Children's Health Insurance Program: State Implementation Approaches Are
Evolving (Letter Report, 05/14/1999, GAO/HEHS-99-65).

The states and the federal government have made considerable progress in
getting the State Children's Health Insurance Program (SCHIP) up and
running, but state design approaches are still evolving. They are now
almost evenly divided between expansions of state Medicaid programs and
programs with a stand-alone component: 51 SCHIP plans have been
approved, two are under review, and three have not been submitted. More
states will ultimately embrace a stand-alone component that provides
them with greater budgetary control than Medicaid over program costs,
permits them to vary benefits, and allows cost sharing. For most
children, the SCHIP stand-alone benefit packages in the 15 states GAO
reviewed offer coverage comparable to Medicaid, although some states
have imposed limits on service. A growing number of states are exploring
statutory options, such as including family coverage and subsidizing
coverage through employers, but some question whether using such options
would be consistent with the enabling statute's focus on children's
insurance coverage. State outreach activities have sought to minimize
the burden on beneficiaries and states by developing new ways for
families to submit applications, increasing the number and operating
hours of enrollment sites, and reducing application processing times.
Publicity in some states is attracting children eligible for SCHIP and
also children eligible for Medicaid but not enrolled. To prevent SCHIP
from substituting for Medicaid, states with a stand-alone component must
screen for Medicaid and enroll any eligible children in it. Some states
are using joint applications to do this. To deter SCHIP from
substituting for private insurance, states are instituting waiting
periods for children with previous private coverage, requiring families
to pay premiums and copayments, and studying and attempting to measure
the extent of crowd-out.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-99-65
     TITLE:  Children's Health Insurance Program: State Implementation
	     Approaches Are Evolving
      DATE:  05/14/1999
   SUBJECT:  State-administered programs
	     Health insurance
	     Health care programs
	     Children
	     Insurance regulation
	     Families
	     Federal/state relations
	     Public assistance programs
	     Public relations
IDENTIFIER:  Federal Employees Health Benefits Program
	     State Children's Health Insurance Program
	     Medicaid Program
	     California
	     Colorado
	     Connecticut
	     Florida
	     Massachusetts
	     Michigan
	     Missouri
	     New York
	     Oregon
	     Pennsylvania
	     Rhode Island
	     South Carolina
	     Texas
	     Vermont
	     Wisconsin

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Cover
================================================================ COVER

Report to Congressional Committees

May 1999

CHILDREN'S HEALTH INSURANCE
PROGRAM - STATE IMPLEMENTATION
APPROACHES ARE EVOLVING

GAO/HEHS-99-65

Children's Health Insurance

(101723)

Abbreviations
=============================================================== ABBREV

  BBA - Balanced Budget Act of 1997
  BLS - Bureau of Labor Statistics
  CBO - Congressional Budget Office
  CPS - Current Population Survey
  DSS - Department of Social Services
  EPSDT - Early Periodic Screening, Diagnosis, and Treatment
  FEHBP - Federal Employees Health Benefit Program
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HIPAA - Health Insurance Portability and Accountability Act of 1996
  HMO - health maintenance organization
  HRSA - Health Resources and Services Administration
  IHS - Indian Health Services
  INS - Immigration and Naturalization Service
  SCHIP - State Children's Health Insurance Program
  WIC - Special Nutritional Program for Women, Infants, and Children

Letter
=============================================================== LETTER

B-280578

May 14, 1999

The Honorable Edward M.  Kennedy
Ranking Minority Member
Committee on Health, Education, Labor, and Pensions
United States Senate

The Honorable Thomas J.  Bliley
Chairman, Committee on Commerce
House of Representatives

An estimated 9 million to 11.6 million children were uninsured at
some time during 1997, increasing their risk of forgoing routine
medical and dental care, immunizations, treatment for injuries and
chronic illnesses, and the continuity of care implicit in having a
primary care physician.  In August 1997, the Congress created the
State Children's Health Insurance Program (SCHIP) with the goal of
significantly reducing the number of low-income, uninsured
children.\1 Under SCHIP, a state has the choice of (1) expanding
Medicaid and thus building upon an existing program, (2) establishing
a separate, stand-alone program that can include cost sharing and
allows the states to adopt a benefit package that meets one of
several employer-based benchmarks, or (3) combining these two
approaches.\2 SCHIP appropriates about $40 billion over 10
years--enough money to potentially cut the number of uninsured
children by half.  Prior to SCHIP, approximately 19 million Medicaid
beneficiaries--more than half--were children, and combined federal
and state expenditures on their behalf totaled $32 billion. 

You asked us to report on the first year of SCHIP's implementation
and, in particular, to examine the states' (1) initial SCHIP design
choices, including the use of the statutory flexibility to design
their programs; (2) pursuit of statutory options, particularly
extending coverage to adults in families with children; (3)
development of innovative outreach strategies to enroll eligible
children; and (4) tailoring of strategies to avoid the "crowd out" of
both private insurance and Medicaid coverage by SCHIP.  To conduct
this review, we analyzed available data from research and advocacy
groups, state agencies charged with implementing SCHIP, and the
Department of Health and Human Services (HHS), the federal agency
responsible for approving SCHIP plans.\3 We focused on a sample of 15
states that used the three available options:  California, Colorado,
Connecticut, Florida, Massachusetts, Michigan, Missouri, New York,
Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont,
and Wisconsin.  Overall, the sample reflects geographic diversity as
well as a cross section of SCHIP approaches--stand-alone programs,
Medicaid expansions, and efforts that combine these two alternatives. 
Four of our sample states--California, Florida, New York, and
Texas--accounted for almost half of all funds allocated for SCHIP in
fiscal year 1998.  Five states in our sample--
Massachusetts, New York, Oregon, Rhode Island, and Vermont--had
operated their Medicaid programs under a section 1115 waiver for a
number of years.  We conducted our study between May 1998 and April
1999 in accordance with generally accepted government auditing
standards. 

--------------------
\1 Established as title XXI of the Social Security Act by Public Law
105-33; SCHIP is codified as 42 USCS  1397aa et seq.  (1998). 

\2 The terminology used in the forthcoming federal regulation
governing the SCHIP program refers to stand-alone plans as
"S-CHIP"--that is, separate child health programs. 

\3 The Health Care Financing Administration (HCFA) within HHS has the
primary responsibility for plan review and oversight. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Despite the short implementation period and the related challenges of
establishing a stand-alone program distinct from Medicaid, the states
and the federal government have made considerable progress in getting
SCHIP up and running--including the enrollment of about 982,000
children.  However, the current distribution of design approaches
will continue to evolve as states finalize their SCHIP plans. 

  -- SCHIP design choices are currently almost evenly divided between
     expansions of state Medicaid programs and programs with a
     stand-alone component.  As of April 1, 1999, 51 SCHIP plans had
     been approved, 2 were under review, and 3 had not been
     submitted.\4 SCHIP design is ongoing, and more states will
     ultimately embrace a stand-alone component that, unlike
     Medicaid, provides them with greater budgetary control over
     program costs, permits them to vary benefits, and allows cost
     sharing.  For most children, the SCHIP stand-alone benefit
     packages in our sample offer coverage comparable to Medicaid;
     however, some states have imposed limits on service use similar
     to those applied to adults in Medicaid.  With regard to cost
     sharing, our analysis suggests that the states' use of cost
     sharing under SCHIP is generally closer to 1 to 2 percent of
     income than to the 5-percent maximum allowed by the statute. 

  -- A growing number of states are exploring statutory options under
     SCHIP, including family coverage and subsidizing insurance
     coverage through employers.  However, meeting the statutory
     requirements associated with these options has proven
     challenging, and some question whether their use at such an
     early point in program implementation would be consistent with
     the statute's focus on children's insurance coverage.  As of
     April 1, 1999, only Massachusetts and Wisconsin had received
     approval to use SCHIP funds to cover adults in families with
     children.  Massachusetts' approval relied on an employer buy-in
     that has additional prerequisites to meet the family coverage
     cost-effectiveness test.  That of Wisconsin relied primarily on
     a Medicaid section 1115 waiver to cover parents at the regular
     Medicaid matching rate; for coverage of certain families,
     Wisconsin will be able to claim an enhanced SCHIP match by using
     an employer buy-in that meets title XXI's cost-effectiveness
     test. 

  -- Many states, including the 15 states in our sample, are
     developing innovative outreach strategies to widely publicize
     SCHIP and to provide families with applications and program
     information.  In general, outreach strategies have worked to
     minimize the burden on both the beneficiary and the state by (1)
     developing new ways for families to submit applications such as
     by mail, facsimile, or the Internet; (2) increasing the number
     and operating hours of enrollment sites; and (3) reducing
     application processing times.  While it is too early to judge
     the success of outreach efforts, some states are reporting that
     the publicity is attracting not only children eligible for SCHIP
     but also significant numbers of children who are eligible for
     Medicaid but not enrolled. 

  -- The states' strategies to avoid crowd-out--the substitution of
     SCHIP for either private insurance or Medicaid--reflect the lack
     of consensus among states and researchers regarding the
     significance of crowd-out and uncertainty about the
     effectiveness of tools to deter the phenomenon.  To prevent
     SCHIP from substituting for Medicaid, states with a stand-alone
     component must first screen for Medicaid and enroll any eligible
     children in that program.  In addition, most of these states are
     facilitating screening by using joint applications, thereby
     helping to ensure that children are enrolled in the appropriate
     program.  State tools to deter the crowding out of private
     insurance include instituting waiting periods of 1 to 12 months
     for children with previous private coverage, requiring families
     to participate in the cost of coverage by paying premiums and
     copayments, and studying and attempting to measure the extent of
     crowd-out. 

--------------------
\4 The 50 states, the District of Columbia, and 5 territories are all
eligible to develop and implement SCHIP programs. 

   BACKGROUND
------------------------------------------------------------ Letter :2

Medicaid is the starting point for the states' design and
implementation of SCHIP.  Created in 1965 as title XIX of the Social
Security Act, Medicaid provides health coverage for poor Americans,
primarily women and children, but also for individuals who are aged,
blind, or disabled.  In fiscal year 1998, combined federal and state
Medicaid expenditures totaled $177.1 billion.  Subject to title XIX
requirements as well as HHS guidance and review, each participating
state designs and administers its own program by (1) setting certain
income and asset eligibility requirements, (2) selecting which
optional groups and services to cover, and (3) determining the scope
of mandatory and optional services.  Financing for Medicaid is
provided jointly by states and the federal government under a formula
in which poorer states contribute less and wealthier states
contribute more to the cost of the program. 

Title XXI of the Social Security Act, which established SCHIP, gives
the states the choice of operating a children's health insurance
program as an extension of Medicaid, as a stand-alone program with
more flexible rules that also increase financial control over
expenditures, or as a combination of the two.\5 SCHIP makes available
annual allocations that range from a low of $3.2 billion to a high of
$5 billion (see appendix I, figure I.1).  Initially, the states had
until October 1998 to select a design approach, draft their SCHIP
plans, and obtain HHS approval.\6

With an approved plan, a state could begin to enroll children and
draw down its fiscal year 1998 SCHIP allocation, which is based on an
estimate of the number of low-income, uninsured children in the
state.  Allocations are available for a 3-year period, after which
any unexpended funds will be redistributed among states that have
used their full allocations.  SCHIP offers a strong incentive for
states to participate by providing an enhanced federal matching
rate--for example, the federal government will reimburse at a
65-percent match under SCHIP for a state receiving a 50-percent match
under Medicaid.  The statute appropriated funding at this enhanced
rate for 10 years. 

The design approach a state chooses has important programmatic and
financial consequences.  A SCHIP Medicaid expansion must follow
Medicaid rules, including eligibility determination, benefits, and
cost sharing.  Normally, Medicaid allows no cost sharing for
children.  A Medicaid expansion also creates an entitlement by
requiring the states to continue providing services to eligible
children even when their SCHIP allotment is exhausted.  At that
point, such states will revert to their regular Medicaid match. 
States choosing to expand Medicaid can take advantage of existing
program administrative staff and procedures.  In contrast, a state
that chooses a stand-alone approach may introduce limited cost
sharing and base its benefit package on one of several benchmarks
specified in the statute, such as the Federal Employees Health
Benefit Program (FEHBP) or state employee coverage.  In addition, a
state may limit its own annual contribution, create waiting lists, or
stop enrollment once the funds it budgeted for SCHIP are exhausted. 

In general, title XXI targets SCHIP funds at uninsured children in
families whose income is too high to qualify for Medicaid but is at
or below 200 percent of the federal poverty level ($32,900 for a
family of four).  The law prohibits coverage of children who already
have health insurance, even if it is inadequate (for limited benefits
such as primary care only) or expensive.  Because of the concern that
SCHIP not displace existing public or private health insurance, the
states must implement strategies to address such crowd-out. 
Regarding the substitution of SCHIP for Medicaid, the states must
establish a system that identifies children who qualify for Medicaid
and enrolls them in that program.  Since children in higher-income
families with access to private employer-sponsored coverage may also
be eligible for SCHIP, the states are required to develop a strategy
to discourage the displacement of existing private coverage. 

Finally, the statute 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 crowd
out other insurance.  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-sponsored coverage by subsidizing the family's share of
the cost of covering the child--an option referred to as an "employer
buy-in." SCHIP, like Medicaid, allows the states to pursue the
flexibility offered by section 1115 waivers; using this waiver
authority, HCFA can exempt states from many title XIX or title XXI
requirements, thus allowing demonstration projects likely to assist
in promoting program objectives.  Since the early 1990s, 17 states
have used section 1115 Medicaid waivers to move their Medicaid
programs closer to an employer-based insurance model by implementing
managed care for targeted populations, deviating from the Medicaid
benefit package, imposing cost sharing on beneficiaries, and covering
individuals not traditionally eligible for Medicaid such as
low-income single adults.\7

--------------------
\5 Unlike a Medicaid expansion, title XXI does not create an
entitlement for beneficiaries when a state elects a stand-alone
approach.  See 42 USCS  1397(b)(4).  In addition, the states have
greater control over expenditures under a stand-alone approach since
they may set explicit enrollment caps, establish residency
requirements, or institute time limits for program participation. 
See 42 USCS  1397(1)(A). 

\6 In May 1998, the deadline for securing fiscal year 1998 funding
was extended to September 1999.  Thus, a state that receives approval
for its SCHIP program on September 30, 1999, will have until
September 30, 2002, to exhaust its fiscal year 1998 allocation. 

\7 Medicaid Section 1115 Waivers:  Flexible Approach to Approving
Demonstrations Could Increase Federal Costs (GAO/HEHS-96-44, Nov.  8,
1995). 

   THE SCHIP DESIGN PHASE IS STILL
   EVOLVING
------------------------------------------------------------ Letter :3

Initial SCHIP design choices are likely to evolve as the states
continue their efforts to incorporate the flexibility offered by the
SCHIP statute.  Figure 1 shows the status of the 53 SCHIP plans
submitted by the states and territories:  As of April 1, 1999, 51 had
been approved, 2 were under review, and 3 had not yet been
submitted.\8 The submissions were almost evenly divided between
expansions of state Medicaid programs on the one hand and stand-alone
or combination programs on the other.  However, this current
landscape should not be used to draw conclusions about whether the
program will eventually mirror Medicaid or look more like some
employer-based coverage.  As many as 14 initial Medicaid expansions
were simply "placeholder plans" designed to secure access to a
state's initial SCHIP allocation, and most of these states plan
amendments to expand their initial designs.  Two factors have
contributed to a longer SCHIP design phase in which many state plans
are still incomplete:  (1) the short implementation lead times and
(2) the challenges of taking advantage of the statute's flexibility
to establish a stand-alone program. 

   Figure 1:  State SCHIP Design
   Choices as of April 1, 1999

   (See figure in printed
   edition.)

Source:  HCFA. 

The statutory time periods associated with SCHIP created design and
implementation pressures for both HHS and the states.  Less than 2
months separated the enactment of title XXI (August 5, 1997) and the
beginning of fiscal year 1998, when the initial $4.3 billion
appropriation became available.  Moreover, until a May 1998 technical
amendment, the states were required to have an approved SCHIP plan
before October 1 of that year in order to secure their initial SCHIP
allocations.\9 Given the 90-day review period allowed by the statute,
the states had only until July 1998 to draft and submit their SCHIP
plans to HHS.  As a result, the states' focus in the 12 months
following the enactment of SCHIP was primarily on understanding the
statutory requirements and securing their fiscal year 1998
allocations. 

The diversity of approaches makes it difficult to generalize about a
state's SCHIP program from the descriptive labels
attached--stand-alone, Medicaid expansion, or a combination of the
two.  A stand-alone program and a Medicaid expansion can be quite
similar if the expansion is by a state already operating its Medicaid
program under a section 1115 waiver that allows the state to impose
cost sharing and to offer a different benefit package.  Of the 27
states implementing a SCHIP Medicaid expansion, 8 are doing so in
conjunction with a Medicaid section 1115 waiver.\10 Additionally,
states such as Nevada and Vermont that elected a stand-alone program
are actually offering Medicaid benefits, a feature usually associated
with a Medicaid expansion.  The number of states with combination
programs does not necessarily suggest a commitment to a Medicaid
SCHIP approach.  The Medicaid expansion portion of a combination
program often has a very limited goal in comparison with its
stand-alone component.  For example, some states have accelerated
coverage for children aged 14 to 18 whose families' incomes are up to
100 percent of the poverty level--a group that is already being
phased into Medicaid under current federal law. 

Finally, even the income eligibility criterion selected by a state
does not necessarily indicate the program's scope.  A state that
extends SCHIP coverage to children in families at income levels
approaching 200 percent of the federal poverty level may cover
relatively few uninsured children, while a state with an increase in
eligibility to 100 percent may have the potential to enroll hundreds
of thousands of uninsured children.  For example, Vermont's
stand-alone program covering from 225 percent to 300 percent of the
poverty level is estimated to reach just over 1,000 children; in
contrast, Texas' more modest expansion of children aged 15 to 18
whose families' incomes range from 17 percent to 100 percent of the
poverty level could provide coverage to more than 160,000 children. 

The states' initial SCHIP designs grew out of the variety of
eligibility levels and benefit choices that previously existed in
their Medicaid programs.  Reflecting earlier Medicaid expansions,
more than half of the states in our sample made children eligible for
SCHIP in families with incomes as high as 200 to 300 percent of the
poverty level.\11 States with stand-alone components--either
separately or in combination with a Medicaid expansion--used their
title XXI flexibility to distinguish their programs from Medicaid by
introducing benefit packages and cost sharing that more closely
resembled employer-sponsored coverage available in the state.  In
general, the eight states in our sample with SCHIP stand-alone
components covered services for five optional benefit
categories--prescription drugs, mental health, vision, hearing, and
dental.  However, with the exception of prescription drugs, most of
the eight states placed limits on the duration of treatment allowed
or on the amount of services covered.  For the majority of children,
such benefit limitations are not likely to result in inadequate
diagnosis and treatment.  Children with special needs, however, may
not receive the full range of services that their conditions might
warrant.  A few states have developed screening mechanisms to
identify children with special needs, offering supplemental benefits
to ensure that they receive the full range of necessary treatment. 

Cost sharing was an important component of the states' stand-alone
programs.  Most states in our sample used premiums, copayments, or
both as a means of incorporating utilization control, invoking
personal responsibility, and responding to the potential for crowding
out private insurance.  In general, most states with a stand-alone
approach in our sample imposed cost sharing that was closer to 1 to 2
percent than to the maximum 5 percent of family income allowed under
SCHIP.  Many of these states told us that they found the
administrative burden of monitoring cost sharing out of proportion to
the small amounts of cost sharing actually imposed.  In particular,
ensuring that families did not exceed the statutory 5-percent cap
caused considerable concern during the review process as the states
attempted to limit the administrative burden--on themselves,
beneficiaries, and health plans--imposed by tracking a family's
health expenditures.  Finally, three states--Florida, New York, and
Pennsylvania--had benefit packages from previously state-funded
children's insurance programs "grandfathered" into SCHIP.  However,
since the statute did not treat cost sharing as part of the benefit
package, ultimately all three states altered their cost-sharing
practices to comply with the law.  For states operating less
traditional Medicaid programs under a section 1115 waiver, HCFA has
already allowed cost sharing, and thus these states had the option of
imposing cost sharing under a Medicaid expansion.  However, the
levels must be consistent with those set forth in title XXI.  Only
one state in our sample with a Medicaid section 1115 waiver elected
not to impose cost sharing.  For additional information on initial
state SCHIP design choices, see appendix II. 

--------------------
\8 HHS was still reviewing the plans of American Samoa and Tennessee;
Washington, Wyoming, and the Northern Mariana Islands had not yet
submitted proposals. 

\9 The amendment gave the states an additional year, until October 1,
1999, to secure their fiscal year 1998 allocations. 

\10 Such states must still meet title XXI statutory requirements. 

\11 Poverty levels of 200 percent and 300 percent equate to $32,900
and $49,350, respectively, for a family of four.  States' use of
income disregards and provisions of title XIX to expand poverty level
eligibility criteria are discussed more fully in appendix II. 

   FAMILY COVERAGE AND EMPLOYER
   SUBSIDY OPTIONS PROVE TO BE
   DIFFICULT ISSUES
------------------------------------------------------------ Letter :4

A growing number of states are continuing to explore options that
address broader goals, are consistent with title XXI, and fully use
their available SCHIP funding.  In particular, two options permitted
by the statute have generated interest among the 15 states in our
sample:  (1) family coverage that includes the adults in families as
well as the children if it proves "cost effective" to do so and
addresses crowd-out and (2) an employer buy-in that helps families
gain access to insurance available through their job by using SCHIP
funds to pay a family's share of the cost of the child.  An employer
buy-in stretches SCHIP funds because many employers subsidize a large
share of the cost of providing coverage to workers.  As of April 1,
1999, efforts to apply these options have been largely unsuccessful. 
Only Massachusetts and, to a lesser degree, Wisconsin have been able
to use SCHIP funds to achieve family coverage.  Along with other
states, Wisconsin primarily achieved family coverage by combining
regular Medicaid for adults and SCHIP funds for children. 

