uninsured children, especially those who lived in families with
incomes exceeding Medicaid eligibility requirements. Unlike Medicaid,
SCHIP is not an entitlement to services for beneficiaries but a capped
allotment to states. Congress provided a fixed amount-- $40 billion from
1998 through 2007--to states with approved SCHIP plans. Funds are
allocated to states annually. States have 3 years to use each year's
allocation, after which unspent funds may be redistributed to states that
have already spent all of that year's allocation.

GAO's testimony addresses trends in SCHIP enrollment and the current
composition of SCHIP programs across the states, states' spending
experiences under SCHIP, and considerations GAO has identified for SCHIP
reauthorization.

GAO's testimony is based on its prior work; analysis of the Current
Population Survey, a monthly survey conducted by the U.S. Census Bureau
(2003-2005); information from states' annual SCHIP reports (2002-2005);
and SCHIP enrollment and expenditure data from the Centers for Medicare &
Medicaid Services (1998-2005).

SCHIP enrollment increased rapidly during the program's early years but
has stabilized over the past several years. As of fiscal year 2005, the
latest year for which data were available, SCHIP covered approximately 6
million enrollees, including about 639,000 adults, with about 4.0 million
enrollees in June of that year. States' SCHIP programs reflect the
flexibility the statute allows in structuring approaches to providing
health care coverage. As of July 2006, states had opted for the following
from among their choices of program structures allowed: a separate child
health program (18 states), an expansion of a state's Medicaid program
(11), or a combination of the two (21). In addition, 41 states opted to
cover children in families with incomes at 200 percent of the federal
poverty level (FPL) or higher, with 7 of these states covering children in
families with incomes at 300 percent of FPL or higher. Thirty-nine states
required families to contribute to the cost of their children's care in
SCHIP programs through a cost-sharing requirement, such as a premium or
copayment; 11 states charged no cost-sharing. As of February 2007, GAO
identified 14 states that had waivers in place to cover adults in their
programs; these included parents of eligible Medicaid and SCHIP children,
pregnant women, and childless adults.

SCHIP spending was initially low, but now threatens to exceed available
funding. Since 1998, some states have consistently spent more than their
allotments, while others spent consistently less. States that earlier
overspent their annual allotments over the 3-year period of availability
could rely on other states' unspent SCHIP funds, which were redistributed
to cover other states' excess expenditures. By fiscal year 2002, however,
states' aggregate annual spending began to exceed annual allotments. As
spending has grown, the pool of funds available for redistribution has
shrunk. As a result, 18 states were projected to have "shortfalls" of
SCHIP funds--meaning they had exhausted all available funds--in at least
one of the final 3 years of the program. These 18 states were more likely
than the 32 states without shortfalls to have a Medicaid component to
their SCHIP programs, cover children across a broader range of income
groups, and cover adults in their programs. To cover projected shortfalls
faced by several states, Congress appropriated an additional $283 million
for fiscal year 2006.

SCHIP reauthorization occurs in the context of debate on broader national
health care reform and competing budgetary priorities, highlighting the
tension between the desire to provide affordable health insurance coverage
to uninsured individuals, including low-income children, and the
recognition of the growing strain of health care coverage on federal and
state budgets. As Congress addresses reauthorization, issues to consider
include (1) maintaining flexibility within the program without
compromising the primary goal to cover children, (2) considering the
program's financing strategy, including the financial sustainability of
public commitments, and (3) assessing issues associated with equity,
including better targeting SCHIP funds to achieve certain policy goals
more consistently nationwide.

Children's Health Insurance: State Experiences in Implementing SCHIP and
Considerations for Reauthorization (GAO-07-447T)

References

Visible links
  19. http://www.gao.gov/cgi-bin/getrpt?GAO-01-749
  21. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-65
  22. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-65
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-04-491
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-04-491
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-06-457R
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
  28. http://www.gao.gov/cgi-bin/getrpt?GAO-04-491
  29. http://www.gao.gov/cgi-bin/getrpt?GAO-04-166R
  30. http://www.gao.gov/cgi-bin/getrpt?GAO-03-620
  31. http://www.gao.gov/cgi-bin/getrpt?GAO-03-222
  32. http://www.gao.gov/cgi-bin/getrpt?GAO-02-817
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-02-512
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-02-544T
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-01-993R
  36. http://www.gao.gov/cgi-bin/getrpt?GAO-01-749
  37. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-86
  38. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-65
  45. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
  46. http://www.gao.gov/cgi-bin/getrpt?GAO-02-544T
  47. http://www.gao.gov/cgi-bin/getrpt?GAO-02-817
  48. http://www.gao.gov/cgi-bin/getrpt?GAO-02-817
  49. http://www.gao.gov/cgi-bin/getrpt?GAO-04-166R
  50. http://www.gao.gov/cgi-bin/getrpt?GAO-03-620
  51. http://www.gao.gov/cgi-bin/getrpt?GAO-07-97
  53. http://www.gao.gov/cgi-bin/getrpt?GAO-07-447T
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