The cost-effectiveness standard outlined in title XXI has proven
challenging to implement, because it specifies that the expense of
covering both the adults and children in a family must not exceed the
cost of covering only the children.  Under these circumstances, cost
effectiveness appears possible only when the cost to SCHIP of
covering a family is subsidized--either by an employer or through
some other means.  Massachusetts and Wisconsin received approval of
their title XXI family coverage proposals by relying on an employer
buy-in--a distinct and challenging SCHIP option.  Under an employer
buy-in, benefits must be equivalent to one of the SCHIP benchmark
packages, cost sharing for the child cannot exceed the statute's
limit of 5 percent of family income, and copayments may not be
imposed for preventive services.  Massachusetts officials believe
that HCFA's 1995 approval of a Medicaid section 1115 waiver
permitting an employer buy-in for their traditional Medicaid program
greatly facilitated its use as their family coverage
cost-effectiveness test.\12 By building upon the employer subsidy
inherent in most coverage provided through the workplace, these
states minimized the state subsidy of the cost of parental coverage. 

For a few states, the goal of covering low-income working families
has been facilitated by combining Medicaid and SCHIP funding.  For
example, Missouri is using SCHIP funds under a Medicaid expansion to
cover children and regular Medicaid dollars for their parents. 
Connecticut is also in the process of developing a family coverage
approach.  Combining SCHIP and Medicaid funding streams, however, has
proven problematic for other states such as Wisconsin and Vermont. 
Under an earlier proposal, Wisconsin tried to cover parents under
regular Medicaid and children under a SCHIP stand-alone program, an
effort that afforded parents an entitlement and their children a
capped benefit.  HCFA would not approve this arrangement because of
rules associated with section 1115 waivers relating to budget
neutrality and eligibility, so the state switched its program design
to a Medicaid expansion similar to that of Missouri.  In Vermont,
previous expansions for children in its Medicaid program led to
difficulties in adding parents to achieve family coverage.  The state
is now pursuing family coverage options through the use of title XIX
funds. 

Although title XXI provides the opportunity for section 1115 waivers
of title XXI requirements, HCFA will not consider such waivers unless
a state's SCHIP program has (1) been operational for at least 1 year
and (2) completed an evaluation.  HCFA's position reflects its belief
that it is reasonable for the states to have experience in operating
their new title XXI programs before designing and submitting
demonstration proposals.  Some states and state advocacy groups would
like HCFA to begin allowing the states to tailor their SCHIP programs
through the use of section 1115 waivers.  Ultimately, the use and
approval of section 1115 waivers under SCHIP will require a judgment
regarding the consistency between state goals to broaden insurance
coverage for families and children and the intent of title XXI.  For
additional information on state pursuit of the SCHIP family coverage
and employer buy-in options, see appendix III. 

--------------------
\12 Massachusetts had the advantage of having spent much of 1994 and
1995 gaining approval for a section 1115 Medicaid waiver that allowed
the state to subsidize family coverage provided by an employer. 
Thus, according to Massachusetts officials, in reviewing the
Massachusetts SCHIP plan HCFA was not approving a new concept. 

   FACILITATING ENROLLMENT IS A
   KEY COMPONENT OF STATE OUTREACH
   EFFORTS
------------------------------------------------------------ Letter :5

The states have developed a variety of innovative outreach approaches
to overcome enrollment barriers and increase SCHIP participation. 
The Congress recognized the importance of encouraging outreach
activities designed to educate families about the availability of
coverage for their children and assist in program enrollment.  At the
same time, the Congress also placed limits on the amount of federal
funding available for administration, including outreach spending, to
preserve most of the funds for actual insurance.  State outreach
efforts encompass marketing approaches that range from sophisticated
media campaigns and toll free hotlines to more informal,
community-based enrollment efforts.  While it is too early to judge
the success of outreach efforts, some states are reporting that the
publicity is attracting not only children eligible for SCHIP but also
far greater numbers of children who were eligible for Medicaid but
not enrolled. 

The states have a significant opportunity under title XXI to provide
health coverage to millions of uninsured children.  Nevertheless,
state experience with Medicaid demonstrates that eligibility does not
necessarily guarantee enrollment.  In 1996, about 23 percent, or 3.4
million, of the 15 million children eligible for Medicaid were not
participating in the program.  Factors that may prevent families from
enrolling in Medicaid include (1) confusion over eligibility,
especially in the wake of welfare reform; (2) lack of knowledge about
the program; (3) complex eligibility rules and burdensome
documentation requirements that complicate the enrollment process;
(4) a belief that participation in the program is unnecessary when
the children are relatively healthy; (5) a perceived stigma from the
program's past link with welfare; and (6) language and cultural
barriers or concerns about jeopardizing immigration status.  Without
attention, many of these barriers could also affect SCHIP,
undermining the states' ability to find and enroll targeted children. 

To receive the enhanced SCHIP federal match, expenditures for
outreach, along with administration, other child health assistance,
and other health initiatives may be no more than 10 percent of total
SCHIP-related expenditures.\13 Tying outreach to program expenditures
has been problematic for some states as they develop and implement
SCHIP stand-alone plans.  Because the 10-percent cap is based on a
state's actual expenditures--and not a state's allotment--outreach
spending can be completely matched with federal funds only if the
state has also claimed a significant amount of funds for actual
service delivery.\14 For example, California believes that the limit
is particularly difficult during the start-up phase of its SCHIP
stand-alone program when enrollment is low and relatively few
services are being provided.  California officials believe, however,
that the limit based on expenditures is a short-term problem and that
the 10-percent limit may be reasonable once its program matures and
expenditures increase.  In the meantime, the state has established a
$21 million outreach budget consisting of Medicaid, SCHIP, and a
significant amount of state-only funds.  In contrast, states like
Massachusetts and New York that "rolled over" enrollment from
existing programs already have significant health services
expenditures that provide a larger base against which to claim costs
associated with outreach efforts.  For these states, the link between
program expenditures and outreach limits is not a concern.  The
President's fiscal year 2000 budget includes a provision to establish
an additional 3-percent allowance for outreach, which would continue
to be tied to expenditures. 

The states are making efforts to publicize SCHIP through multimedia
campaigns, direct mailings and widespread distribution of
applications, community involvement, and corporate participation. 
Strategies to market SCHIP as a "product" have inspired sophisticated
media campaigns in some states.  Some states have opted to mail SCHIP
information directly, using various methods to identify and target
families likely to have eligible children.  Blanketing school-aged
children and their families with program information through local
school districts is another outreach technique that some states are
finding particularly effective.  Other outreach efforts intended to
overcome barriers and minimize the burden on beneficiaries include
the simplification of eligibility determination and enrollment
procedures.  All but one state in our sample are streamlining their
eligibility processes to some extent by easing eligibility
requirements, providing up to 12 months of continuous eligibility
rather than conducting monthly or semi-annual redeterminations, or
creating shorter or joint Medicaid and SCHIP application forms. 
Strategies to simplify enrollment include allowing families to submit
applications by mail, telephone, facsimile, or Internet.  Other
efforts to facilitate enrollment involve increasing the number,
location, and operating hours of enrollment sites, reducing
application processing time, and implementing other measures such as
follow-up systems to ensure that families do not get "lost" in the
process.  Further efforts are also being made by some states to focus
outreach on the needs of immigrant populations through the use of
multilingual application materials and eligibility workers. 

Assessing the effect of state outreach efforts and measuring the
progress that they make in reducing the number of uninsured children
poses challenges.  HCFA has worked with the states and other
interested groups to develop reporting requirements for key program
indicators such as expenditures and enrollment.  Despite efforts to
standardize the way in which the states collect and report data,
comparisons across states will be difficult because of differences in
eligibility standards, the definition and categorization of income,
and the lack of statistical reliability in estimates of the number of
uninsured children, particularly for smaller states.  Although states
are working hard to get their reporting systems up-and-running, some
were unable to meet the first reporting deadline set for January 30,
1999.  In addition to year 2000 computer problems, the time that the
states committed to program start-up contributed to reporting delays. 

In April 1999, HCFA reported estimated SCHIP enrollment of 982,000
children.  The data generally reflect enrollment as of December 31,
1998, for 42 states and territories with operational SCHIP
programs.\15 For a number of reasons, initial enrollment data must be
used cautiously in measuring the states' progress in reducing the
number of uninsured children.  First, enrollment data may appear to
be low because some states had not yet begun enrollment or had only
recently begun to enroll children.  Second, some states had not yet
made their SCHIP designs final and were implementing placeholder
plans.  Finally, states that had previously funded their own
children's health insurance programs had a ready source of program
applicants, resulting in significant early SCHIP enrollment. 
However, this SCHIP enrollment will not decrease the number of
uninsured children because previous estimates are likely to have
considered these children insured.  Overall, efforts to determine the
effectiveness of SCHIP in reducing the number of uninsured children
are likely to be limited for the early years of the program's
operation.  For additional information on state outreach initiatives,
see appendix IV. 

--------------------
\13 Other child health assistance includes health care delivered by
community health centers. 

\14 HCFA officials acknowledged that this places some states in the
position of either deferring outreach expenditures or committing a
significant amount of state-only dollars during program start-up. 
HCFA has indicated that it is willing to work with the Congress and
states on a legislative proposal to ensure that administrative funds
are available "up front" to put stand-alone programs into place. 

\15 The Virgin Islands had an operational program but did not submit
enrollment data.  Estimates from Georgia, Kentucky, and North
Carolina include enrollment from January and February 1999. 

   STATES USE DIVERGENT APPROACHES
   TO ADDRESS CROWD-OUT UNDER
   SCHIP
------------------------------------------------------------ Letter :6

In an effort to reduce or control "crowd out"--that is, the
substitution of SCHIP for other public or private health
insurance--title XXI mandates close coordination among SCHIP, private
health insurance, and Medicaid.\16 Estimating the extent and effect
of crowd-out under SCHIP is difficult and has led to diverging
viewpoints on whether and how the states should develop prevention
measures.  The states held various views on the importance of
crowd-out--differences reflected during the review of SCHIP plans. 
While some states originally included crowd-out prevention measures
in their SCHIP plans, others added measures only after extensive
discussion with HHS. 

A review of studies examining previous public health insurance
expansions found that they focused on populations quite different
from those eligible for SCHIP and were conducted while states were
not subject to required preventive safeguards.  Studies that were
national in scope generally found more crowd-out than state-focused
studies.  Nationally, estimates of new public insurance participants
who gave up their private insurance ranged from 15 percent to 17
percent, compared with 5-to-7-percent displacement for state-focused
studies.  Several study results also indicated that substitution
rates were higher for children, and especially women, at higher
income levels.  Researchers have found that, complicating these
estimates, it is difficult to identify how much crowd-out is
attributable to a public health insurance expansion and how much is
caused by other insurance trends occurring simultaneously.  For
example, during the period from 1987 to 1996, access to
employer-based health coverage for lower income families decreased,
as did their ability to pay the cost of premiums.\17

Not surprisingly, estimates of expected crowd-out under SCHIP also
vary.  One survey of small, medium, and large businesses that was
regionally stratified found that most companies reporting were
unlikely to reduce the health coverage offered to employees or
dependents as a result of SCHIP.\18 However, other estimates of
crowd-out ranged from a low of 22 percent up to 40-percent
displacement.  The latter estimate by the Congressional Budget Office
(CBO) is a long-term qualitative assessment that assumes an eventual
adjustment in labor markets to the availability of federal subsidies. 
CBO projected that over time low-income workers would receive more
compensation in the form of wages and less in the form of health
insurance.  In fact, CBO analysts suggest that some amount of
displacement of private insurance signals a trade-off between the
SCHIP goals of stable insurance coverage for children and crowd-out
prevention.  If children who move in and out of private insurance
because of their families' changing jobs and incomes were to qualify
for consistent coverage under SCHIP, their previous private insurance
is crowded out.  However, these children would theoretically have
more reliable access to health coverage and a greater likelihood of
receiving both preventive and primary health care, leading to
improved health status. 

The states covering children at higher income levels tended to have
more aggressive crowd-out strategies.  These strategies included
waiting periods without insurance and requiring cost sharing similar
to private insurance.  The SCHIP plans of 13 of the 15 states in our
sample included strategies that were intended, either directly or
indirectly, to help prevent crowd-out.  The most popular strategy was
to impose a waiting period of between 1 and 12 months before allowing
children to enroll in SCHIP.  Three states with previous health
insurance expansions that resisted incorporating prevention measures
agreed to study crowd-out and institute waiting periods if they find
problems.  Some states disagreed with HHS' concern that subsidizing
employer-based health insurance has significant potential for
crowd-out.  Massachusetts, which successfully included subsidies for
employer-based insurance in its SCHIP plan, considered the subsidies
as incentives for employees to retain coverage but conceded that
employers may choose to reduce premium contributions. 

To prevent the substitution of SCHIP for Medicaid, HHS' review of
state plans led many states to upgrade their Medicaid screening and
enrollment strategies and to create closer links between stand-alone
programs and Medicaid.  Medicaid expansion states are using the same
administrative and application systems for both SCHIP and Medicaid. 
Most states with stand-alone components met the screening and
enrollment mandate by determining eligibility first for Medicaid and
enrolling applicants in that program if they were eligible.  Most are
also using a joint application form for both programs.  Other
Medicaid crowd-out prevention tactics that the states adopted include
using a single agency or entity to screen and enroll for both
programs, developing a coordination plan if two offices were
involved, or comparing SCHIP participant lists against Medicaid
enrollment files to ensure that children were not already covered. 
As a result of these screens, several states found a significant
number of children who were eligible for Medicaid as initial
applicants for their SCHIP programs.  For example, Massachusetts'
SCHIP application process found two children eligible for Medicaid
for every successful SCHIP application.  Michigan state officials
cited an early enrollment rate as high as 10 to 1.  Now that the
program is more mature, the state is enrolling two children eligible
for Medicaid for every SCHIP enrollee.  As SCHIP programs evolve,
coordination plans may be complicated by periodic reviews of SCHIP
eligibility under which the states would be required to shift any
children found to be eligible for Medicaid into Medicaid.  Some
states have tried to address this situation by allowing continuous
eligibility for up to 12 months for participants of both Medicaid and
SCHIP.  Eight of our 15 sample states used 12 months of continuous
eligibility for SCHIP, while 3 chose 6 months.  For additional
information on crowd-out, see appendix V. 

--------------------
\16 If a state could elect to provide services to an individual
eligible for Medicaid under SCHIP, it would receive an enhanced
federal matching rate.  Thus, the federal government would pay more
money to cover an individual under SCHIP than under Medicaid. 
Consequently, title XXI prohibits SCHIP from crowding out Medicaid
coverage. 

\17 See Ellen O'Brien and Judith Feder, How Well Does the
Employment-Based Health Insurance System Work for Low-Income
Families?  (Washington, D.C.:  The Kaiser Commission on Medicaid and
the Uninsured, Sept.  1998). 

\18 See Harriette B.  Fox and Margaret A.  McManus, The Potential for
Crowd Out Due to CHIP:  Results from a Survey of 450 Employers, The
Child Health Insurance Project, Fact Sheet 3 (Washington, D.C.: 
Maternal and Child Health Policy Research Center, Mar.  1998). 

   CONCLUSIONS
------------------------------------------------------------ Letter :7

In retrospect, it seems clear that the SCHIP implementation schedule
was ambitious, particularly for states interested in establishing
SCHIP programs that are separate from Medicaid.  The approximately 12
months initially authorized to claim the first-year allotment proved
to be challenging for many states, given the need (1) to develop a
benefit package and administrative structure essential for the
operation of a SCHIP stand-alone program and (2) to secure the
requisite state legislative approval.  In view of the tight time
periods, many states opted for placeholder Medicaid expansion plans
that secured their initial SCHIP allocations; the large number of
states initially choosing Medicaid expansions reflects the complexity
of pursuing a stand-alone option.  Although nearly all states have
received approval for their SCHIP designs, many will need more time
to develop a stand-alone component to their initial plans.  Since
SCHIP is not yet fully operational, any evaluation of its success
based on early enrollment data alone is clearly premature. 

Moreover, in fleshing out their SCHIP designs, the states are
exploring family coverage and employer buy-in options.  By including
these options in title XXI, the Congress created the possibility that
SCHIP could be used to achieve broader state goals.  However, it has
been difficult for some states to meet the statutory requirements. 
During the initial plan approval phase, HCFA worked with the states
to help them achieve their goals within the limits of the statute. 
However, title XXI not only gives the states flexibility in designing
their SCHIP programs but also grants HCFA considerable discretion
over state plan approval by permitting section 1115 waivers of title
XXI provisions.  Although HCFA has thus far declined to use this
waiver authority, the agency's position was not a problem for most
states because their initial focus was on submitting a SCHIP design
to secure their first-year allocations.  In general, most states were
interested in but unprepared to submit plans that encompassed family
coverage or an employer subsidy. 

As the states continue to develop plans to fully use their SCHIP
allocations, the issue of section 1115 waivers is likely to
resurface.  As a result, HCFA will have to determine the appropriate
balance between state flexibility and the fundamental goal of title
XXI--to reduce the number of uninsured children across the nation. 
This situation raises a number of issues: 

  -- To what extent should SCHIP be used as a vehicle to achieve
     broader health policy goals such as (1) offering seamless
     coverage to families as a way to reach children, (2) subsidizing
     employer coverage that varies from generous benefits and minimal
     cost sharing to its antithesis, and (3) improving the
     affordability and coverage for low-income families who are
     underinsured? 

  -- For states that have covered virtually all their uninsured
     children or that want to provide family coverage as a way to
     reach children, to what extent should they be allowed to use
     their SCHIP allocations for these broader coverage goals rather
     than reallocating funds to states that still have uninsured
     children? 

HCFA's ability to respond to these issues, as well as monitoring the
reduction in the number of uninsured through both Medicaid and SCHIP
enrollment, will be key to ensuring the successful implementation of
title XXI. 

   AGENCY AND STATE COMMENTS
------------------------------------------------------------ Letter :8

We provided HHS and officials from the 15 states in our sample an
opportunity to review a draft of this report.  HHS and the states
generally agreed with our findings and conclusions.  HHS also
identified several areas where the report could be updated and
clarified.  As a result, we (1) updated statistics on the number,
type, and status of state SCHIP plan submissions and amendments and
(2) clarified language to underscore the fact that family coverage
and the employer buy-in are separate program options.  Both HHS and
the states provided other technical suggestions that we incorporated
as appropriate.  HHS' comments are included as appendix VII. 

---------------------------------------------------------- Letter :8.1

As agreed to with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after its issue date.  We will then send copies to the
Secretary of Health and Human Services, the Administrator of HCFA,
appropriate congressional committees, and others upon request. 

If you or your staff have any questions, please call me at (202)
512-7118 or Walter Ochinko, Assistant Director of Health Financing
and Public Health Issues, at (202) 512-7157.  Other major
contributors to this report were Carolyn Yocom, Karen Doran, JoAnn
Martinez, and Behn Miller. 

Kathryn G.  Allen
Associate Director, Health Financing and
 Public Health Issues

SCHIP REQUIREMENTS
=========================================================== Appendix I

The August 1997 enactment of the State Children's Health Insurance
Program (SCHIP) launched a major new initiative that allows the
states to implement innovative approaches to providing health
insurance to eligible, low-income, uninsured children.\19 In addition
to giving states flexibility to design their own programs, SCHIP
appropriates $40 billion over 10 years (see figure I.1).\20 Funds
became available to the states on October 1, 1997, less than 2 months
after the passage of SCHIP.  The goal of SCHIP is to significantly
reduce the number of uninsured children, an estimated 9 million to
11.6 million of whom lacked health insurance at some time during
1997.\21 Figure I.2 provides a snapshot of the key demographic
characteristics of low-income, uninsured families with children, a
group less likely to have access to affordable coverage.  Children
without health insurance 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. 

   Figure I.1:  Annual SCHIP
   Appropriations, Fiscal Years
   1998-2007

   (See figure in printed
   edition.)

Source:  42 USCS  1397aa et seq.  (1998). 

   Figure I.2:  Key
   Characteristics of Low-Income
   Families With Uninsured
   Children

   (See figure in printed
   edition.)

--------------------
\19 SCHIP was authorized by the Balanced Budget Act of 1997 (BBA),
which amended the Social Security Act, as Public Law 105-33. 

\20 In addition to the federal SCHIP appropriation, BBA contained
funds for several other provisions that affect children's coverage: 
(1) presumptive Medicaid eligibility that allows temporary benefits
before an official eligibility determination, (2) restoration of
Medicaid benefits for children who lost their disability status as a
result of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, and (3) initiatives to enroll more
children eligible for Medicaid.  The $3.6 billion in funding for
these provisions is often included in budgetary discussions in the
$20.3 billion total for the initial 5 years of the SCHIP program
(1998-2002). 

\21 The estimate of 9 million children was derived from the 1997
National Survey of America's Families, conducted by the Urban
Institute, while the 11.6 million total is derived from the Current
Population Survey (CPS) by the Congressional Research Service.  The
Urban Institute suggests that a significant difference between the
National Survey and the CPS is that the CPS does not directly ask
respondents whether they are uninsured.  Instead, the CPS asks
respondents whether they or their family members have various types
of insurance (such as private insurance, Medicaid, and CHAMPUS). 
Those who do not respond in the affirmative to any type of insurance
coverage are counted as uninsured.  The National Survey also asks the
questions regarding type of insurance, but it goes on to ask directly
whether respondents (or their children) are uninsured.  The Urban
Institute found that a significant number of respondents do report
that they have insurance when they have been asked directly if they
are uninsured. 

   STATES HAVE FLEXIBILITY IN HOW
   TO EXPAND CHILDREN'S HEALTH
   INSURANCE COVERAGE
--------------------------------------------------------- Appendix I:1

SCHIP is an overlay on the already complex federal-state Medicaid
program.  In the effort to provide health insurance coverage to
children, SCHIP attempts to balance state flexibility against minimum
federal protections for low-income children.  Recognizing these
conflicting goals, SCHIP provides the states with the choice of
establishing a new program distinct from Medicaid, expanding
Medicaid, or combining these two approaches.  Offering three general
approaches affords the states the opportunity to focus on their
specific priorities.  For example, expansions of Medicaid offer title
XIX's comprehensive benefits and administrative structures--but the
entitlement status of Medicaid increases the financial uncertainty
for states.  In contrast, a SCHIP stand-alone component offers a
"block grant" approach to covering children; as long as the states
meet title XXI requirements, they have greater flexibility to
structure coverage on an employer-based model and can better control
their program costs. 

Each state's SCHIP plan must operate within the parameters of title
XXI, the new section of the Social Security Act that authorizes the
program and spells out the rules for receiving federal matching
funds.  The following description of title XXI requirements focuses
on features of the program that are independent of the design
approach selected by a state.  A subsequent section then highlights
the financial and programmatic consequences that flow from a state's
decision to pursue either a Medicaid expansion or a stand-alone
program. 

      SOME SCHIP REQUIREMENTS
      APPLY TO ALL STATE PROGRAMS
------------------------------------------------------- Appendix I:1.1

In general, SCHIP offers a strong inducement for states to
participate by increasing the federal financial contribution beyond
that available for Medicaid.  At the same time, the publicity
associated with SCHIP could increase states' Medicaid expenditures by
attracting low-income families who were not aware that their children
are eligible for Medicaid.  SCHIP seeks to avoid undermining the
employer-based system through which most Americans receive their
health insurance by focusing on low-income, uninsured children--those
who are the least likely to have access to coverage through a family
member's job. 

         STATE ALLOTMENTS
----------------------------------------------------- Appendix I:1.1.1

Total federal payments to the states for SCHIP are specified by
statute and are allocated to them according to a statutory formula. 
Initially, the SCHIP allocation formula is based on (1) an estimate
of the number of low-income, uninsured children in each state and (2)
a factor representing state variation in health care costs.\22
Beginning in fiscal year 2001, the formula will change, gradually
shifting funds from states with large numbers of uninsured low-income
children toward states with high numbers of low-income children
regardless of insurance status.  The states have 3 years to use each
year's allocation, after which any remaining funds will be
redistributed among the states that have used all of that year's
allocation, based on a procedure to be developed by HCFA.  Table I.1
summarizes fiscal year 1998-99 SCHIP allocations for our 15-state
sample. 

                         Table I.1
          
            State SCHIP Allocations and Federal
            Matching Rates for 15 States, Fiscal
                       Years 1998-99

                          Allocation      Matching rate
                        ($ millions)\a      (percent)
                        --------------  ------------------
                   CPS
              estimate
               of low-
                income
             uninsured
              children
            (thousands                      1999      1999
State                )    1988    1999  enhanced  Medicaid
----------  ----------  ------  ------  --------  --------
Medicaid expansions
----------------------------------------------------------
Missouri            97   $51.7   $51.4    72.17%    60.24%
Rhode               19    10.7    10.6     67.83     54.05
 Island
South              110    63.6    63.3     78.89     69.85
 Carolina
Texas            1,031   561.3   558.7     73.72     62.45
Wisconsin           75    40.6    40.4     71.20     58.85

Stand-alone programs
----------------------------------------------------------
Colorado            72    41.8    41.6     65.42     50.59
New York           399   255.6   254.4     65.00     50.00
Oregon              67    39.1    38.9     72.38     60.55
Pennsylvan         200   117.5   116.9     67.64     53.77
 ia
Vermont \b           7     3.5     3.5     73.38     61.97

Combination programs
----------------------------------------------------------
California       1,281   854.6   850.6      66.9     51.55
Connecticu          53    34.9    34.8     65.00     50.00
 t
Florida            444   270.2   268.9     69.07     55.82
Massachuse          69    42.8    42.6     65.00     50.00
 tts
Michigan           156    91.6    91.2     66.91     52.72
----------------------------------------------------------
\a State fiscal year 1998 SCHIP allotments were initially published
by the Health Care Financing Administration (HCFA) in the Federal
Register on September 12, 1997.  These original allotments did not
include an additional $20 million appropriation available nationally
for fiscal year 1998.  In allocation calculations, as published in
the September 12, 1997, Federal Register, Native American children
with access to Indian Health Services (IHS) programs were counted as
insured.  As a result of a change in how the insured status of
children with access to IHS programs is treated under the CPS, such
children are now considered uninsured, and the allocations were
recalculated.  As a result, states with Native American populations
saw an increase in their SCHIP allocations.  The revised state
reserved allotments for fiscal years 1998 and 1999 that HCFA
published in the Federal Register on February 8, 1999, reflect this
recalculation.  In addition, state SCHIP allocations were originally
to be recalculated annually using an average of CPS and Bureau of
Labor Statistics (BLS) data from the past 3 years.  The Omnibus
Appropriation Bill of 1998 required that HCFA use the 1998 allocation
data for 1999 to avoid further volatility.  Although the allocation
formula is the same for both 1998 and 1999, it is applied against a
smaller total appropriation in 1999 ($4.295 billion for 1998 and
$4.275 billion for 1999).  Without further legislation, the CPS and
BLS data averaged over the most recent 3 years will be used to
calculate the state allotments for fiscal year 2000 and beyond. 

\b Vermont originally submitted a Medicaid expansion plan, which it
withdrew in August 1998.  A new, stand-alone state plan was approved
in December 1998. 

Source:  HCFA. 

--------------------
\22 Estimates of the number of low-income uninsured children are
derived from the annual health insurance supplement to CPS, the only
nationwide source of information on uninsured children by state.  The
CPS data have a number of well-recognized shortcomings.  The
Congressional Budget Office (CBO) notes that state-level estimates
are generally unreliable and exhibit volatility from year to year
because of an inadequate sample size, particularly in small states. 
For example, given 1994-96 data, the number of uninsured children in
Delaware ranges from 12,000 up to 32,000.  The CPS also tends to
overestimate the number of those lacking insurance because it
underreports the number of people covered by Medicaid.  To address
the yearly volatility in CPS estimates, state allocations are based
on a 3-year average; however, continued concern led the Congress to
mandate essentially the same allotments (less additional funds for
diabetes) for both fiscal year 1998 and fiscal year 1999. 

         ENHANCED FEDERAL MATCH
----------------------------------------------------- Appendix I:1.1.2

State SCHIP expenditures draw down federal funds against a state's
allotment at a rate that exceeds its current Medicaid matching rate. 
This enhanced rate results in a national average federal match of
70.22 percent compared with about 57 percent under Medicaid.\23 Thus,
a state with the minimum 50-percent Medicaid match receives a
65-percent SCHIP match.  Similarly, a state with a 70-percent
Medicaid match receives a 79-percent SCHIP match.  Assuming that the
states match and draw down all available funds, total federal and
state SCHIP expenditures would total about $56 billion. 

--------------------
\23 Each state's SCHIP enhanced match is equal to 70 percent of its
Medicaid matching rate plus 30 percentage points.  However, the
enhanced match may not exceed 85 percent.  All states receive a
minimum allocation of $2 million. 

         ELIGIBILITY INCOME LIMIT
----------------------------------------------------- Appendix I:1.1.3

In general, title XXI targets children in families with incomes at or
below 200 percent of the poverty level--$32,900 for a family of four
in 1998.\24 Recognizing the variability in state Medicaid programs,
the statute allows a state to expand eligibility up to 50 percentage
points above its existing Medicaid eligibility standard.\25 However,
Medicaid also allows states to establish their own criteria for
measuring income for purposes of determining eligibility, making the
$32,900 limit subject to variation, depending upon state
determinations. 

--------------------
\24 "Poverty level" 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.  Guidelines are
uniform across the continental United States and slightly higher for
Alaska and Hawaii. 

\25 For example, Alabama covered children aged 15 to 18 up to 15
percent of the poverty level while Washington covered this same group
up to 200 percent of the poverty level. 

         UNINSURED CHILDREN'S
         ELIGIBILITY
----------------------------------------------------- Appendix I:1.1.4

To be enrolled in SCHIP, a child must be uninsured.  One exception is
for children who were covered by a state program that did not receive
a federal financial contribution.  Underinsured children with poor
benefits or expensive health insurance are not eligible for SCHIP. 
However, a child with only vision or dental coverage is considered to
be uninsured.  Children eligible for Medicaid are ineligible for
SCHIP. 

         SCHIP COORDINATION WITH
         MEDICAID AND OTHER
         PRIVATE INSURANCE
----------------------------------------------------- Appendix I:1.1.5

Title XXI requirements for coordination with Medicaid and private
insurance reflect a twofold concern that (1) children be
appropriately enrolled in Medicaid if they are eligible and (2) any
coverage provided under SCHIP not displace or crowd out other
existing health insurance.  To ensure coordination with Medicaid, the
states must have a process to ensure that children identified as
eligible for Medicaid will be referred to and enrolled in that
program.  The states must also submit to HHS their strategy for
preventing SCHIP from becoming a substitute for either
employer-sponsored coverage or individually purchased insurance. 

         FAMILY COVERAGE AND
         EMPLOYER SUBSIDY OPTIONS
----------------------------------------------------- Appendix I:1.1.6

Title XXI gives the states the option of covering adults in families
with children eligible for SCHIP if they can show that it is cost
effective to do so and demonstrate that such coverage does not crowd
out other insurance.  The cost-effectiveness test spelled out in the
statute requires a state to demonstrate that covering both the adults
and children in a family under SCHIP is no more expensive than
covering only the children.  A separate option allows a state to
cover children whose parents have access to employer-sponsored
coverage by paying the parents' share of the cost of covering the
children. 

         MAINTENANCE-OF-EFFORT
         REQUIREMENTS
----------------------------------------------------- Appendix I:1.1.7

Title XXI specifies two maintenance-of-effort requirements--one for
eligibility and another for financing.  To ensure that SCHIP funds
are used only to provide coverage to children who were not previously
eligible for Medicaid, title XXI specifies that state eligibility
requirements in effect on March 31, 1997, for Medicaid expansions and
June 1, 1997, for stand-alone plans may not be reduced in order to
qualify children for the enhanced federal matching rate.  Moreover,
the states are not eligible for the enhanced matching rate if they
reduce their Medicaid financial standards and methodologies below
those in effect on June 1, 1997.  In addition, Florida, New York, and
Pennsylvania were allowed to claim the enhanced federal match for
children insured under state-funded programs that formerly received
no federal funds; however, they must continue to provide state funds
at least equal to their expenditures in 1996. 

         WAIVERS AND VARIANCES
----------------------------------------------------- Appendix I:1.1.8

The statute allows the states to request an exception to title XXI
provisions under waiver authority provided to the Secretary of the
Department of Health and Human Services (HHS) by section 1115 of the
Social Security Act.  Section 1115 allows the Secretary to waive
certain Medicaid--and now SCHIP--eligibility and funding requirements
for demonstrations likely to assist in promoting program
objectives.\26 In addition to this general waiver authority, title
XXI permits the states to apply for "variances" from two statutory
provisions:  (1) cost-effective family coverage and (2) the inclusion
of community-based delivery systems by lifting the 10-percent cap on
certain program expenditures.\27

--------------------
\26 Past section 1115 demonstrations have made significant
contributions to the development of Medicaid policy, such as
school-based services for young children.  In 1982, Arizona initiated
a Medicaid program under a section 1115 waiver that allowed the first
statewide Medicaid managed care program.  About 17 states now operate
some portion of their Medicaid programs under a section 1115 waiver. 

\27 HHS uses the term "variances" to distinguish them from exceptions
sought under the Secretary's authority to waive title XXI provisions
using section 1115. 

         REPORTING REQUIREMENTS
----------------------------------------------------- Appendix I:1.1.9

Title XXI requires various assessments from states that participate
in SCHIP.  First, each state must report on the operation of its
SCHIP program in January of each year for the preceding federal
fiscal year, including progress made in reducing the number of
uncovered low-income children.  By March 31, 2000, the states must
submit an assessment of the effectiveness of their SCHIP programs in
increasing the number of children with coverage.  In addition, by
December 31, 2001, HHS must submit to the Congress a report based on
evaluations submitted by the states, including any conclusions and
recommendations that the Secretary of HHS considers appropriate. 

      SCHIP DESIGN CHOICE HAS
      FINANCIAL AND PROGRAMMATIC
      IMPLICATIONS
------------------------------------------------------- Appendix I:1.2

Important consequences, both financial and programmatic, flow from a
state's design choice.  In general, a state implementing a
stand-alone program has more control over expenditures, enrollment,
benefits, and beneficiary cost sharing while Medicaid rules apply to
a Medicaid expansion.  States expanding Medicaid, however, also gain
flexibility under SCHIP.  First, they may continue to claim federal
contributions at regular federal matching rates for administrative or
outreach costs after reaching the statutory cap on such expenditures
at the enhanced match.  Second, they may be reimbursed for service
expenditures at their regular matching rate if they exhaust their
allotment.  The key features of Medicaid expansions and stand-alone
SCHIP programs that flow from title XXI requirements as interpreted
by HHS are summarized in table I.2. 

                         Table I.2
          
          Key Features of Medicaid Expansions and
            Stand-Alone SCHIP Programs That Flow
                From Title XXI Requirements

Feature       Medicaid expansion     Stand-alone
------------  ---------------------  ---------------------
Financial
----------------------------------------------------------
Entitlement   Entitlement--federal   No entitlement--
              funds continue at the  federal matching
              regular Medicaid       funds cease after a
              matching rate after    state spends its
              states exceed their    allotment
              allotment

Nonbenefit-   When a state reaches   Expenditures on
related       the 10-percent         administration,
expenses      expenditure cap on     direct services, and
              administration,        outreach are limited
              direct services, and   to 10 percent of
              enrollment             claims for services
              activities, the        delivered to
              state's costs can be   beneficiaries
              matched at its lower
              Medicaid rate

Programmatic
----------------------------------------------------------
Benefits      A Medicaid benefits    Benchmark benefits
              package, including     packages use
              EPSDT, is designed to  specified private
              ensure that children   insurance plans as
              receive all medically  models\b that may
              necessary services\a   have a different
                                     standard of coverage
                                     more limited than the
                                     EPSDT concept

Cost sharing  Generally, no cost     Cost sharing is
              sharing is allowed     permitted for
              for children           children in families
                                     about 150 percent of
                                     the poverty level, up
                                     to 5 percent of
                                     family income.
                                     Similar to Medicaid
                                     for those below 150
                                     percent

Eligibility   Medicaid eligibility   A state is free to
rules         rules apply (i.e.,     establish its own
              income, residency,     eligibility rules,
              and disability         taking into account
              status)                age, geography,
                                     residency, disability
                                     status, and access to
                                     other coverage

Eligibility   State agency must      Eligibility
determinatio  determine eligibility  determination and
n                                    other administrative
                                     functions can be
                                     privatized

Eligibility   Children of low-       Children of low-
for children  income state           income state
of state      employees are          employees are
employees\c   eligible               eligible only if a
                                     state makes no
                                     contribution to the
                                     cost of employee
                                     dependent coverage

Delivery      Uses existing          Allows states to
systems       Medicaid delivery      develop new contracts
              systems, health        with plans and
              plans, and providers   provider networks
                                     that may not have
                                     previously served
                                     Medicaid
                                     beneficiaries

Other         Medicaid consumer      Allows states to
standards     protection and health  establish separate
              plan enrollment        consumer protection
              standards apply        and health plan
                                     enrollment standards
----------------------------------------------------------
\a Early Periodic Screening, Diagnosis, and Treatment (EPSDT), a
required component of the Medicaid benefits package, requires the
states to cover treatment for all medically necessary services
diagnosed during routine screening.  See figure II.1 for a more
detailed description of Medicaid EPSDT requirements. 

\b In addition, the packages of state-funded children's health
programs in Florida, New York, and Pennsylvania were grandfathered. 

\c Title XXI prohibits the coverage of children "eligible for state
employee health benefit plans." This table reflects HCFA's
interpretation of SCHIP as it applies to Medicaid expansions and
stand-alone programs. 

   OVERVIEW OF THE SCHIP REVIEW
   AND APPROVAL PROCESS
--------------------------------------------------------- Appendix I:2

To qualify for title XXI funds, a state must develop and seek
approval for its SCHIP plans from HHS.  Subsequent amendments to
SCHIP plans also require HHS approval.  SCHIP plans must detail how
the state intends to use the funds, addressing eligibility,
cost-sharing requirements, health benefits, coordination with
Medicaid and private insurance, outreach, and other factors.  States
electing to expand Medicaid were not required to elaborate on program
characteristics that were addressed in their existing Medicaid state
plans already on file with HHS.  In contrast, the development of a
state plan for a stand-alone approach understandably requires more
documentation.  In September 1997, HHS devised a SCHIP template that
identified the key information required to review a state plan.  As
HCFA gained experience with the SCHIP statute, it provided frequent
guidance to the states in the form of letters to state Medicaid
directors and, on an ongoing basis, shared answers to questions
(Q&As) frequently raised by the states.  Letters, guidance, and the
Q&As were all posted on the Internet.\28 HCFA plans to issue a
proposed regulation on the SCHIP statute in 1999. 

The statute calls for a prompt federal review of a state's SCHIP plan
submission to "determine if the plan substantially complies with the
requirements of Title XXI." A plan is approved after 90 days unless
HHS specifically disapproves it.  However, if additional information
is required to complete its review, HHS can stop the clock until a
state response is received.  The goal of approving SCHIP plans within
90 days differs from the lack of similar statutory standards with
respect to section 1115 waivers.  Furthermore, HCFA officials told us
that title XXI does not allow it to place any conditions on the
approval of SCHIP plans--another difference from the broader
discretion given to the agency in considering section 1115 waivers. 
Rather, HHS must either approve or disapprove a state SCHIP plan in
total. 

To expedite the resolution of any policy issues raised during the
review process, a steering committee jointly chaired by HCFA and the
Health Resources and Services Administration (HRSA) was established
within HHS.  HCFA is the agency within HHS responsible for managing
and monitoring Medicaid as well as the new SCHIP program.  Each state
is assigned a HCFA project officer who serves as a key focal point
during the SCHIP review process.\29 HRSA brings expertise on provider
access issues and on outreach.  The Office of Management and Budget,
the Treasury Department, and the White House have also been involved
in developing policy or reviewing SCHIP plans. 

--------------------
\28 These documents are available on the HCFA Web site at
www.hcfa.gov. 

\29 The review team within HHS is diverse and includes the Assistant
Secretary for Legislation, the Assistant Secretary for Management and
Budgeting, the Assistant Secretary for Planning and Evaluation,
Intergovernmental Affairs, the Office of Public Health and Science,
and the Administration for Children Youth and Families, Agency for
Health Care Policy and Research, Centers for Disease Control and
Prevention, Indian Health Service, and Substance Abuse and Mental
Health Services Administration. 

INITIAL SCHIP DESIGNS ARE EVOLVING
AS THE STATES SEEK TO USE
STATUTORY FLEXIBILITY
========================================================== Appendix II

SCHIP design is far from complete.  By the end of the first year,
nearly all states had submitted SCHIP plans and most had received
approval for a Medicaid expansion, a stand-alone program, or a
combination of both approaches.  For some states, title XXI came at
an opportune time--they either had a children's health program in
place or had plans under way.  For these states, their initial design
choices were likely to be either a stand-alone or a combination
program.  Other states used Medicaid expansions as
"placeholders"--minimal expansions of Medicaid to guarantee access to
their first year's SCHIP allocation.  Placeholder states generally
plan additional SCHIP amendments, and HCFA believes that most are
likely to incorporate a stand-alone component.  A state's design
choice had a significant effect on its benefit package and its
ability to introduce cost sharing into SCHIP.  For Medicaid expansion
states, benefits and cost sharing were consistent with those outlined
in their state Medicaid plans.  States with stand-alone components
told us that they were primarily interested in imitating
private-sector insurance practices.  In general, the benefit packages
of such states in our sample will prove adequate for the majority of
children but may not address the conditions of those with special
needs.  States in our sample with a stand-alone component used cost
sharing with the goal of achieving utilization control, invoking
"personal responsibility," and helping to avoid the displacement of
private insurance.  Review and approval of cost sharing was
particularly complex as states and HCFA attempted to ensure that the
appropriate statutory provisions of either Medicaid or SCHIP were
properly applied. 

   SCHIP DESIGN CHOICES:  SNAPSHOT
   OF AN EVOLVING PROGRAM
-------------------------------------------------------- Appendix II:1

As of April 1, 1999, only 2 states and 1 territory had not yet
submitted SCHIP plans to HCFA, and all but 2 of the 53 plans
submitted had been approved.\30

HCFA expects that all states will eventually submit a SCHIP plan. 
The initial design process for the states was driven by the
statutorily defined deadline for accessing federal funds and by the
more complicated task of developing a stand-alone program.  As a
result, the initial large number of SCHIP Medicaid expansions does
not reflect the ultimate shape of the overall program, and HCFA
estimates that a number of states submitted placeholder Medicaid
expansions to secure their initial year allotments.  The SCHIP
programs approved to date reflect the diversity of state approaches
and to some extent defy categorization.  Thus, some stand-alone
programs use Medicaid benefits while most combination programs are
largely defined by their stand-alone component rather than their
minimal Medicaid expansions.  The majority of states in our sample
are exploring or have already submitted a plan amendment. 

--------------------
\30 Washington, Wyoming, and the Northern Mariana Islands have not
yet submitted plans. 

      MEDICAID EXPANSIONS APPEAR
      TO DOMINATE INITIAL SCHIP
      PLANS
------------------------------------------------------ Appendix II:1.1

Of the 53 SCHIP plans submitted, 27 were expansions of state Medicaid
programs, 14 were stand-alone programs separate from Medicaid, and 12
combined a Medicaid expansion with a stand-alone component.  SCHIP
design choices are outlined in table II.1.  As of April 1, 1999, 51
of these plans were approved; American Samoa and Tennessee were still
under review. 

                         Table II.1
          
           The States' Approved and Pending SCHIP
             Design Choices as of April 1, 1999

Design
choice        States and territories                 Total
------------  ------------------------------------  ------
Medicaid      Alaska, Ark., D.C., Guam, Hawaii,         27
 expansion     Idaho, Ill., Ind., Iowa, La., Md.,
               Minn., Mo., Nebr., N.Mex., N.Dak.,
               Ohio, Okla., P.R., R.I., Samoa,
               S.C., S.Dak., Tenn., Tex., V.I.,
               Wisc.
Stand-alone   Ariz., Colo., Del., Ga., Kans.,           14
 program       Mont., Nev., N.Y.,\a N.C., Oreg.,
               Pa., Utah, Va., Vt.
Combination   Ala., Calif., Conn., Fla., Ky.,           12
 program       Mass., Mich., Maine, Miss., N.H.,
               N.J., W.Va.
----------------------------------------------------------
\a On March 26, 1999, New York submitted a SCHIP plan amendment that
includes a Medicaid expansion component.  When approved, the state's
design will be considered a combination program. 

While there currently appears to be a majority of Medicaid
expansions, the number of combination programs that have a
stand-alone component is expected to increase as state program
designs continue to evolve.  Thus, as many as 14 SCHIP Medicaid
expansions are "placeholders"--that is, minimal expansions in
Medicaid eligibility, as small as a 5-percent increase in the income
standard--used to guarantee the first year's allocation while
allowing time to plan for a stand-alone component.  For example,
Wisconsin submitted a minimal placeholder Medicaid expansion after
prolonged negotiations with HCFA over a more complex and extensive
combination program. 

Moreover, the number of combination programs with both a Medicaid and
stand-alone component should not necessarily be viewed as evidence
that the states are embracing a Medicaid approach to SCHIP.  Similar
to a placeholder plan, the Medicaid component of a combination
program often serves a very limited population.  For example,
Michigan used a Medicaid expansion to standardize its Medicaid income
criterion for children of all ages.  This allowed the state to
establish clear lines of eligibility between its Medicaid and SCHIP
stand-alone program; moreover, it serves to reduce confusion over
program eligibility for families with more than one child.  Indeed,
some Medicaid expansions--whether placeholders or part of a
combination program--accelerated the expansion of coverage for
children aged 14 to 18 up to 100 percent of the poverty level, an
action that federal law already required states to phase in by 2002. 
For states that used SCHIP to expand Medicaid eligibility in this
manner, the combination portion of their SCHIP program disappears in
2002.\31

In contrast to states that implemented minimal or placeholder plans,
a few states--such as Florida, Massachusetts, New York, and
Pennsylvania--
were well positioned to implement a more robust SCHIP plan in a
relatively short period of time.  Massachusetts had just received
approval for a Medicaid section 1115 waiver program that allowed it
to subsidize employer-sponsored insurance.  From the state's
perspective, title XXI was an opportunity to build on this approach
by incorporating an additional funding stream and expanding
eligibility even further.  Similarly, Florida, New York, and
Pennsylvania already had state-funded child health programs--and the
Congress recognized their efforts by grandfathering their benefit
packages in title XXI.  These states were able to establish their
SCHIP programs relatively quickly, by basing eligibility on their
existing state-funded program enrollment. 

--------------------
\31 Under the Omnibus Budget Reconciliation Act of 1990, the Congress
mandated that all children born after September 30, 1983, in families
up to 100 percent of the poverty level are eligible for Medicaid. 
Some states hastened this eligibility by covering children aged 14 to
18 under SCHIP born before this date.  By September 2002, these
children will age into adulthood and the SCHIP Medicaid expansion
component will no longer exist. 

      SCHIP BASIC DESIGN CHOICES
      MASK DIVERSE APPROACHES
------------------------------------------------------ Appendix II:1.2

The three basic designs permitted by title XXI--Medicaid expansion,
stand-alone, or a combination of both--mask a diversity of
approaches.  As a result, drawing any conclusion about a state's
SCHIP program from these descriptive labels, as summarized in table
II.1, can be misleading.  Thus, a stand-alone program and a Medicaid
expansion can be quite similar if the latter approach is selected by
a state already operating its Medicaid program under a section 1115
waiver; such a waiver allows a state to depart from many Medicaid
requirements.  One state in our sample that elected a stand-alone
approach even offers Medicaid benefits, a feature usually associated
with Medicaid expansions.  Even a comparison of eligibility levels
across states can be misleading.  Thus, a state that extends coverage
to children in families at higher income levels may cover relatively
few uninsured children compared with a more modest level of
eligibility that may have the potential to enroll hundreds of
thousands of uninsured children.  In short, the diversity of state
Medicaid programs and SCHIP approaches the states have taken make it
difficult to generalize across the three designs permitted by title
XXI.  For example: 

  -- Medicaid expansions encompass very different approaches and
     levels of eligibility.  For example, Rhode Island's Medicaid
     expansion is based on its existing section 1115 waiver
     demonstration, which before SCHIP covered children up to age 7
     at 250 percent of the federal poverty level and those aged 8 to
     12 at 100 percent of the federal poverty level in a mandatory
     Medicaid managed care program.  Under its SCHIP expansion,
     eligible beneficiaries up to age 18 at 300 percent of the
     poverty level are given a choice between paying premiums or
     having copayments attached to applicable services.\32 In
     contrast, Texas, whose legislature was not in session, submitted
     a placeholder Medicaid expansion that provides insurance to
     children aged 15 to 18 in families with incomes from 17 to 100
     percent of the poverty level.  In addition to this modest
     expansion and evening out of Medicaid eligibility levels for
     teens, Texas officials are currently working on a stand-alone
     amendment to their initial SCHIP plan.  State officials told us
     that they expect to submit the amendment to the state
     legislature for approval in 1999. 

  -- Stand-alone or combination approaches generally provided the
     states with increased flexibility in designing a SCHIP program. 
     Stand-alone programs are SCHIP designs that, if a state desires,
     can be completely separate from the eligibility, benefits, and
     other regulations that apply under Medicaid.\33

For example, Colorado's stand-alone program is based on a
state-funded program that originally provided outpatient but not
inpatient benefits to children.  Under SCHIP, Colorado's program has
been expanded to cover children up to age 17 up to 185 percent of the
poverty level, with 1 year of continuous eligibility if the family
applies before a child's 18th birthday.  California's SCHIP
combination plan expanded Medicaid for children aged 14 to 19 from 85
to 100 percent of the poverty level and established (1) an insurance
purchasing pool for children with family incomes up to 200 percent of
the poverty level and (2) coverage for children under 1 year of age
up to 250 percent of the poverty level.  California's design of its
SCHIP component was intentionally different from Medicaid; officials
indicated that by providing coverage through a program resembling an
employer-based model, they hoped to acquaint individuals with private
insurance and avoid any perceived stigma associated with the state's
Medicaid program. 

  -- For states that had taken advantage of Medicaid section 1115
     waivers to introduce flexibility, stand-alone and combination
     plans served as a means of building on existing programs,
     expanding eligibility, and preserving budgetary control.  For
     example, Oregon's stand-alone SCHIP plan operates as an
     extension of the state's section 1115 waiver program for
     Medicaid, expanding eligibility to 170 percent of the poverty
     level.  Termed a "Medicaid look-alike," Oregon's program uses a
     single application and eligibility determination process,
     provider network, and claims payment system for both SCHIP and
     Medicaid.  Both programs provide the same benefits based upon
     Oregon's prioritized list of health condition and treatments;
     however, the stand-alone nature of its SCHIP program allows the
     state to limit spending by the state by stopping enrollment. 
     Massachusetts' combination approach was designed to provide
     seamless coverage between the state's Medicaid program, which
     also operates under a section 1115 waiver, and its new SCHIP
     combination program for eligible families.  The coordination of
     services and funding streams in Massachusetts is summarized in
     appendix III, figure III.1. 

--------------------
\32 Rhode Island had already begun implementing a coverage expansion
up to 250 percent of the poverty level after the
maintenance-of-effort date in the statute, allowing the children in
the expansion group to qualify for SCHIP.  On January 5, 1999, HCFA
approved an amendment to Rhode Island's SCHIP plan, expanding
coverage up to 300 percent of the poverty level.  In keeping with
title XXI, no copayments for prenatal, well-baby, or preventive
services are required. 

\33 Generally speaking, Medicaid expansions under SCHIP must conform
to title XIX statutory provisions, whereas stand-alone components of
SCHIP programs must conform to title XXI provisions. 

      MANY STATES HAVE SUBMITTED
      OR ARE EXPLORING SCHIP PLAN
      AMENDMENTS
------------------------------------------------------ Appendix II:1.3

SCHIP design choices to date can be considered a snapshot of a
rapidly evolving program, for even as states receive approval for
plans, some are already designing what might best be characterized as
a second phase.  Nationwide, 26 plan amendments have been submitted
to HCFA, and 15 of these are already approved as of April 1, 1999. 
Nine of the 15 states in our sample are exploring or have already
submitted one or more plan amendments.  Examining the potential for
family coverage, possibly through employer-sponsored insurance, and
developing stand-alone components to SCHIP are key areas of interest
for our sample of states. 

   VARIATIONS IN SCHIP INCOME AND
   CATEGORIES OF ELIGIBILITY
-------------------------------------------------------- Appendix II:2

Just as Medicaid eligibility is tied to income and population
categories (that is, aged, blind, disabled, families with children),
title XXI also contains statutory guidelines regarding income and
identifies certain categories of children who are ineligible for
SCHIP.  With regard to income, SCHIP allows the states to cover
children up to 200 percent of the poverty level or 50 percentage
points above a state's current Medicaid applicable income level;
thus, a state's starting point is highly dependent upon the poverty
level previously established in its Medicaid program.  Similarly,
title XXI bars participation in SCHIP if a child (1) resides in or is
an inmate of a public institution, (2) is in a family that is
eligible for state employee health insurance, or (3) has existing
health insurance coverage.  Although the requirements appear to be
clear and binding in their exclusions, title XXI gives the states
considerable flexibility in setting income eligibility standards--and
some latitude in the treatment of categories of eligibility.  For
example, neither Medicaid nor SCHIP defines how a state counts
income; thus, by excluding certain income (referred to as income
disregards), state SCHIP plans encompass an eligibility range of 100
to 300 percent of the poverty level.\34 Furthermore, title XXI's
exclusions of categories of children do not apply to Medicaid
expansions, which must use Medicaid rules and conditions of
eligibility.  The states' use of Medicaid section 1115 waivers often
fashioned an eligibility system that was more expansive than that of
traditional Medicaid, permitting these states to extend eligibility
to even higher levels under SCHIP.  For states in our sample with
Medicaid section 1115 waivers, SCHIP plans tended to be extensions of
their Medicaid programs, requiring relatively minor adjustments to
incorporate SCHIP into current operations.\35

--------------------
\34 Income disregards are also common in the Medicaid program; title
XIX also does not dictate how a state defines income for purposes of
eligibility determination.  Examples of income disregards include a
flat percentage of income and income from sources such as child
support. 

\35 While states with Medicaid section 1115 waivers expanded their
Medicaid operations, many did so through a stand-alone or combination
program design.  For example, Massachusetts, Oregon, and Vermont all
have section 1115 waivers under Medicaid but chose stand-alone or
combination SCHIP designs. 

      STATES HAVE FLEXIBILITY TO
      SET INCOME AND RESOURCE
      STANDARDS UNDER SCHIP
------------------------------------------------------ Appendix II:2.1

By relying on the flexibility under existing statutes, some states
have expanded SCHIP eligibility to an effective rate of up to 300
percent of the poverty level.  Connecticut officials originally
believed that in order to expand SCHIP eligibility above 235 percent
of the poverty level (from their Medicaid level of 185 percent), the
state would need to apply for a section 1115 waiver.  However,
discussions with HCFA resulted in a strategy of using title XXI
income disregards to effectively raise the state's eligibility level
to 300 percent of the poverty level.  Similarly, New York used income
disregards as a means of increasing the effective income level to 222
percent of the federal poverty level.  Table II.2 shows the SCHIP
eligibility by federal poverty level for the states in our sample. 

                                        Table II.2
                         
                          Changes in Poverty Level From Medicaid
                                  to SCHIP in 15 States

                                                            Poverty level by age
                                                   --------------------------------------
Poverty level    State         Program                   <1       1-5      6-14     15-18
and income\a     ------------  ------------------  --------  --------  --------  --------
High (201%-      Connecticut\  SCHIP stand-            300%      300%      300%      300%
300%), $32,900-  b             alone                     \c        \c        \c       185
$49,350                        SCHIP Medicaid           185       185       185        \c
                               expansion
                               Medicaid

                 Missouri      SCHIP Medicaid           300       300       300       300
                               expansion                185       133       100       100
                               Medicaid

                 New York\d    SCHIP stand-             222       222       222       222
                               alone                    185       133       100        61
                               Medicaid

                 Rhode         SCHIP Medicaid            \c        \c       300       300
                 Island\e      expansion                20       20       100        \f
                               Medicaid

                 Vermont\g     SCHIP stand-             300       300       300       300
                               alone                    225       225       225       225
                               Medicaid

Medium (151%-    California\h  SCHIP stand-              \c       200       200       200
200%), $24,675-                alone                    250        \c        \c       100
$32,899                        SCHIP Medicaid           200       133       100        82
                               expansion
                               Medicaid

                 Colorado      SCHIP stand-             185       185       185       185
                               alone                    133       133       100        39
                               Medicaid

                 Florida       SCHIP stand-             200       200       200       200
                               alone                     \c        \c        \c       100
                               SCHIP Medicaid           185       133       100        28
                               expansion
                               Medicaid

                 Massachusett  SCHIP stand-              \c       200       200       200
                 s\i           alone                    200       150       150       150
                               SCHIP Medicaid           185       133       133       133
                               expansion
                               Medicaid

                 Michigan\j    SCHIP stand-             200       200       200       200
                               alone                     \c        \c        \c       150
                               SCHIP Medicaid           185       150       150        \f
                               expansion
                               Medicaid

                 Oregon        SCHIP stand-             170       170       170       170
                               alone                    133       133       100       100
                               Medicaid

                 Pennsylvania  SCHIP stand-             200       200       200       200
                               alone                    185       133       100        39
                               Medicaid

                 Wisconsin\k   SCHIP Medicaid            \c        \c       185       185
                               expansion                185       185       100        62
                               Medicaid

Low (100%-       South         SCHIP Medicaid            \c       150       150       150
150%), $16,450-  Carolina\l    expansion                185       133       100        48
$24,674                        Medicaid

                 Texas         SCHIP Medicaid            \c        \c        \c       100
                               expansion                185       133       100        17
                               Medicaid
-----------------------------------------------------------------------------------------
\a Percentages of federal poverty level for family of four. 

\b Connecticut covers children up to age 16 under Medicaid at 185
percent of the poverty level. 

\c Not affected by SCHIP. 

\d New York has submitted an amendment to increase the maximum
poverty level for its stand-alone program to 230 percent and to add a
SCHIP Medicaid expansion for 15-to-18-year-olds up to 100 percent of
the poverty level. 

\e Under its section 1115 Medicaid waiver, Rhode Island covered
children up to age 7 at 250 percent of the poverty level and those
aged 8 to 13 up to 100 percent of the poverty level.  Effective May
1, 1997, the state expanded coverage to include children aged 8 to 18
up to 250 percent of the poverty level.  Because this expansion was
implemented after March 15, 1997, it qualifies as an eligible
Medicaid expansion under SCHIP. 

\f Not available. 

\g Vermont's Medicaid program covers uninsured children up to 225
percent of the poverty level.  The state received approval in
November 1998 to cover underinsured children up to 300 percent of the
poverty level through its Medicaid section 1115 waiver.  Also, the
state's eligibility is for children under age 18 (infant to age 17). 

\h California's SCHIP Medicaid expansion covers children aged 14 to
19 up to 100 percent of the poverty level.  The state covers infants
only from 200 to 250 percent of the poverty level whose mothers are
enrolled in the Access for Infants and Mothers program, which serves
families who have no maternity insurance, who have insurance with a
high maternity-only deductible, and who do not qualify for no-cost
Medicaid. 

\i Massachusetts' SCHIP Medicaid expansion includes children aged 18,
an age group of children who were previously not covered under
Medicaid. 

\j Michigan's SCHIP Medicaid expansion includes children aged 16 to
18 up to 150 percent of the poverty level.  Previously, these
children were covered at the poverty level effective for those
eligible for Medicaid as medically needy (approximately 60 to 70
percent of poverty).  Children aged 15 are covered under Medicaid up
to 150 percent of the poverty level. 

\k Initial eligibility in Wisconsin is up to 185 percent of the
poverty level.  Once an individual is enrolled, eligibility is
retained until family income reaches 200 percent of the poverty
level. 

\l The nominal poverty level for SCHIP eligibility in South Carolina
is 150 percent of the poverty level.  Depending on family size and
composition, the use of income disregards brings the effective
poverty level to between 175 and 200 percent. 

The difference in earlier poverty levels of eligibility across state
Medicaid programs affected the degree to which the states were able
to plan and use their SCHIP allotments.  For example, Vermont
estimated that its Medicaid program had already reached 89 percent of
all children with household income less than the proposed 300-percent
income level.  A SCHIP program aimed solely at the uninsured would
cover only 1,000 additional children.  As a result, the state
proposed a SCHIP plan that also targeted adults and underinsured
children with atypical health care needs.  Vermont withdrew its
initial application, however, when it became clear that HCFA would
not approve these components of its plan for SCHIP funds because they
did not meet statutory requirements.  In December 1998, HCFA approved
a SCHIP stand-alone program to cover Vermont's remaining uninsured
children.  SCHIP benefits, however, will be the same as those
available to the state's Medicaid beneficiaries.  Vermont will use
Medicaid rather than SCHIP funds to cover underinsured children up to
300 percent of the poverty level and recently received approval to
provide coverage to adults with incomes between 150 and 185 percent
of the poverty level under its existing Medicaid section 1115
demonstration waiver. 

In contrast, Texas' expansion providing coverage to children aged 15
to 18 from 17 to 100 percent of the poverty level appears, on the
surface, to be more modest than Vermont's.  However, Texas officials
estimate that the state's initial placeholder plan could provide
coverage to close to 163,000 children, and they hope to enroll 57,000
during fiscal year 1999.  Like Texas, South Carolina had a modest
Medicaid expansion, increasing eligibility from 100 to 150 percent. 
The state began enrolling children before the official start date of
SCHIP; the state had enrolled 52,000 children as of September
1998.\36 This enrollment constitutes more than half of the estimated
number of low-income uninsured children in South Carolina;
furthermore, state officials indicated that this figure does not
include an extensive backlog of mail-in applications. 

--------------------
\36 South Carolina began implementing its SCHIP Medicaid expansion
before fiscal year 1998, the first year in which SCHIP funds were
available.  However, because the expansion was approved after the
dates cited in title XXI, the program now operates as a SCHIP
Medicaid expansion. 

      POOR INSURANCE COVERAGE
      POSES CONCERNS FOR SOME
      STATES
------------------------------------------------------ Appendix II:2.2

As the states refine their initial SCHIP designs, concerns about
equity have been raised.  Of particular concern are low-income
individuals who already have insurance of lesser quality or higher
cost than that offered by SCHIP and thus are not eligible for
coverage under title XXI.  State approaches to SCHIP, as well as
variability in the quality of insurance coverage, have posed equity
concerns, especially regarding children who have inadequate insurance
and state employees who may be ineligible for SCHIP.\37 Title XXI
expressly prohibits coverage to individuals who are covered under a
group health plan or under health insurance coverage as defined by
the Health Insurance Portability and Accountability Act of 1996
(HIPAA).  HCFA officials noted that HIPAA has a very broad definition
of insurance coverage, meaning that individuals with minimal
insurance coverage are not eligible for SCHIP. 

The HIPAA designation of coverage has posed varying levels of concern
for the states.  Massachusetts officials told us that insurance
reform in their state has helped eliminate "bad" policies--that is,
those that provide only minimal coverage.  However, other states have
expressed concern that the statute does not discriminate between good
and poor coverage and thus unfairly penalizes a family who purchases
an inadequate insurance policy.  Some states would deny immediate
SCHIP coverage to such a low-income family, while a family at a
similar poverty level who did not purchase insurance would qualify
for SCHIP without any restrictions or waiting period.  A few states
have defined access--that is, whether an individual can obtain
insurance through an employer--as the point of eligibility for SCHIP. 
In this case, while there is no disparity of treatment between
insured and uninsured individuals, there is also a smaller pool of
individuals eligible for SCHIP.  Rhode Island employs a hybrid
approach that provides eligibility workers with guidelines regarding
affordability of coverage--a policy less than $150 per month for a
child or $300 for a family.  However, eligibility workers can use
their own discretion in deciding if the cost of available coverage is
prohibitive for a child or family; in these cases, a worker can deem
the individual eligible for SCHIP. 

Although title XXI appears to expressly prohibit the states from
enrolling children of state employees eligible for its health
benefits plan, states' SCHIP design choices have led to some
exceptions.  A state that selects a Medicaid expansion is subject to
Medicaid rules of eligibility, while the SCHIP statute governs any
stand-alone approach.  Under Medicaid, individuals qualifying for
participation in certain eligibility groups (that is, children born
before October 1, 1983) cannot be excluded on the basis of their
insurance status; hence, Medicaid expansions can include uninsured
children of state employees.  Thus, for the 27 states with Medicaid
expansions, there is no prohibition on uninsured children of state
employees who meet the state poverty guidelines for title XXI.\38 In
the case of stand-alone or combination programs, however, the
statutory restrictions are tighter.  If a state contributes nothing
to the cost of dependent coverage, then state employees can enroll in
SCHIP; nationwide, two states, Mississippi and North Carolina, do not
contribute to health benefits for their employees' dependents.  Thus,
SCHIP eligibility for state employees and their dependents has
resulted in different outcomes, depending upon each state's design
choice under SCHIP and other special circumstances regarding state
employee insurance.  Some states and state associations have raised
concerns about the state employee prohibition in SCHIP stand-alone
components, pointing out the disparity in treatment across the states
and the fact that the prohibition does not apply to federal or other
government employees. 

--------------------
\37 The American Public Human Services Association adopted a
resolution in December 1998 urging the Congress to amend SCHIP to
enable dependents of low-income state employees to participate in the
program. 

\38 Wisconsin officials told us that even though Wisconsin's program
is a Medicaid expansion, state employees covered by state employee
health insurance are excluded. 

   THE COMPARABILITY OF MEDICAID
   AND SCHIP STAND-ALONE BENEFIT
   PACKAGES IS DIFFICULT TO
   ASCERTAIN
-------------------------------------------------------- Appendix II:3

In contrast to SCHIP programs that are modeled after Medicaid, title
XXI allows states with stand-alone programs to impose additional
conditions and limits on benefits by authorizing a benchmark benefit
package that more closely resembles some employer-based coverage for
those implementing a stand-alone approach.  For the majority of
eligible children, such limits and conditions are not likely to
interfere with ensuring adequate diagnosis and treatment.  Children
with special needs, however, may not receive the full range of
services that their conditions might warrant.  To guard against this
possibility, some states have developed screening tools similar to
EPSDT as a means of identifying children with special needs and
ensuring that they receive the full range of necessary treatment. 
Other states have not confronted the problem of these children and,
like the Medicaid program, have instituted prior authorization
requirements or service limits for certain treatments or services. 
Finally, the states with stand-alone programs or combination programs
with a stand-alone program component in our sample generally included
benefits similar to Medicaid but did impose differences in the
duration of treatment allowed or the number and amount of services
covered. 

      STAND-ALONE PROGRAMS REFLECT
      THE FULL RANGE OF TITLE XXI
      OPTIONS
------------------------------------------------------ Appendix II:3.1

Table II.3 describes the four benefit package standards available to
states implementing a stand-alone SCHIP program or
component--benchmark coverage, benchmark-equivalent coverage,
existing comprehensive state coverage, and Secretary-approved
coverage.  As shown by table II.4, the states in our sample with a
stand-alone program used the full variety of options offered under
SCHIP.  Two states used benchmark coverage--one based on its state
employee benefits program and one based on the Federal Employees
Health Benefit Program (FEHBP) benchmark option.  One state adopted a
benchmark equivalent, incorporating the basic and additional benefits
cited in title XXI.  Finally, three states in our sample had benefit
packages that were grandfathered into title XXI, and four states
received approval by the Secretary for an alternative benefit
package. 

                               Table II.3
                
                  SCHIP Benefit Package Standards for
                          Stand-Alone Programs

Coverage
standard          Description
----------------  ----------------------------------------------------
Benchmark         FEHBP Blue Cross Blue Shield standard option or
                  coverage generally available to state employees or
                  coverage under the state's health maintenance
                  organization with the largest insured commercial
                  non-Medicaid enrollment

Benchmark         Basic coverage for inpatient and outpatient
equivalent        hospital, physicians' surgical and medical,
                  laboratory and x-ray, and well-baby and well-child
                  care, including age-appropriate immunizations

                  Aggregate actuarial value equivalent to a benchmark
                  package

                  Substantial (75%) actuarial value for optional
                  prescription drugs and mental, vision, and hearing
                  services

Existing          Coverage equivalent to state-funded child health
comprehensive     programs in Florida, New York, or Pennsylvania
state
(grandfathered)

Secretary-        Coverage appropriate for targeted low-income
approved          children
----------------------------------------------------------------------

                         Table II.4
          
             Basis for Required Scope of Health
           Insurance Coverage for Ten States With
                    Stand-Alone Programs

Basis\a                       State
----------------------------  ----------------------------
Benchmark coverage            Mass., Mich.

Benchmark-equivalent          Colo.
coverage

Existing comprehensive state  Fla., N.Y., Pa.
coverage

Secretary-approved            Calif., Conn., Oreg., Vt.
coverage\b
----------------------------------------------------------
\a Excludes the Medicaid expansion portions of combination programs,
which by definition offer benefits identical to a state's Medicaid
plan. 

\b Although California and Connecticut use their state employee plans
as the basis for coverage, HCFA did not consider this benchmark
coverage because both states included additional benefits. 

      COVERAGE REQUIREMENTS FOR
      SCHIP STAND-ALONE PROGRAMS
      ARE BASED ON PRIVATE SECTOR
      STANDARDS
------------------------------------------------------ Appendix II:3.2

Benefit comparisons between Medicaid expansions and SCHIP stand-alone
programs are complex because of the numerous services involved, the
ability of the states to place limits on covered services, and the
availability of EPSDT under Medicaid (see figure II.1).  Both
Medicaid and the benchmark approaches available to states with
stand-alone components include (1) mandatory coverage for a series of
basic services for children, such as physician visits, inpatient
hospitalization, laboratory and x-ray services, and well-baby and
well-child care, and (2) optional coverage for prescription drugs and
dental, mental health, vision, and other services.  In addition, the
states may impose conditions and limits on the benefits offered under
a Medicaid expansion or a SCHIP stand-alone program.  For example,
dental benefits might exclude routine preventive care and cover only
any restoration necessary because of an accident.  Or inpatient
mental health services may be limited to a dollar amount or a number
of days of services. 

   Figure II.1:  Medicaid EPSDT
   Requirements

   (See figure in printed
   edition.)

However, Medicaid--and therefore Medicaid expansions--use a special
standard to determine the appropriate level of services available to
children that is based upon a broad definition of medical necessity. 
In general, Medicaid, through its EPSDT component, requires the
states to cover any treatment to cure or stabilize a condition
diagnosed during routine screening--regardless of whether the benefit
is actually covered under the state's Medicaid program and regardless
of any limits placed on the benefit.  In contrast, not all private
insurance defines covered services this broadly.  While the
implementation of EPSDT is difficult to measure, federal studies have
generally found state efforts to be inadequate.  Nonetheless, the
EPSDT requirement provides an avenue for legal review and appeal to
ensure that children receive necessary services and thus, in theory,
guarantees a coverage level beyond that of a state's Medicaid benefit
package. 

      SOME SCHIP STAND-ALONE
      PROGRAMS INCLUDE SCREENING
      AND DIAGNOSTIC PROCEDURES
      SIMILAR TO EPSDT
------------------------------------------------------ Appendix II:3.3

Some SCHIP stand-alone programs included screening and diagnostic
procedures similar to EPSDT, in part as a means to identify children
with special health care needs.  Connecticut's SCHIP plan contains a
screening and referral service intended to provide children with
special behavioral or medical needs any extra services they might
require.  Connecticut officials indicated that the state was
interested in a SCHIP benefit package that looked like a commercial
insurance model with defined limits on services.  However, the
officials indicated that experience with Medicaid managed care showed
that there were problems in applying a commercial model when serving
individuals with extreme health needs.  As a result, the state
devised an enhanced benefit package for children found to have
particular physical or behavioral health needs.  For example, a child
eligible for SCHIP with behavioral health needs that are not covered
under its commercial health maintenance organization (HMO) would
receive services through a program developed by the Yale Child Study
Center, which provides in-home mental health services. 

Florida and Massachusetts also employ screening mechanisms to
identify children with special needs.  Florida recently received
approval for a SCHIP plan amendment that provides approximately 300
children with special needs the opportunity to receive Medicaid
benefits.  These children have chronic or potentially chronic
physical or developmental conditions, and a number of them have
serious emotional disturbances or substance dependency.  Similar to
Medicaid enrollees with similar conditions, children eligible for
SCHIP will receive covered services through a capitated managed care
arrangement that will be administered by title V.\39 In
Massachusetts, children with physical, mental, or developmental
disabilities are enrolled in Medicaid, regardless of whether they
would otherwise qualify for SCHIP.  These children participate in the
state's section 1115 waiver for persons with disabilities, receiving
treatment and services from fee-for-service providers. 

Although providing less extensive coverage than EPSDT, some states
have employed other screening mechanisms to attempt to ensure that
children receive basic services.  For example, Michigan officials
told us that their SCHIP stand-alone package includes well-child
recommendations by the American Academy of Pediatrics.  With the
exception of cost-sharing provisions, officials noted that there is
little difference between the state's Medicaid and SCHIP benefit
packages.  However, Michigan did attempt to improve access to
services by increasing physician and dental provider payments in its
SCHIP stand-alone component in the hopes of enticing additional
provider participation.  Although the state's Medicaid program covers
dental services, the state recognizes that it has a serious problem
regarding access to such services.  Michigan officials view the SCHIP
payment increases as a test to see if access to covered services
actually improves. 

--------------------
\39 Title V, the Maternal and Child Health Services Block Grant,
offers formula grants that require a state match of $3 in funds or
resources for every $4 in federal funds received; a minimum of 30
percent of funds must be used to support programs for children with
special health needs.  Title V also supports activities under Special
Projects of Regional and National Significance and Community
Integrated Service Systems. 

      MOST STAND-ALONE PROGRAMS
      COVER OPTIONAL BENEFITS BUT
      VARY IN THE LIMITS THEY
      IMPOSE
------------------------------------------------------ Appendix II:3.4

The states in our sample with a stand-alone component generally offer
the same five optional benefits under their SCHIP programs--namely,
prescription drugs and mental health, vision, hearing, and dental
services.  As shown in more detail in table II.5, states with
stand-alone benefit packages covered these benefits but usually with
certain exclusions or limits on services.  SCHIP limitations on
benefits for children represent a departure from the Medicaid
program, primarily because EPSDT in Medicaid requires that children
with medical needs be afforded services.  In general, however, most
non-Medicaid SCHIP programs include routine services such as
physician services, prescription drugs, and laboratory and
radiological services without stated limits.  Mental health,
substance abuse, ancillary therapies, and other specialized services
are generally provided on a more limited basis. 

                         Table II.5
          
           Yearly SCHIP Benefits for Stand-Alone
                 Components in Eight States

Optional      State         Limits on services
service       ------------  ------------------------------
Prescription  California    Covered
drugs

              Colorado      Covered

              Connecticut   Covered

              Florida\a     Covered; generics only unless
                            physician specifies

              Massachusett  Covered
              s

              Michigan      Covered; generics only unless
                            physician specifies

              New York\b    Covered; generics only if
                            acceptable to health plan

              Pennsylvania  Covered
              \c

Mental        California\d  Inpatient 30-day limit;
health                      outpatient 20 visits

              Colorado\e    Inpatient 45-day limit;
                            outpatient 20 visits

              Connecticut\  Inpatient 60-day limit;
              f             outpatient 30 visits\

              Florida       Inpatient 15-day limit;
                            outpatient 20 visits

              Massachusett  Limits based on medical
              s             necessity

              Michigan      Inpatient 365-day limit;
                            outpatient covered

              New York      Inpatient 30-day limit;
                            outpatient 60 visits

              Pennsylvania  Inpatient 90-day limit;
                            outpatient no limits

Vision        California    Covered; one set of glasses or
                            contacts per year

              Colorado      $50 annual maximum for glasses

              Connecticut   Covered; one set of glasses
                            every 2 years

              Florida       Covered; one set of glasses
                            every 2 years

              Massachusett  Covered; one set of glasses or
              s             contacts per year

              Michigan      Covered; one set of glasses
                            every 2 years

              New York      Covered

              Pennsylvania  Covered

Hearing       California    Exams and hearing aids

              Colorado      $800 annual maximum; hearing
                            aids

              Connecticut   Exams; hearing aids covered in
                            supplemental program

              Florida       Routine hearing screening and
                            hearing aids

              Massachusett  Services for speech, hearing,
              s             and language disorders;
                            hearing aids

              Michigan      Exams and hearing aids covered
                            every 36 months

              New York      Covered

              Pennsylvania  Exams and hearing aids

Dental        California    Covered

              Colorado      Treatment of injuries only

              Connecticut   Covered

              Florida       Treatment of injuries only

              Massachusett  Covered
              s

              Michigan      $600 annual limit

              New York\     Covered

              Pennsylvania  Covered
----------------------------------------------------------
\a Benefits for Florida's Healthy Kids program are reflected in the
table.  The state's Medikids program and the Children's Medical
Services Network for children with special health care needs use
Medicaid benefits. 

\b New York's benefits reflect expanded coverage of dental, vision
care, and other services approved by state legislation after its
original SCHIP plan was approved.  The state has requested an
amendment to the SCHIP plan regarding these benefit changes. 

\c Pennsylvania now requires no limits on optional benefits, and the
state will consider this change when renegotiating provider
contracts. 

\d California offers additional specialized mental health services
for seriously emotionally disturbed children. 

\e Colorado's mental health parity law requires unlimited treatment
for ten biologically based illnesses. 

\f Connecticut allows some inpatient days to be converted to
outpatient days.  Also, children with intensive behavioral health
needs are referred to a supplemental behavioral health program for
additional services. 

The Medicaid and SCHIP benefits of New York and Oregon demonstrate
the different approaches the states have taken as well as the
specific state circumstances that contributed to their benefit
decisions. 

  -- The benefit package from New York's existing state-financed
     program for uninsured children was grandfathered into the SCHIP
     program and initially contained limits on services and several
     exclusions that were generally more restrictive than its
     Medicaid program.  State officials noted that the original goal
     of its state program was to cover as many children as possible
     within state budgetary limits.  New York originally focused on
     primary and preventive care and provided very limited benefits
     for mental health, dental, and hearing services.  The state
     recently passed legislation to amend its SCHIP plan to include
     dental care, eyeglasses and other vision care, speech and
     hearing, durable medical equipment, and inpatient mental health,
     alcohol, and substance abuse services beginning on January 1,
     1999, thus narrowing the gap between Medicaid and SCHIP
     benefits.\40

  -- Coverage under Oregon's stand-alone program expressly mirrored
     the benefits offered under its Medicaid section 1115 waiver.\41
     State officials determined through public hearings and testimony
     that citizens considered Oregon's Medicaid benefit package to be
     richer than any possible benchmark plan, in part because it
     offers full mental health and preventive dental care.\42

--------------------
\40 On March 26, 1999, New York submitted a SCHIP plan to HCFA
regarding these benefit changes. 

\41 Through the use of a section 1115 waiver, Oregon redefined its
Medicaid benefit package, creating a prioritized list of services and
conditions that are eligible for Medicaid reimbursement.  Oregon's
SCHIP stand-alone benefits package uses the same prioritized list of
services and conditions as the state's Medicaid program. 

\42 Under Oregon's section 1115 waiver, EPSDT requirements were
waived; however, most EPSDT-mandated services are covered under
Oregon's Medicaid program. 

   COST SHARING:  OPPORTUNITIES
   AND CHALLENGES
-------------------------------------------------------- Appendix II:4

Traditional Medicaid does not allow cost sharing for services
provided to most children.  Thus, the incorporation of cost sharing
in both stand-alone SCHIP plans and the Medicaid expansions of
several states operating their programs under section 1115 waivers
represents a departure from the norm.  Most states in our sample with
a stand-alone component told us that they included cost-sharing
provisions as a way to mirror private insurance.  These states
generally viewed cost sharing as creating a sense of ownership for
beneficiaries.  In general, the cost sharing imposed by 11 states in
our sample appears to be closer to 1 to 2 percent of income for a
family of four with two children than to the 5 percent permitted by
title XXI.\43 Indeed, about half of these states impose no cost
sharing for families at 150 percent of the poverty level ($24,675 for
a family of four).  The review and approval of cost-sharing
provisions was complex, as both states and HCFA struggled with the
application of the appropriate statutory provisions of either
Medicaid or title XXI.  Compliance with title XXI's 5 percent of
family income limit was especially troublesome as the states worked
to devise ways to limit the administrative burden imposed in tracking
a family's health expenditures.  Finally, states with grandfathered
benefits learned that the statute did not treat cost sharing as part
of their benefit package; ultimately, all three states had to alter
their cost-sharing practices to reflect title XXI limits. 

--------------------
\43 Texas commented that the jump from no cost sharing below 150
percent of the poverty level to allowing up to 5 percent of income
cost sharing between 150 and 200 percent was "too severe" for such a
small change in income (50 percentage points) and suggested that more
states would have developed graduated cost sharing at higher levels
if the income range had been broader.  For example, Texas suggested
that cost sharing that started at 0.05 or 1 percent for those under
150 percent of the poverty level would have encouraged incremental
cost sharing to higher levels. 

      COST-SHARING PROVISIONS
      DIFFER FOR MEDICAID AND
      SCHIP
------------------------------------------------------ Appendix II:4.1

With the exception of preventive services, which are exempt from cost
sharing under SCHIP, a state's design choice greatly affects the
degree to which families can be asked to contribute to the cost of
coverage for their children.  Generally, a state with a traditional
Medicaid program that elects a SCHIP Medicaid expansion is not
allowed to impose premiums on most children or any deductibles,
copayments, or other similar charges for children.  States operating
less traditional Medicaid programs under a section 1115 waiver that
had already introduced cost sharing have the option of imposing cost
sharing under a SCHIP Medicaid expansion if it is consistent with
title XXI limits.  For SCHIP stand-alone programs, cost sharing at or
below 150 percent of the poverty level follows Medicaid limits on
premiums, while copayments and other cost sharing must be "nominal."
Children in families above 150 percent of the poverty level can be
charged premiums or other cost sharing of any amount--as long as the
total for all children does not exceed 5 percent of aggregate annual
family income. 

The two major types of cost sharing--premiums and copayments--can
have different behavioral effects on participation in a health plan. 
Generally, premiums are seen as restricting entry into a program,
whereas copayments affect the use of services within the program. 
Studies of Medicaid programs operating under section 1115 waivers and
of state-funded health programs demonstrate that premiums can affect
the level of program participation.  In particular, one study found
that when premiums reach 7 percent of a family's income,
participation drops to less than 10 percent of eligible families.\44
Copayments are generally seen as a "brake" on the use of services
because they reduce the frequency of physician visits.  However,
significant cost sharing may cause individuals to defer treatment,
resulting in more severe conditions and potentially higher expenses. 

--------------------
\44 Leighton Ku and Teresa A.  Coughlin, The Use of Sliding Scale
Premiums in Subsidized Insurance Programs (Washington, D.C.:  The
Urban Institute, Mar.  1997). 

      STATES OFTEN IMPLEMENTED
      COST SHARING TO MIRROR
      PRIVATE SECTOR INSURANCE
      PRACTICES
------------------------------------------------------ Appendix II:4.2

Thirteen of the 15 states in our sample can impose cost-sharing
provisions under SCHIP that are different from Medicaid limits,
either by virtue of being a stand-alone component or because of a
section 1115 Medicaid waiver.\45 Of those 13 states, all but 2
included cost sharing in their SCHIP plans, as shown in table II.6. 
Oregon, which asks beneficiaries to contribute to the cost of
coverage under its section 1115 waiver, chose not to do so under
SCHIP.  During negotiations with HCFA, Pennsylvania dropped a $5
copayment for prescriptions that had been part of its previous
state-funded children's health insurance program.  Eight states are
charging both copayments and premiums, while three states are
requiring only the latter.  A majority of these 11 states have opted
to charge a per-child premium, but many have imposed a total limit on
the amount of premiums a family has to pay.\46 For example, in New
York, per-child premiums for a family at 160 percent of the poverty
level or greater with four children would exceed the allowable
maximum premium; thus, the family's premium would be equivalent to
three children.  Generally, the states in our sample had a similar
rationale for imposing cost sharing--to emulate employer-based
insurance. 

                         Table II.6
          
           Cost Sharing Under SCHIP in 13 States

Cost-sharing effort           State
----------------------------  ----------------------------
No cost sharing               Oreg., Pa.

Premiums and copayments       Calif., Colo., Conn., Fla.,
                              Mo., R.I.,\a Vt., Wisc.

Premiums only                 Mass.,\b Mich., N.Y.
----------------------------------------------------------
\a Rhode Island allows individuals to choose between paying premiums
or paying copayments. 

\b Massachusetts may provide coverage by subsidizing employer-based
insurance; in these circumstances, a family may be charged premiums
and copayments. 

California officials told us that cost sharing was central to its
efforts to create a system that parallels private health insurance. 
California charges different premiums depending on a family's poverty
level, and families who prepay their premiums for 3 months get a
fourth month free.  Copayments are established by the state's
insurance board and are set at $5.  California officials told us that
cost sharing was a magnet to participation in SCHIP, noting that of
the individuals applying for SCHIP who were deemed eligible for
Medicaid (and therefore ineligible for SCHIP), only 25 percent gave
permission for their applications to be sent to Medicaid. 

California was unable to obtain approval for varying levels of cost
sharing across different plans because these amounts were higher than
those permitted under title XXI.  The state had proposed establishing
a set premium assistance amount based on the insurance plans offering
the lowest cost combination of health, dental, and vision plans for a
particular geographic area.  Eligible individuals could choose a
higher-priced plan but only if they were willing to increase their
contribution because the state subsidy would remain the same. 
Officials cited a twofold reason for this approach:  (1) there is an
amount above which the federal government and the state should not
pay to support insurance costs and (2) SCHIP families deserve to have
as many health plan choices as possible.  State officials indicated
that HCFA was very concerned about bias, believing that families
might press themselves to pay higher premiums on the assumption that
higher cost meant better coverage.  HCFA, in contrast, indicated that
the issue was simply that the cost sharing for all but one plan was
higher than permitted under the statute.  Ultimately, California
withdrew this element of its cost-sharing proposal, but state
officials said that, as a result, some health plans withdrew from
SCHIP participation.  California officials characterized the loss of
this segment of their SCHIP plan as putting a large hole in their
efforts to make SCHIP a path to private insurance.  Officials
believed that allowing beneficiaries more choice of plans--even those
that had a higher cost--was an important educational effort that
would afford individuals the opportunity to make informed choices
once they were purchasing their own insurance. 

Michigan ultimately balanced its interest in modeling its program
after employer-sponsored insurance with the desire to ensure that
eligible families enroll and use SCHIP.  State officials indicated
that Michigan wanted its SCHIP to (1) appeal to working families by
avoiding any perceived welfare stigma, (2) preserve the ability to
alter program design to control costs and expenses, and (3) make it
easier for people to make a transition to employer-based insurance. 
Originally, Michigan required premium and copayments for families
above 150 percent of the poverty level.  Premiums ranged from $8 to
$15 per month, depending upon the number of children, and copayments
were generally $5.  However, the Michigan state legislature decreased
the premium to a flat rate of $5 per family per month and eliminated
three $5 copayments.  Michigan officials stated that the monthly
premium is costly to collect, but it is part of the state's belief
that the program should operate like private insurance. 

While states with traditional Medicaid programs--such as South
Carolina and Texas--are generally not permitted to include
cost-sharing provisions in their SCHIP Medicaid expansions, most
states with Medicaid section 1115 waivers did incorporate cost
sharing consistent with title XXI.  For example, Rhode Island's
Medicaid section 1115 waiver allows individuals to choose between
paying premiums or copayments for eligible children.  Missouri and
Wisconsin were able to use a Medicaid section 1115 waiver as the
basis for their SCHIP programs, and both planned to include cost
sharing.  For Missouri, cost-sharing provisions were a matter of
equity, particularly at higher levels of poverty.  Thus, the state
has copayments with exemptions for preventive care beginning at 185
percent of the poverty level, and premium assistance amounts are
based upon what state employees in Missouri pay for their care. 
Wisconsin planned to charge premiums beginning at 150 percent of the
poverty level that would total approximately 3 to 3.5 percent of a
family's income. 

--------------------
\45 States with Medicaid expansions whose Medicaid programs do not
charge premiums or copayments are barred from imposing cost sharing. 
Hence, South Carolina and Texas cannot charge copayments under SCHIP. 

\46 California, Colorado, Connecticut, Massachusetts, New York, and
Rhode Island are charging per-child premiums.  Florida, Michigan,
Missouri, Vermont, and Wisconsin are charging per-family premiums. 

      COST SHARING UNDER SCHIP
      APPEARS TO BE MINIMAL IN 15
      STATES
------------------------------------------------------ Appendix II:4.3

None of the 11 states in our sample required cost sharing that is
likely to reach the maximum 5 percent of income permitted by title
XXI, as shown in table II.7.\47

To determine the amount of SCHIP cost sharing imposed by states, we
estimated copayments for a typical healthy family with two children
enrolled in SCHIP.  For a family at 150 percent of the federal
poverty level, total estimated cost sharing ranged from a low of $60
per year in Michigan (0.2 percent of income) to a high of $864 per
year in Wisconsin (3.5 percent of income).  Five of the 11 states
that imposed cost sharing under SCHIP charged families at this income
level nothing to enroll their children.  In general, copayments
account for a small percentage of the total out-of- pocket costs. 

                                        Table II.7
                         
                          Estimated Cost Sharing as a Percentage
                              of Family Income in 11 States

           $24,675 annual income      $30,433 annual income      $41,125 annual income
         (150% of poverty) 5% limit    (185% of poverty) 5%    (250% of poverty) 5% limit
                  = $1,234                limit = $1,522                = $2,056
         --------------------------  ------------------------  --------------------------
                                                      Percent
            Estimated    Percent of     Estimated          of     Estimated    Percent of
State    cost sharing        income  cost sharing      income  cost sharing        income
-------  ------------  ------------  ------------  ----------  ------------  ------------
Califor          $212          0.9%          $260        0.9%
 nia
Colorad           318           1.3           398         1.3
 o
Connect                                                                 643          1.6%
 icut
Florida           213           0.9           213         0.7
Massach           309           1.3           309         1.0
 usetts
 \a
Michiga            60           0.2            60        0.19
 n
Missour            \b            \b            54        0.18           888           2.2
 i
New                \b            \b           216         0.7
 York
Rhode              \b            \b            68         0.2            68          0.17
 Island
Vermont                                                                 228           0.6
Wiscons           864           3.5          1065         3.5
 in \c
-----------------------------------------------------------------------------------------
Note:  Blank cells indicate that there is no SCHIP eligibility at
this income level. 

\a Massachusetts' SCHIP plan covers adults at some income levels, but
adult cost sharing is not subject to the 5-percent-of-income cap and
therefore is not included in this estimate. 

\b No cost sharing is required at this income level. 

\c This estimate is based on managed care enrollment where there are
no copayments.  Wisconsin applies Medicaid-allowable copayments to
enrollees in fee-for-service arrangements, but they apply only to an
estimated 15 percent of expected enrollees. 

Some disparity across income levels exists, depending on how states
applied premiums and copayments.  Several states in our sample used a
single premium level and copayment schedule for all families that did
not increase as income increased.  This resulted in families with
higher incomes paying a smaller percentage of their income for cost
sharing in some states, such as Florida, Massachusetts, Michigan, and
Rhode Island.  In contrast, Colorado's, Wisconsin's, and California's
plans ensure that persons at higher income levels pay about the same
percentage of family income in cost sharing as those at lower income
levels. 

--------------------
\47 Table II.7 provides our estimate of SCHIP copayments for a family
of four consisting of two healthy children between the ages of 6 and
14 years old.  Many health services have recommended schedules of
usage, but most are exempted for cost sharing under SCHIP.  We
imputed the type and number of visits for eye, hearing, and dental
care and derived estimates for outpatient physician visits and
prescriptions (except oral contraceptives) from the National Center
for Health Statistics National Ambulatory Medical Care Survey. 

      COST SHARING CREATES
      TRACKING REQUIREMENTS FOR
      THE STATES
------------------------------------------------------ Appendix II:4.4

SCHIP cost-sharing provisions gave the states additional flexibility
compared with Medicaid but imposed a limit on the amount that they
could actually charge.  Thus, any cost sharing that was not
predictable, such as copayments, created the need for the family, the
state, or the health insurance plans to track spending to ensure that
once the maximum level is reached, no further cost sharing is
imposed.  As noted earlier, 11 states in our sample elected to impose
cost sharing, including 9 that charged both premiums and the
more-difficult-to-estimate copayments.  With respect to tracking
copayments, the states worked out a number of approaches, ranging
from requiring individuals to keep receipts to mandating that health
plans monitor cost sharing. 

HCFA's review of Colorado's plan raised the issue of how the state
would track family expenditures to ensure that the 5-percent
aggregate limit was not exceeded.  Working with HCFA, state officials
established a method to identify for providers families who are
exempt from further copayments.  Known as the "shoebox method," the
approach requires families to keep track of receipts; when copayments
reach the maximum 5 percent of income allowed under title XXI, they
notify the state, which places a sticker on the health card to
indicate their exemption from further copayments. 

Massachusetts also adopted the shoebox method to track family
expenditures but with the added complexity of incorporating this
methodology into its premium assistance program for
employer-sponsored insurance.  The state originally set premium
assistance levels at 1 to 2 percent of family income and believed
that this would ensure that no family exceeded the 5-percent
cost-sharing limit.  However, because levels of cost sharing vary
across different employer-sponsored plans, HCFA raised concerns that
families might exceed the limit.  To resolve this issue,
Massachusetts adopted the shoebox method.  The state now plans to
inform families of the 5-percent limit as they are determined
eligible for the program.  Once a family submits proof of expenses
totaling 5 percent of family income, the state notifies the health
plan and requests that further copayments be billed to the
Massachusetts SCHIP.  State officials describe this process as
administratively difficult because of the number and variety of
health plans with which employers contract and for which the state
might have to generate copayments. 

In contrast, Connecticut placed the burden of tracking family
expenditures on the health plans.  Connecticut's SCHIP plan included
state legislation that cites a maximum annual aggregate cost sharing
of $650 for children in families with income levels between 186 and
235 percent of the poverty level and $1,250 for families from 236 to
300 percent of the poverty level.  These annual limits equate to
around 2 to 4 percent of aggregate family income.  Participating
health plans are charged with tracking family payments to ensure that
spending does not exceed the required amount. 

      STATES WITH GRANDFATHERED
      BENEFIT PACKAGES HAD TO
      CHANGE COST-SHARING
      PROVISIONS
------------------------------------------------------ Appendix II:4.5

States with grandfathered benefit packages--Florida, New York, and
Pennsylvania--had to alter their cost-sharing provisions in order to
conform to SCHIP statutory requirements.  Florida was required to
lower several copayment amounts and its premiums for subsidy families
in order to meet limits included in the federal legislation.  While
title XXI does allow the states to petition the Secretary to approve
an alternative cost-sharing schedule, Florida chose not to pursue
this option.  State officials indicated that there was tremendous
internal pressure to implement title XXI within state-imposed
deadlines; as a result, they were concerned that a waiver process
might draw out the review of their plan.  Pennsylvania wanted to
continue to charge a $5 copayment for prescriptions, a provision that
was part of its state-funded children's program.  Like Florida, state
officials interpreted title XXI as including this copayment in the
grandfathered benefits package.  Ultimately, the state removed this
copayment from its plan as a result of the review process. 

Incorporating New York's long-standing children's health program into
SCHIP provisions was challenging for state officials.  New York's
state-funded program was started in 1990 and was based on a
partnership between government and private insurers to provide
subsidized private health insurance coverage to children.  New York
had cost-sharing provisions that HCFA determined were not in
compliance with title XXI requirements, the most controversial being
a $25 penalty for inappropriate emergency room use that HCFA
considered to be in excess of the nominal charge permitted.  New York
officials stated that they had numerous discussions with HCFA
regarding the $25 charge; their approved plan included a $10
copayment, but state officials told us that they plan to drop all
copayments in a subsequent plan amendment.  As with Colorado and
several other states, HCFA raised the issue of how New York planned
to track annual aggregate expenditures.  New York officials estimated
that a child at 150 percent of the poverty level would have to visit
a physician daily for a period of 1 year in order to exceed the
5-percent cap.  Thus, from the state's perspective, a tracking system
was unnecessary.  HCFA indicated that a way was needed to demonstrate
that the statutory requirement was being met.  New York initially
placed the administrative burden of tracking expenditures on the
health plans.  However, the state legislature removed all copayments,
including inappropriate emergency room use, effective January 1,
1999.  State officials indicated that this was done at the request of
insurers who believed that the administrative burden of collecting $2
and $3 copayments would be far greater than the revenue collected. 

EARLY STATE EFFORTS TO USE SCHIP
FAMILY COVERAGE AND EMPLOYER
SUBSIDY OPTIONS
========================================================= Appendix III

Having secured approval for their fiscal year 1998 SCHIP allocations,
a growing number of states are exploring two options permitted by the
statute:  (1) family coverage that includes the adults in families as
well as the children and (2) an employer buy-in that helps families
gain access to available employer-based insurance for their children
by using SCHIP funds to pay the employee share of the cost of
dependent coverage.  The statutory requirement that the cost
effectiveness of covering adults as well as children in a family be
demonstrated underscores the need for some type of subsidy.  Although
the two options are distinct, family coverage appears to be
impossible to achieve without the subsidy inherent in most
employer-based coverage:  Because some employers subsidize a share of
the cost of providing coverage to workers, an employer buy-in can
help meet the statute's cost-effectiveness test by limiting SCHIP
outlays.  As of April 1, 1999, only Massachusetts and, to a lesser
degree, Wisconsin had received approval for family coverage under
SCHIP, demonstrating cost effectiveness by relying on an employer
buy-in option.  However, achieving family coverage through an
employer buy-in can further complicate plan approval and
implementation because of the complex benefit and cost-sharing
requirements imposed by title XXI.  HCFA has so far declined to use
its section 1115 authority to facilitate state family coverage goals
by waiving title XXI requirements.  HCFA believes that it is
inappropriate to use this demonstration authority to waive title XXI
requirements before a state's implementation of its SCHIP program. 
In part, this stance reflects a concern about not undermining the
statutory goal of covering uninsured children. 

   FAMILY COVERAGE UNDER SCHIP
   REQUIRES EXTERNAL SUBSIDY
------------------------------------------------------- Appendix III:1

Although the goal of SCHIP is to provide uninsured children with
health insurance coverage, a state can elect to cover the entire
family--both the parents or custodians and their children--if it is
cost effective to do so.  The cost-effectiveness test for family
coverage specifies that the expense of covering both adults and
children in a family must not exceed the cost of covering only the
children.  Under these circumstances, cost effectiveness appears
possible only when the cost to SCHIP of covering a family is
subsidized, such as by employer contributions.  Massachusetts and
Wisconsin received approval of their title XXI family coverage
proposals by relying on an employer buy-in--a distinct and
challenging SCHIP option.  (See figure III.1.) Under an employer
buy-in, benefits must be equivalent to one of the SCHIP benchmark
packages, and cost sharing for a child cannot exceed the statute's
limit of 5 percent of family income. 

   Figure III.1:  Massachusetts'
   SCHIP

   (See figure in printed
   edition.)

Massachusetts was the first of two states to receive approval for
family coverage.  State officials believe that HCFA's 1995 approval
of a section 1115 waiver permitting an employer buy-in for their
traditional Medicaid program greatly facilitated their family
coverage cost-effectiveness test.  Massachusetts' as well as
Wisconsin's cost-effectiveness test for family coverage built upon
the employer subsidy inherent in most coverage provided through the
workplace, thus minimizing the state subsidy of the cost of parental
coverage.  Because HCFA conditions the employer buy-in on a firm's
payment of at least 60 percent of the cost of family coverage, the
state's subsidy of the remaining 40 percent of the premium is less
than the full cost of covering children under its Medicaid program. 
Under title XXI, an employer's coverage must be actuarially
equivalent to a SCHIP benchmark package.  For Massachusetts, HCFA
agreed to a state certification of comparability based on a
benefit-by-benefit comparison of coverage in lieu of a time-consuming
and expensive actuarial test for each employer plan.  Thus, the use
of the employer buy-in option to cover families was facilitated by
HCFA's flexibility on the comparability of employer-offered benefits
with those of SCHIP.  HCFA said that this approach was a commonsense
way to implement the statutory requirement, given the costly nature
of actuarial assessments.  Despite HCFA's flexibility, Massachusetts
officials characterized the agency's approval of family coverage as a
compromise.  Uninsured families with access to employer-sponsored
coverage are eligible for SCHIP, but low-income families who may be
struggling to afford coverage through their employers are eligible
for a buy-in only with title XIX money. 

HCFA has found other cost-effectiveness tests proposed by the states
to be inconsistent with the title XXI statute.  For example, HCFA
rejected an effort to establish cost effectiveness by comparing
family coverage under title XXI to the cost of a commercial rate for
child-only coverage.\48 In preliminary discussions with HCFA, another
state interested in family coverage suggested comparing the costs of
SCHIP managed care coverage for an entire family to Medicaid
fee-for-service costs to cover children.  In our discussions with
HCFA, officials characterized this type of test as hypothetical.  A
HCFA official told us that the agency has not yet issued any guidance
on family coverage in order to remain open to creative state ideas
for meeting the SCHIP cost-effectiveness test. 

--------------------
\48 These types of cost-effectiveness comparisons are difficult
because very few health insurance plans cover only children.  See
Health Insurance for Children:  Private Individual Coverage
Available, but Choices Can Be Limited and Costs Vary
(GAO/HEHS-98-201, Aug.  5, 1998). 

   SOME STATES COVER FAMILIES BY
   USING TITLE XIX FUNDS FOR
   ADULTS
------------------------------------------------------- Appendix III:2

Some states wishing to cover the parents of children eligible for
SCHIP have been able to do so by using title XIX funds.  In general,
adults do not qualify for Medicaid coverage unless they are in
families with children or are aged, blind, or disabled.  After the
enactment of SCHIP, Missouri simultaneously negotiated a Medicaid
section 1115 waiver to cover parents with title XIX funds and a SCHIP
Medicaid expansion for the children of such families using title XXI
funds.  State officials indicated that their goal was to connect
children and families into one seamless program with two different
funding streams.  While noting that including adults in their title
XIX waiver greatly complicated the review process for SCHIP, state
officials indicated that family coverage was an important state goal. 
Missouri's Medicaid approach commits the state to spending beyond its
SCHIP allotment if necessary, a situation that other states may find
less palatable. 

Connecticut is working to implement family coverage using Medicaid
funding.  The state intends to use section 1931 of the Social
Security Act, a provision of the welfare reform law that creates a
new eligibility category for parents and allows states to apply
income and resource disregards to qualify higher-income adults.\49

The state will receive its regular Medicaid matching rate for these
parents.  Connecticut has not decided whether this coverage will
extend to families with income above 100 percent of the poverty
level. 

--------------------
\49 Jocylen Guyer and Cindy Mann, "Taking the Next Step," Center on
Budget and Policy Priorities, Washington, D.C., Aug.  20, 1998. 

   VERMONT AND WISCONSIN SOUGHT
   RELIEF FROM TITLE XXI
   REQUIREMENTS
------------------------------------------------------- Appendix III:3

HCFA has worked with the states to find other ways to achieve their
goal of covering adults in families with children.  For states such
as Missouri that are not opposed to using both the title XIX and
title XXI funding streams, the goal of covering families is
achievable.  For other states, however, ensuring that the goals of
title XXI and their own goals were consistent with each other has
proven more problematic.  The initial plans that Vermont and
Wisconsin submitted demonstrate the difficulty of building
flexibility into a program that is an overlay of Medicaid.  These two
states were interested in section 1115 waivers of SCHIP requirements
to reconcile the requirements of title XIX and title XXI.  Thus far,
HCFA has refused to consider the use of section 1115 to waive SCHIP
requirements. 

      VERMONT'S AND WISCONSIN'S
      FAMILY COVERAGE PROPOSALS
----------------------------------------------------- Appendix III:3.1

Before SCHIP, Vermont covered uninsured adults up to 150 percent of
the poverty level and children up to 225 percent.  Vermont wanted to
use a SCHIP Medicaid expansion that would amend its Medicaid section
1115 waiver program to cover (1) uninsured and underinsured children
with family income up to 300 percent of the poverty level and (2)
uninsured adults with dependent children with family income up to 185
percent of the poverty level.  According to HCFA, family coverage
under title XXI must address the "family unit." Thus, if a child is
already receiving Medicaid benefits, a parent can qualify only for
Medicaid, not SCHIP.  This situation resulted in a coverage gap for
parents with family income above 150 percent of the poverty level
whose children were already being served by Medicaid.\50 Although
this interpretation prevented Vermont from covering lower-income
parents, the state could have included higher-income adults in
families with children under SCHIP where crowd-out is of greater
concern. 

Vermont also wanted to include underinsured children whose coverage
is prohibited by title XXI.  Because of earlier coverage expansions,
the state estimates that there are fewer than 2,500 remaining
uninsured children.  At the same time, many children in the state
have poor coverage.  Consequently, the state proposed using a portion
of its title XXI allocation on underinsured children to cover dental
and vision care and other benefits not available to them.  Vermont
withdrew its initial SCHIP plan and has since received approval for a
stand-alone program to cover uninsured children up to 300 percent of
the poverty level.  The state will use Medicaid funds to improve
coverage for underinsured children and some parents.  Finally, the
state has since covered the adults it originally sought to insure
under SCHIP through an amendment to its section 1115 waiver program
using regular Medicaid funds. 

Wisconsin applied for a section 1115 waiver under Medicaid to cover
parents and proposed implementing a stand-alone SCHIP program for
children to limit expenditures to the amount of its allotment.\51 The
state wanted to maintain budgetary control over SCHIP program
expenditures while rationalizing coverage for low-income, working
families, most of whom did not have access to health insurance. 
Conceptually, Wisconsin's proposal covered the same individuals as
programs in Massachusetts and Missouri.  However, because Wisconsin's
approach had the effect of splitting the family unit into two
different funding streams (an enhanced matching rate under title XXI
and a regular matching rate under title XIX), the proposal did not
comply with the federal budget neutrality provisions required of all
section 1115 demonstrations.  These provisions require that unless
the expansion is funded through program savings, the children must be
covered under Medicaid in order for the parents to be covered under
regular Medicaid. 

Wisconsin ultimately received approval for a revised SCHIP plan by
switching from a stand-alone to a Medicaid expansion design.  With
regard to family coverage, Wisconsin has two approaches, one that
operates under regular Medicaid and one under SCHIP.  Under regular
Medicaid, the state uses a section 1115 waiver of title XIX to cover
parents up to 185 percent of the poverty level.  For a small number
of parents who have access to employer-sponsored insurance, Wisconsin
believes that they will be able to meet the title XXI
cost-effectiveness test and use SCHIP funds to provide coverage for
both parents and their children.  Wisconsin's cost-effectiveness test
is similar to that of Massachusetts, comparing the cost of the
premium assistance for a commercial plan against the cost of covering
children in its SCHIP Medicaid expansion.  However, state officials
believe that SCHIP coverage of parents is likely to be minimal, since
they can look only at plans in which the employer subsidizes 60 to 80
percent of the premium costs.  Finally, Wisconsin plans to control
overall expenditures in both title XIX and title XXI programs by
creating an enrollment threshold.  The state plans to continuously
monitor enrollment and, in the event it is close to exceeding its
state budget, officials plan to submit a waiver amendment to lower
the income eligibility level for both Medicaid and SCHIP.  HCFA has
committed to responding quickly on any amendments submitted by
Wisconsin, providing an informal response within 60 days and a formal
response within 90 days.\52

--------------------
\50 Concerns regarding the family unit were never resolved; thus, the
validity of the cost-effectiveness test submitted by Vermont was
never fully tested. 

\51 Although Wisconsin did not want to create a new entitlement, the
state planned to use its Medicaid benefit package and allow family
income for those in the program to increase up to 15 percent over the
original 185 percent of the poverty level without affecting their
eligibility for coverage. 

\52 In the event that the state decreases its income eligibility,
children and adults already enrolled in Wisconsin's program will
maintain their eligibility under Medicaid and SCHIP.  Thus, the
enrollment threshold will apply only to new applicants. 

      HCFA QUESTIONS THE TIMING OF
      REQUESTS FOR SECTION 1115
      WAIVERS
----------------------------------------------------- Appendix III:3.2

In September 1997, shortly after the enactment of SCHIP, HCFA
informed the states that "it would be reasonable for states to have
experience in operating their new Title XXI programs before designing
and submitting demonstration proposals.  Without experience in
implementing Title XXI, it would be very difficult for HCFA to review
and evaluate the merits of any waiver proposal."\53 In elaborating on
this statement, HCFA underscored that the purpose of section 1115
waivers is to test innovative approaches requiring research
designs--not to waive statutory provisions that the states find
objectionable.  HCFA intends to require that the states have 1 year
of operational experience with their SCHIP programs and complete an
evaluation before requesting a section 1115 waiver.  Without first
implementing a SCHIP program, a state lacks the requisite baseline
from which to measure change.  Finally, HCFA takes seriously SCHIP's
goal of providing insurance to uninsured, low-income children, a goal
that it does not want to see circumvented by the waiver process. 

HCFA believes that it is inappropriate to use section 1115 to waive
title XXI requirements before a state implements a SCHIP program--a
policy that reflects the demonstration nature of section 1115 waivers
and a concern about not undermining the statutory goal of covering
uninsured children.  States and advocacy groups contend that there is
no longer any merit in postponing the use of such waivers now that
most states have secured their fiscal year 1998 SCHIP allocations. 

Established to test program innovations, section 1115 allows the
Secretary of HHS to approve demonstrations likely to assist in
promoting program objectives.  Past demonstrations have made
significant contributions to the development of Medicaid policy. 
Title XXI stipulates that the provisions of section 1115 of the
Social Security Act relating to demonstration authority "shall apply
in the same manner as they apply to a state under title XIX."
According to HCFA, the section 1115 waiver authority applies equally
to Medicaid expansions and stand-alone programs and is broad.  Thus,
it allows the Secretary to waive many of the numerous provisions
related to Medicaid state plan requirements and to provide matching
funds for items and services not normally covered under Medicaid. 
This authority has been used to expand eligibility, mandate the
enrollment of beneficiaries in managed care, and modify benefits or
cost sharing for certain populations.\54

States and some advocacy groups would like HCFA to begin allowing the
states to tailor their SCHIP programs through the use of section 1115
waivers.  Citing a study that suggests that children are more likely
to be insured when their parents are also offered health benefits,
they contend that family coverage is consistent with SCHIP.\55 Some
states also view an employer buy-in as consistent with efforts to
prevent the substitution of public programs for employer-provided
health insurance.  Ultimately, the use and approval of section 1115
waivers under SCHIP will require a judgment regarding the consistency
between state goals and the intent of title XXI. 

--------------------
\53 HCFA, "Dear State Letter," Sept.  12, 1997. 

\54 As of December 1998, 17 states operate their Medicaid programs
under such a waiver.  These demonstrations must be budget neutral and
must incorporate research hypotheses. 

\55 Kenneth E.  Thorpe and Curtis S.  Florence, "Covering Uninsured
Children and Their Parents:  Estimated Costs and Number of Newly
Insured," The Commonwealth Fund, New York, N.Y., July 1998. 

INNOVATIVE STATE OUTREACH
STRATEGIES ARE CRITICAL TO THE
SUCCESS OF SCHIP
========================================================== Appendix IV

Many states, including the 15 in our sample, are developing
innovative outreach strategies to widely publicize SCHIP and to
provide families with applications and program information.\56 Some
states have adopted sophisticated media campaigns to market SCHIP
like a product, a development attributed in part to the greater
likelihood that targeted children have working parents.  Outreach
strategies have worked to minimize the burden on both the beneficiary
and the state by eliminating onerous documentation requirements,
which in turn allows the introduction of shorter application forms. 
States with a large number of low-income immigrants are also
implementing outreach efforts geared toward these populations. 
Finally, some states are implementing measures to help them evaluate
which outreach strategies are the most effective--for example,
school-based initiatives, local community designed efforts, or
general media campaigns.  While it is too early to judge the success
of their outreach efforts, some states are reporting that the
publicity is attracting not only children eligible for SCHIP but also
far greater numbers of those who are eligible for Medicaid but not
enrolled.  Although title XXI recognizes the importance of outreach,
it also limits the amount of federal matching funds that are
available.  Including outreach within the prescribed limit has been
problematic for some stand-alone programs with significant start-up
costs. 

--------------------
\56 In their Medicaid outreach efforts, many states have been
cognizant of barriers to enrollment that include confusion over
eligibility, lack of program knowledge, complex eligibility rules,
belief that participation is not necessary when children are healthy,
potential stigma, and language and cultural barriers to
participation.  To overcome these barriers, the states have applied
strategies under Medicaid that are also relevant to their SCHIP
efforts.  For more detailed information on the barriers to Medicaid
enrollment, see Medicaid:  Demographics of Nonenrolled Children
Suggest Outreach Strategies (GAO/HEHS-98-93, Mar.  20, 1998). 

   SCHIP EMPHASIZES OUTREACH
   WITHIN PRESCRIBED LIMITS
-------------------------------------------------------- Appendix IV:1

As a new program, title XXI underscores the importance of identifying
and enrolling eligible children by requiring each state to include an
outreach strategy in its SCHIP plan.  Despite this emphasis on
outreach, however, the statute also limits outreach spending and
certain other spending to 10 percent of a state's actual expenditures
on benefits.  Thus, the statute ties outreach expenditures directly
to enrollment.  For states such as New York, with state-funded
children's programs that predated SCHIP and thus populations already
receiving services, the spending limitation on outreach has not been
a particular problem.  It has, however, been problematic for other
states with a stand-alone SCHIP component that are incurring start-up
costs and lack the enrollment necessary to fully claim their outreach
expenditures.  A state that implements a Medicaid expansion, however,
may continue to claim a federal match for such expenditures at the
regular Medicaid matching rate after the 10-percent cap is reached. 

In addition to the title XXI requirement that each state include an
outreach strategy in its SCHIP plan, other BBA provisions gave the
states additional tools to facilitate the enrollment and coverage of
children in both Medicaid and SCHIP.\57 One option known as
"presumptive eligibility" allows the states to extend immediate
Medicaid or SCHIP coverage to children until a formal determination
of eligibility is made.  Under this option, a "qualified entity" may
use preliminary information to presume that a child is eligible for
benefits if the family income does not surpass the state's applicable
income eligibility levels.\58 A second option allows the states to
provide beneficiaries with continuous eligibility in their Medicaid
or SCHIP programs for up to 12 months without an eligibility
redetermination.  The continuous eligibility option may reduce the
difficulties associated with intermittent program eligibility and
coverage stemming from changes in a family's financial circumstances. 

Since the enactment of SCHIP, HCFA has also emphasized the importance
of effective outreach strategies.  It issued guidance to the states
in January and September 1998 that reviewed the outreach options
already available to them under Medicaid as well as new strategies
for reaching and enrolling targeted children.  Additionally, in
February 1998, the President signed an executive memorandum
establishing a multiagency effort to enroll uninsured children in
SCHIP.  In response, the Vice President announced new approaches that
federal agencies are taking to identify and enroll targeted children. 
Finally, the President's fiscal year 2000 budget is proposing to
expand the use of a special $500 million Medicaid outreach fund,
originally earmarked for state costs associated with outreach for
children losing welfare.  This proposal, if passed, will allow the
states to use the fund for outreach activities geared to all
uninsured children, not just those affected by the delinking of
Medicaid from welfare. 

While every state SCHIP plan contains a strategy to reach targeted
children, two states have expressed concern that SCHIP funding
limitations on outreach contradict these efforts.  Under title XXI, a
state may receive federal matching funds for certain expenditures to
the degree that they do not exceed 10 percent of the state's total
expenditures for health benefits under SCHIP.  The capped
expenditures include costs relating to the administration of the
program, outreach, and certain other health-related activities. 
Essentially, the goal of the 10-percent cap is to preserve as much
SCHIP funding as possible to pay for health insurance for children. 

Including program administration and outreach within this cap,
however, has been problematic for some states as they develop and
implement their SCHIP plans.  In particular, some states with a
stand-alone component have found the 10-percent cap difficult to work
with, given the magnitude of start-up costs and low enrollment in the
early stages of their programs.  For example, California officials
noted that while the cap may be reasonable once a program is under
way, it is impossible to stay within the 10-percent limit while
conducting outreach and other activities that precede actual service
delivery.  As a result, California has committed significant
unmatched state start-up funds.  Colorado officials also indicated
that the 10-percent limit is problematic because of the state's
smaller population and low initial enrollment, but it may be more
viable once the program is established and service expenditures
increase.  Both states noted that the legislation's inclusion of
outreach within the 10-percent cap is counter to presidential efforts
for increased outreach, as discussed above.  HCFA has tried to be
flexible in addressing state concerns, suggesting for example that a
state withhold claims for administration and outreach until there is
sufficient program enrollment.  Moreover, the President's fiscal year
2000 budget includes a provision to establish an additional 3-percent
allowance for outreach that would continue to be tied to
expenditures. 

While the stand-alone components of California's and Colorado's
programs have experienced difficulties with the 10-percent limit,
other states with similar approaches have not.  This may be, in part,
because of the individual states' starting points or baselines.  For
example, New York is rolling over enrollment from its state-funded
program and expects to spend between $15 million and $16 million on
health care services each month; thus, the state will have a
significant basis from which to draw down the federal match for
outreach costs.  States without similar, significant SCHIP
expenditures will have more difficulty recouping the cost of their
outreach efforts during the early phase of the program. 

--------------------
\57 Although the BBA is silent on the application of these provisions
to SCHIP, HCFA has permitted the states to pursue these options. 

\58 Under BBA, "qualified entities" are health care providers of
items and services under the state's Medicaid plan (including the
Indian Health Service and Tribal and Urban Indian health care
providers) as well as entities that make eligibility determinations
for Head Start; the Special Nutritional Program for Women, Infants,
and Children (WIC); and child care subsidies under the Child Care and
Development Block Grant.  After a child has been determined to be
presumptively eligible by a qualified entity, the child's family is
then required to apply for the program formally by the last day of
the month following the month in which the presumptive eligibility
determination was made. 

   OUTREACH STRATEGIES FOCUS ON
   PUBLICITY, SIMPLIFICATION, AND
   TARGETING
-------------------------------------------------------- Appendix IV:2

The development of effective and appealing marketing has become a
priority under SCHIP.  In addition to implementing approaches
suggested by HCFA, some states have developed unique strategies to
publicize SCHIP and to change community perceptions that had
previously hindered Medicaid enrollment.  Outreach measures also
encompass efforts to simplify state eligibility procedures,
streamline program applications, and opt for the presumptive and
continuous eligibility provisions.  Some states are also focusing on
the diverse and specialized needs of the populations they intend to
reach, such as immigrants.  Lastly, while it may be too early in the
program to identify the most effective outreach strategies, some
states are implementing measures to help them identify the efforts
that appear to be the most successful. 

      PUBLICIZING SCHIP
------------------------------------------------------ Appendix IV:2.1

To overcome the informational barrier to enrollment, the states have
initiated a variety of methods to publicize SCHIP.  Their approaches
include multimedia campaigns, direct mailings and widespread
distribution of applications, community involvement, and corporate
participation.  In addition to disseminating information about
available programs, some states have taken steps, even before the
enactment of SCHIP, to address the Medicaid stigma issue in an
attempt to improve perceptions of publicly sponsored health insurance
programs.  As the Congress may have expected and some states have
already experienced, the publicity about SCHIP has already resulted
in the enrollment of additional children in Medicaid. 

         MEDIA CAMPAIGN
---------------------------------------------------- Appendix IV:2.1.1

To publicize SCHIP, the states are using media such as posters,
newspapers, billboards, radio, and television.  In SCHIP
advertisements, the states typically provide toll free numbers and,
in some instances, Web site addresses to assist potential enrollees
in receiving an application or other information about the program. 
All the states, including those in our sample, have some sort of
media campaign in their SCHIP programs, but the approaches vary
significantly, depending on their budgets and community needs. 

For instance, California is advertising statewide in English and
Spanish on television and radio.  Additionally, the state is using
billboard and transit advertisements, posters, pamphlets, and other
promotional materials in ten languages.  California is spending $9
million on traditional media out of its $21 million outreach budget. 
Michigan reported that it will spend $750,000 on a professional media
campaign that includes television, radio, and print media.  The state
plans to have a base level of media coverage throughout the year that
will increase at certain times, such as at the beginning of a new
school year. 

         DISTRIBUTION OF PROGRAM
         INFORMATION AND
         APPLICATIONS
---------------------------------------------------- Appendix IV:2.1.2

Other efforts to inform the public about the states' SCHIP programs
involve the widespread distribution of SCHIP applications and
materials through schools, the mail, and other avenues.  (See figure
IV.1 for excerpts from Michigan's SCHIP application.) Fourteen of the
15 states in our sample reported that they would be using the local
school systems in their outreach efforts.  Although South Carolina
mailed more than 500,000 copies of its bright yellow application,
accompanied by a letter from the governor, within the first few
months of its program, a state official reported that the
distribution of applications throughout the state school system
proved to be the most effective so far.  SCHIP program materials are
also being placed in other organizations such as child care centers,
Head Start programs, child support enforcement agencies, community
action programs, refugee resettlement programs, family preservation
and support programs, and Social Security offices. 

   Figure IV.1:  Materials From
   Michigan's SCHIP Application

   (See figure in printed
   edition.)

Additionally, some states are identifying and targeting families who
are likely to have eligible children by coordinating with other
programs.  For example, Florida plans to send information directly to
families who receive food stamps.  Other distribution strategies
include mailing information to families who fall below a certain
income threshold as determined by the SCHIP program.  Thus,
Connecticut is planning a direct mail campaign to all families with
incomes below 300 percent of the poverty level. 

         COMMUNITY INVOLVEMENT
---------------------------------------------------- Appendix IV:2.1.3

The states are developing outreach approaches in concert with local
organizations such as churches and social service agencies that are
familiar with the community and understand its needs. 
Community-based organizations are able to disseminate information on
SCHIP by word of mouth, often a more effective tool than government
officials.  The following states in our sample are involving
community-based organizations for outreach in innovative ways: 

  -- California is enlisting the assistance of community-based groups
     such as parent-teachers associations, YMCAs, and religious
     organizations and other entities such as insurance agents and
     tax preparers.  The state approached tax preparers as a group
     that may be able to identify children eligible for SCHIP because
     many low-income families do not prepare their own tax returns. 
     After state-provided training, these groups help inform
     potential SCHIP and Medicaid enrollees about the program and
     assist families in completing application forms.  To compensate
     them for their effort, the state pays a $50 "application
     assistance fee."\59 State officials indicated that as of
     September 1998, approximately 40 percent of California's
     applications had been "assisted."

  -- Massachusetts is using social service agencies, religious and
     civic leaders, and schools to conduct outreach activities.  The
     state will provide "minigrants" varying from $10,000 to $15,000
     to community-based organizations that facilitate the enrollment
     of hard-to-reach populations. 

  -- New York and South Carolina have found that grassroots efforts
     and community organizations are also effective in publicizing
     the availability of SCHIP.  These organizations are distributing
     information and reaching parents in nontraditional locations
     such as adult learning centers, tenant organizations, and beauty
     salons (New York) and movie theaters and laundromats (South
     Carolina).  Both states are also using ministers and local
     churches to pass out information to congregations. 

--------------------
\59 Originally, the state proposed an application assistance fee of
$50 but lowered the amount to $25 when the state began to implement
SCHIP.  In November 1998, the state restored the fee to $50 to boost
lower-than-expected enrollment in its SCHIP program.  HCFA indicated
that the increase to $50 is under review. 

         CORPORATE PARTNERSHIPS
---------------------------------------------------- Appendix IV:2.1.4

The states are also finding other ways to use the private sector to
spread the word about SCHIP.  Michigan's stand-alone program is
working with Kmart stores throughout the state that have agreed to
display SCHIP applications at their "community issues" bulletin
boards.  Publicity will also be strategically placed near displays of
school clothes and in the pharmacy section of the stores.  Michigan
is also working with the Meijers supermarket chain in Grand Rapids. 
While the store does not allow displays, it will include SCHIP
information in a shopping guide that is mailed to two million
families.  California has placed its toll free SCHIP telephone number
on grocery bags and coupons.  Additionally, the state has obtained
corporate sponsorships with local supermarkets and drug stores. 
California officials believe that corporate partnerships will
complement the state's paid media advertising strategy.  Other
private sector initiatives transcend state boundaries.  For example,
Bell Atlantic is establishing and operating a toll free telephone
number nationwide to assist families in reaching enrollment centers. 
Additionally, Pampers, the diaper company, will provide this toll
free number and other information about health insurance options to
first-time mothers. 

         ADDRESSING THE STIGMA
         ISSUE
---------------------------------------------------- Appendix IV:2.1.5

SCHIP has refocused attention on the Medicaid-welfare stigma issue
and state efforts to overcome this potential barrier to participation
in publicly sponsored health insurance programs.  Before the
heightened outreach efforts under title XXI, some states had already
endeavored to project a more positive image of their medical
assistance programs.  The most visible effort was to re-invent a
program with a new name.  Oregon Medicaid was rechristened the
"Oregon Health Plan" when its section 1115 waiver was approved in
1993; the state's SCHIP stand-alone program also operates under that
name.  In contrast, California has not changed the name of its
Medicaid program; its SCHIP stand-alone program is called "Healthy
Families" while Medicaid continues as Medi-Cal.  Other stand-alone
programs with names distinct from Medicaid include the MIChild
program in Michigan and the Florida Healthy Kids program. 

Other approaches to destigmatizing Medicaid include advertising SCHIP
as a program intended for working families, using an alternative
enrollment site or mechanism that eliminates the need to submit an
application at a local welfare office, and issuing identification
cards for program participants that are free of any perceived
"welfare stigma." For example, South Carolina, a Medicaid expansion
state, is considering issuing an identification card that closely
resembles private health insurance identification cards.\60 The state
has also removed almost all mention of Medicaid from its application
form.  State officials say that most applicants do not realize that
they are applying for Medicaid for their children.  In Oregon, there
are no unique Medicaid or SCHIP identification cards.  Instead, each
beneficiary receives a card from the health insurance plan he or she
chooses--one identical to the card issued to an individual with
employer-sponsored health insurance. 

Some states are concerned about perceived stigma attached to their
Medicaid programs and believe that families will prefer to enroll
their children in their state's stand-alone programs, which appear to
be more like private health insurance programs.  For example, Florida
has suggested that some families might even falsify their incomes to
avoid enrolling in Medicaid.  California reports that 75 percent of
SCHIP applicants who are found eligible for Medicaid refuse to allow
the state to refer their applications to Medicaid.  In addition to
the perceived stigma that the states believe endures among
recipients, a few states in our sample told us that Medicaid has a
negative image among some providers who are unwilling to serve
beneficiaries.  Thus, Michigan Medicaid offers dental benefits but
has few participating dentists, although this may be in part the
result of low Medicaid reimbursement rates.  To attract dentists to
its SCHIP stand-alone program, the state has raised the rates.  While
this potentially creates a two-tiered system in terms of dental
access, the state is waiting to determine whether more dentists
participate and the delivery of services increases. 

--------------------
\60 Plans for an identification card have been postponed until after
the state completes modifications to solve the year 2000 computer
problem. 

      SIMPLIFYING ELIGIBILITY
      DETERMINATION AND ENROLLMENT
      PROCEDURES
------------------------------------------------------ Appendix IV:2.2

In a September 1998 letter to the states, HCFA acknowledged the need
for safeguarding program integrity in order to ensure that only those
who are eligible receive program benefits.  Nevertheless, HCFA
maintained that burdensome application and enrollment processes are a
substantial impediment to successful enrollment in both SCHIP and
Medicaid.  In an earlier report, we found that among three states,
almost half of Medicaid application denials were for procedural
reasons, such as incomplete documentation.\61 While simplification
measures are being taken under SCHIP, some states were already
streamlining both their Medicaid eligibility rules and enrollment
procedures.\62

--------------------
\61 See Health Care Reform:  Potential Difficulties in Determining
Eligibility for Low-Income People (GAO/HEHS-94-176, July 11, 1994). 

\62 According to the Center on Budget and Policy Priorities, as of
November 1998, 41 states had shortened their Medicaid applications,
36 states allowed individuals to apply by mail, and 40 had simplified
their Medicaid eligibility process by eliminating an asset test. 
Center on Budget and Policy Priorities, Steps States Can Take to
Facilitate Medicaid Enrollment of Children (Washington, D.C.:  Nov. 
1, 1998). 

         STREAMLINING THE
         ELIGIBILITY AND
         APPLICATION PROCESS
---------------------------------------------------- Appendix IV:2.2.1

To overcome the barrier of a long, complicated SCHIP eligibility
determination process, the states are (1) eliminating burdensome
eligibility tests, (2) shortening the length of applications, (3)
using joint SCHIP-Medicaid applications, and (4) opting for a period
of continuous eligibility. 

Eliminating Burdensome Eligibility Tests.  Dropping an asset test
reduces the complexity of the eligibility determination process for
families and, in some cases, the documentation requirements.  In our
15-state sample, 12 states have eliminated the asset test from their
SCHIP applications.  (See table IV.1.) Some states are also allowing
families to report their own incomes with verification by the state
as follow-up.  Additionally, some states are reducing verification
and documentation requirements that exceed federal requirements.  For
example, Rhode Island has significantly reduced the number of
documentation requirements that were in place when Medicaid and
welfare eligibility were linked. 

                         Table IV.1
          
           Eligibility and Enrollment Initiatives
                        in 15 States

                        Combined                Presumptiv
                        SCHIP-                  e
              No        Medicaid    Continuous  eligibilit
              asset     applicatio  eligibilit  y under
              test      n           y\a         SCHIP\b
------------  --------  ----------  ----------  ----------
California    X         X           X

Colorado                X           X

Connecticut   X         X           X           X

Florida       X         X           X

Massachusett  X         X                       X
s

Mississippi   X         X           X           X

Missouri      X         \c          X           X

New York      X         X           X           X

Oregon                  X           X

Pennsylvania  X                     X

Rhode Island  X         \c          X

South         X         \c          X
Carolina

Texas                   \c

Vermont       X         X

Wisconsin     X         \c
----------------------------------------------------------
\a Florida, Oregon, and Rhode Island have continuous eligibility for
6 months; all other states that have continuous eligibility extend it
for 12 months. 

\b May be applied to separate stand-alone programs or Medicaid
expansions under SCHIP. 

\c Medicaid expansion states that must use the same application for
SCHIP and Medicaid. 

Shortening Applications.  State efforts to simplify eligibility
procedures gave them the opportunity to consider the use of shorter
SCHIP applications.  Florida, Missouri, and South Carolina reduced
their applications to a single page, front and back.  Missouri, in
particular, was able to shorten its application by narrowing it to
health coverage only, removing other social services from that
particular form.  Massachusetts' SCHIP application consists of four
pages with four supplements that may apply to the applicant,
depending on specific circumstances such as the presence of a
disability, access to insurance, an absentee parent, and immigration
status.  In late 1998, California decided to shorten its application
form after considerable criticism of its 28-page booklet, which
includes a 12-page application with separate forms for the state's
stand-alone program, Medicaid, and a Medicaid program for pregnant
women.  California officials explained that the form, while lengthy,
was designed to avoid the inappropriate enrollment of children and to
minimize follow-up information.  In response to adverse feedback
about the onerous nature of the application, the state developed a
revised four-page joint application for its Medicaid and stand-alone
SCHIP programs. 

Combining SCHIP and Medicaid Applications.  In addition to shortening
the form, nine states in our sample are using a single application
for SCHIP and Medicaid.\63

This approach not only simplifies the application process for
families but also reduces paperwork for the states.  Additionally,
joint SCHIP-Medicaid applications help the states accomplish seamless
coverage for children who may move between programs when their family
circumstances change.  For instance, Connecticut is marketing its
stand-alone and Medicaid programs together under a new name and has
developed a four-page application for both programs.  The state opted
for a joint application under one program name to create an
application process that masks for potential enrollees the fact that
there are two separate programs. 

Providing Continuous Eligibility.  Because Medicaid beneficiaries
were often subject to frequent eligibility redeterminations and
interrupted Medicaid benefits when their income fluctuated, some
states are opting to provide up to 12 months of continuous
eligibility in an effort to prevent coverage interruptions.  As noted
earlier, the BBA allowed the states to guarantee a longer period of
Medicaid coverage, regardless of changes in a family's financial
status or size.  HCFA indicated that since the BBA is silent on the
application of this provision to SCHIP, the agency allows it.  Eleven
of the 15 states in our sample have implemented continuous
eligibility ranging from 6 to 12 months. 

--------------------
\63 Pennsylvania does not have a joint SCHIP-Medicaid application,
but its referral procedure allows the review of either form, without
the applicant having to submit a new application.  For example, if an
applicant to Medicaid is not eligible, the form is automatically
referred to SCHIP.  Because the SCHIP application does not include
all information needed for Medicaid, the state contacts applicants
whose SCHIP forms are referred to Medicaid to complete a review; an
applicant does not have to fill out a new form. 

         STREAMLINING THE
         ENROLLMENT PROCESS
---------------------------------------------------- Appendix IV:2.2.2

The states are simplifying the enrollment process for families with
children in several ways.  These include using the mail, telephone,
and Internet for enrollment; offering additional enrollment sites;
reducing the time it takes to process applications; and introducing
other innovative enrollment initiatives. 

Allowing Mail-in, Telephone, and Internet Enrollment.  By introducing
mail-in applications, some states are eliminating the need for
applicants to take time off from work as well as any transportation
costs and stigma associated with visiting a social services office. 
Some states are also extending the use of the mail-in option to
eligibility redeterminations.  Some are also exploring other options
to further simplify the submission of Medicaid and SCHIP
applications, such as accepting applications by telephone or
facsimile.  In Colorado, applications are available over the Internet
for families to fill out and mail in.\64 This approach may be
particularly effective for community-based organizations that assist
families with enrollment since many low-income families may not have
access to a computer at home. 

Adding Enrollment Sites.  To help applicants, some states are
increasing the number and type of sites where enrollment can take
place.  Locating eligibility workers in places other than welfare
offices to help families with the initial processing of applications
is commonly referred to as outstationing.  Outstationing sites may be
located where workers frequently come into contact with families such
as schools, child care centers, churches, Head Start centers, WIC
sites, local tribal organizations, and Social Security offices. 
Outstationing is an increasingly important strategy, given that
welfare offices no longer play the key role that they did when
welfare and Medicaid were more closely linked. 

Expanding Enrollment Sites With Presumptive Eligibility.  Some states
are using presumptive eligibility to increase the number of
enrollment sites.  Presumptive eligibility allows a child to receive
coverage under Medicaid or SCHIP immediately, without the delays
associated with the normal application process.  In addition to
traditional Medicaid providers, other entities such as WIC agencies,
Head Start programs, and agencies that determine eligibility under
the Child Care and Development Block Grant can "presume" eligibility
for services until a formal application is submitted and reviewed. 
Five states in our sample have chosen to use presumptive eligibility
in their SCHIP programs. 

Reducing Enrollment Time.  Some states are shortening the time it
takes to process an application once it reaches the appropriate SCHIP
or Medicaid office.  For example, the goal of California's
stand-alone program is to complete eligibility determinations 3 days
after a completed application is submitted.  The state also plans to
commence coverage 10 days after an application is deemed complete. 
Before the enactment of SCHIP, Massachusetts developed a computer
program to determine Medicaid eligibility.  The state's data entry
approach to determining eligibility reduced the processing time from
3 weeks to 3 days.  Massachusetts characterized the development of
computerized enrollment as time consuming and expensive but
worthwhile. 

Making Other Innovative Enrollment Initiatives.  Some states are
streamlining their enrollment processes by instituting a follow-up
system to contact families that do not complete the application
process for various reasons.  For example, Massachusetts is
attempting to initiate follow-up with families and to take their
applications over the telephone.  Other efforts to ensure that
families do not "fall between the cracks" include the development of
an effective referral system between the SCHIP office, the state
Medicaid agency, and other federal and state entities that frequently
come in contact with low-income families.  For example, Connecticut's
enrollment vendor records daily the number of Medicaid referrals
made.  Additionally, the state has developed a tracking system to
follow referrals once they reach the state's Department of Social
Services.  Other state efforts to simplify enrollment procedures for
families include offering telephone interviews or providing
transportation vouchers to assist them in reaching the eligibility
office for a face-to-face interview.  Some states are extending their
office hours so applicants are not required to take time off from
work to apply. 

--------------------
\64 The actual submission of applications over the Internet is
available only to community agencies that have been trained to use
the system. 

      TARGETING OUTREACH TO
      SPECIFIC POPULATIONS
------------------------------------------------------ Appendix IV:2.3

Research indicates that Hispanics, U.S.-born children of foreign
parents, and immigrant children are more likely than others to be
uninsured despite being eligible for Medicaid.  Given these
statistics and the renewed efforts under SCHIP to actively recruit
the uninsured, states with large Hispanic or foreign-born populations
are implementing outreach strategies geared toward reaching them.\65

Some states are offering multilingual applications and program
materials and toll free telephone lines in appropriate languages. 
California is providing applications and materials in ten languages: 
English, Armenian, Cambodian, Cantonese, Farsi, Hmong, Laotian,
Russian, Spanish, and Vietnamese.  Colorado and Rhode Island are also
providing SCHIP materials in both English and Spanish.  Additionally,
some states are increasing the number of multilingual eligibility
workers and staff able to provide program information and answer
applicants' questions. 

The diversity of these targeted populations has also influenced the
states' efforts to market SCHIP.  For example, Colorado officials
noted that different marketing approaches may be necessary to meet
the needs of Native American and Hispanic people living in rural
areas.  The state is also working with the Colorado Migrant Health
Program to develop specific outreach activities for migrants
statewide.  Texas officials similarly noted that its outreach efforts
vary by region and by the ethnic population being targeted.  In
Houston, there is a large southeast Asian immigrant population, and
outreach in this area must be culturally and linguistically
sensitive.  Additionally, Texas officials noted that they must
identify the medium that is most effective within a particular group;
for example, individuals in areas of the state that border Mexico may
be more responsive to television advertisements than to print media. 

Despite targeted outreach efforts, some states remain concerned that
hard-to-reach populations will continue to be underserved by both
Medicaid and SCHIP.  Michigan officials noted that citizen children
of foreign-born parents may be particularly difficult to reach
because of family fears that information will be shared with the
Immigration and Naturalization Service (INS) or other federal
agencies and may jeopardize their ability to remain in the United
States.  California is concerned that INS and State Department rules
have caused its current enrollment figures to suffer because of fear
among immigrants that participation will adversely affect not only
their ability to legally stay in the country but also their ability
to sponsor other family members coming to the United States. 
California officials have requested but not received an answer from
INS regarding whether the receipt of SCHIP or Medicaid benefits would
result in the beneficiary's being considered a "public charge." INS
uses the term "public charge" to describe immigrants who are or will
be dependent on public benefits.\66 While HCFA sent a letter to state
Medicaid directors on December 17, 1997, stating that aliens
legitimately receiving Medicaid benefits were not indebted to the
state, INS has not clarified this issue with formal guidance.\67
California officials believe that the state will continue to
experience difficulty reaching targeted immigrant children until INS
issues a clear written statement that the lawful receipt of Medicaid
and SCHIP benefits will not be considered in public charge
determinations. 

--------------------
\65 The Personal Responsibility and Work Opportunity Reconciliation
Act of 1996 requires immigrants who arrive on or after August 22,
1996, to be in the United States for 5 years before receiving any
federal means-tested benefits such as Medicaid and SCHIP. 

\66 An alien who is likely to become a public charge may be prevented
from entering the United States.  For aliens already in the United
States, deportation may result.  Current statutes and regulations do
not specify whether the receipt of Medicaid benefits would result in
someone's being considered a public charge. 

\67 The HCFA letter from Sally Richardson also informed states that
the "Medicaid program has no authority to collect repayments of
benefits from current or former beneficiaries except in cases where
those benefits were fraudulently received or an overpayment has
occurred." While the State Department specifically identified WIC as
a program that should not be considered when making public charge
determinations, neither the State Department nor INS has addressed
the receipt of past, present, and future Medicaid benefits. 

      MECHANISMS TO IDENTIFY
      EFFECTIVE OUTREACH
      STRATEGIES
------------------------------------------------------ Appendix IV:2.4

Because only 19 states and territories have more than 6 months of
implementation experience, it is still too early to identify the most
successful outreach strategies.  Some states, however, are
establishing mechanisms to help them better target their outreach
activities.  For example, Colorado's SCHIP application contains a
question that asks how applicants heard about the program and where
they received the application.  Those calling in for information are
also asked similar questions.  In the early stages of South
Carolina's program, the state placed different-colored applications
at various locations such as schools, providers, and churches in
order to determine where each application originated.  A South
Carolina official indicated that the majority of applications came
from schools, allowing the state to better focus its outreach
efforts. 

Although a state may find that specific outreach approaches are more
effective than others, New York's experience suggests that the level
of expenditure may also be an important factor.  State officials told
us that its state-funded children's health program allocated a small
amount of money for marketing and outreach--less than 10 percent of
the appropriation.  After New York increased its funding of marketing
and outreach under SCHIP, new monthly enrollment jumped to 19,000
children in July 1998, compared with 2,000 just 1 year earlier. 

   IT WOULD BE PREMATURE TO DRAW
   CONCLUSIONS FROM PRELIMINARY
   ENROLLMENT DATA
-------------------------------------------------------- Appendix IV:3

In April 1999, HCFA reported estimated SCHIP enrollment of 982,000
children.  The data are based on a combination of state-written
submissions and oral reports and generally reflect enrollment as of
December 31, 1998, for 42 states and territories with operational
SCHIP programs.  The states estimate that enrollment will reach 2.5
million children by September 2000.  Although the states were
required to report SCHIP enrollment data to HCFA by January 31, 1999,
some did not meet the first reporting deadline.  In addition to year
2000 computer problems, the time that the states committed to program
start-up contributed to reporting delays.  HCFA worked with the
states on compiling and verifying the data for accuracy before
releasing it to the public.  (See table IV.2.)

                         Table IV.2
          
            Preliminary Enrollment Estimates for
           States and Territories as of December
                          31, 1998

States and          Months in           Estimated
territories\a       operation           enrollment
------------------  ------------------  ------------------
Medicaid expansion
----------------------------------------------------------
Alaska              None                None

American Samoa      None                None

Arkansas            3                   3,000

District of         3                   400
Columbia

Guam                None                None

Hawaii              None                None

Idaho               15                  2,900

Illinois            11                  30,300

Indiana             15                  25,000

Iowa                6                   6,000

Louisiana           2                   3,500

Maryland            6                   9,400

Minnesota           3                   Less than 100

Missouri            4                   23,900

Nebraska            8                   5,500

New Mexico          None                None

North Dakota        4                   600

Ohio                11                  85,300

Oklahoma            13                  17,500

Puerto Rico         11                  20,000

Rhode Island        8                   2,900

South Carolina      5                   44,500

South Dakota        6                   1,700

Tennessee           None                None

Texas               6                   39,000

Virgin Islands      9                   None reported

Wisconsin           None                None

Stand-alone program
----------------------------------------------------------
Arizona             2                   3,600

Colorado            8                   17,400

Delaware            None                None

Georgia             2                   4,000

Kansas              None                None

Montana             None                None

Nevada              3                   2,700

New York            8                   270,700

North Carolina      3                   26,800

Oregon              6                   10,400

Pennsylvania        7                   68,400

Utah                5                   5,000

Vermont             3                   400

Virginia            2                   2,100

Combination program
----------------------------------------------------------
Alabama             11                  20,600

California          10                  63,100

Connecticut         6                   6,900

Florida             9                   60,500

Kentucky            6                   5,500

Maine               6                   5,200

Massachusetts       15                  42,100

Michigan            8                   11,600

Mississippi         6                   3,500

New Hampshire       8                   200

New Jersey          10                  29,600

West Virginia       6                   300

Total                                   982,000
----------------------------------------------------------
\a The Northern Mariana Islands, Washington, and Wyoming had not
submitted SCHIP plans as of April 1, 1999. 

Despite the availability of these estimates, it is still too early to
assess the effect of state outreach efforts from any enrollment
figures.  Differences in implementation schedules, preparedness, and
eligible populations complicate any comparison across states.  For
example, California created a new stand-alone program that began
enrollment in July 1998.  In contrast, Florida, New York, and
Pennsylvania rolled over enrollees from their previously state-funded
children's programs.  Many states in our sample told us that a
significant number of persons applying for SCHIP have been determined
to be eligible for Medicaid, approximately two eligible for Medicaid
for every one eligible for SCHIP in both Massachusetts and Michigan. 
Thus, SCHIP enrollment figures do not reflect the simultaneous
progress made in enrolling uninsured children into Medicaid. 
Finally, another important factor influencing the enrollment growth
rate is that many states' program designs are still evolving and do
not fully use their SCHIP allotments.  While SCHIP is likely to be
judged by enrollment, this factor should not be viewed as the sole
indicator of the program's success.  Other considerations in
determining SCHIP's effectiveness include whether enrolled children
actually visit the doctor, receive the appropriate preventive and
treatment services, and improve their overall health. 

DESPITE DIVERGENT VIEWS, THE
STATES ARE TAKING STEPS TO AVOID
CROWD-OUT
=========================================================== Appendix V

State and federal efforts to avoid crowd-out reflect some of the
divergent views regarding the significance of this phenomenon as well
as differences over whether effective tools exist that could dampen
or deter crowd-out.  The concern over crowd-out--that is, the
substitution of newly created public coverage perceived to be less
costly or more generous for already existing health insurance--is
underscored by title XXI's statutory mandate for close coordination
between SCHIP, private health insurance, and Medicaid.  The concern
is twofold: 

  -- for existing private health insurance, that individuals will
     drop their employer-based or individually purchased coverage or
     that employers will effectively reduce their health coverage for
     employees and,

  -- for Medicaid, that children who are currently eligible but not
     enrolled may be attracted to SCHIP by new state outreach efforts
     or that the states may enroll children eligible for Medicaid in
     SCHIP to take advantage of the enhanced federal matching
     rate.\68

The states responded to the coordination mandate with a variety of
measures to address the potential crowd-out of both Medicaid and
private insurance.  To ensure that SCHIP does not become a substitute
for Medicaid, most states with a stand-alone component are using
joint applications and must first screen for Medicaid and enroll any
children found eligible for that program.  With regard to private
insurance, state crowd-out mitigation tools for SCHIP mirror
strategies adopted in other state-funded health insurance programs
and suggested by researchers. 

--------------------
\68 On concern about whether employers may reduce their premium
contributions or provide less service coverage, see David M.  Cutler
and Jonathan Gruber, "Does Public Insurance Crowd Out Private
Insurance?" The Quarterly Journal of Economics, 111:2 (1996), pp. 
391-430. 

   TARGETED FAMILIES' ACCESS TO
   OTHER INSURANCE UNDERLIES
   CONCERN ABOUT CROWD-OUT
--------------------------------------------------------- Appendix V:1

Quantifying the potential extent and effect of crowd-out under SCHIP
is difficult, in part because the results of previous crowd-out
studies cannot be directly used to predict SCHIP crowd-out
experience.  Most studies examining previous public health insurance
expansions focused on Medicaid populations quite different from those
eligible for SCHIP and not subject to crowd-out prevention
strategies.  National studies found crowd-out occurring at higher
levels than did state-focused studies--15 to 17 percent compared with
5 to 7 percent.  Another complication is the problem of separating
the effect of public insurance expansions from other insurance trends
occurring at the same time.  Finally, no studies have determined
which of the many existing crowd-out prevention measures are the most
successful and under what state conditions they should be applied. 

Despite these uncertainties, researchers believe that private
insurance is more likely to be substituted when public programs serve
individuals at higher income levels, who are more likely to have
access to and are able to afford some level of employer-sponsored or
individually purchased insurance.\69 Congressional concern about
SCHIP's potential for crowd-out also arises from the higher incomes
of targeted families with children--between 100 and 200 percent of
the poverty level--who often are referred to as near-poor or
low-income working families.  One study highlights the potential for
crowd-out among the near-poor.  As shown in figure V.1, the report
found that more than twice as many near-poor children as poor
children were covered by private insurance.  Underscoring the
potential for crowd-out, ten states in our sample cover children
living in families with incomes at 200 percent of the poverty level
or greater (see appendix II, table II.2).  While children in families
with higher incomes will be more likely to have, or to have access
to, employer-based dependent insurance, these families also may be
attracted to the lower-cost public programs if they find the
purchasing power of their wages declining and their premiums
increasing. 

   Figure V.1:  Children With
   Employer-Sponsored or Other
   Private Insurance by Federal
   Poverty Level, 1996

   (See figure in printed
   edition.)

Note:  Insured status does not include coverage under Medicaid,
CHAMPUS, or Medicare. 

Source:  Percentages derived from Kenneth E.  Thorpe and Curtis S. 
Florence, Covering Uninsured Children and Their Parents:  Estimated
Costs and Number of Newly Insured (New York:  The Commonwealth Fund,
July 1998); tabulations taken from the March 1997 CPS. 

Estimates of possible crowd-out as well as views on the importance
attached to crowd-out differ.  The Urban Institute's projection of
crowd-out ranges from 22 to 36 percent of SCHIP enrollees.\70 In
analyzing the SCHIP legislation, CBO offered a long-term assessment
that 40 percent of ultimate SCHIP participants would have had some
other form of insurance coverage.  CBO based its projection on both a
review of crowd-out under earlier Medicaid eligibility expansions and
the anticipated reaction of labor markets to SCHIP.  Over time, CBO
concluded, labor markets will adapt to the existence of federal
subsidies, with low-income workers receiving more compensation in the
form of wages and less in the form of health insurance.  In fact, CBO
analysts suggested that some displacement of private insurance is
inevitable in the trade-off between the SCHIP goals of stable
insurance coverage for children and crowd-out prevention.  Under this
scenario, if children who move in and out of private insurance based
on their families' changing jobs and incomes were to qualify for
consistent coverage under SCHIP, then their previous private
insurance is crowded out.  However, these children gain more reliable
access to health coverage and a greater likelihood of receiving both
preventive and primary health care, leading to improved health
status. 

According to a January 1998 telephone survey of 450 businesses
conducted by the Maternal and Child Health Policy Research Center,
most companies are unlikely to make significant changes in the health
coverage they offer to employee dependents as a result of SCHIP.\71
The availability of new public insurance for low-income children
would persuade 7 percent of those surveyed to stop offering dependent
health insurance coverage.  Another 5 percent said they would
consider dropping coverage, while 12 percent would not drop coverage
but would increase the cost or decrease the value of dependent health
insurance.  When the employers likely to drop coverage were informed
that children would have to wait 3 months to be eligible for public
coverage, the number willing to eliminate coverage fell from 7 to 3
percent.  Only 1 percent of businesses would drop coverage if the
waiting period was 6 months, and none of the employers would drop
coverage if children had to wait 12 months for new public insurance. 

In addition, a number of studies indicate that the effect of some
crowding out of private insurance may be less negative than expected. 
While some researchers believe that crowd-out leads to problems in
ensuring that public dollars serve targeted populations, and may
actually increase the cost of public insurance programs, analyses by
the Urban Institute show that the costs of crowd-out from the
expansions of the late 1980s and early 1990s did little to increase
overall Medicaid costs and suggest that crowd-out will not siphon off
a significant portion of SCHIP funds.\72 Moreover, some states have
pointed out that prohibiting insured children from participating in
SCHIP does not take into account the quality of their existing
insurance coverage, which may be much more limited than either
Medicaid or the SCHIP benchmark plans.  For example, Alabama
officials said the state is "rife with poor coverage," including
catastrophic plans with large deductibles that provide no incentive
for preventive care.  Finally, some researchers who attempted to
estimate the extent of crowd-out suggested that there may be benefits
in the health improvements gained when expanded public insurance that
encourages the use of preventive care substitutes for private
coverage.\73

--------------------
\69 See Deborah J.  Chollet, Michael Birnbaum, and Michael J. 
Sherman, Deterring Crowd-Out in Public Insurance Programs:  State
Policies and Experience (Washington, D.C.:  Robert Wood Johnson
Foundation, Oct.  1997), p.  17, and O'Brien and Feder, How Well Does
the Employment-Based Health Insurance System Work for Low-Income
Families? 

\70 The Urban Institute estimated that if 20 percent of families
dropped their employer's dependent coverage to enroll children in
SCHIP, then about 36 percent of all new SCHIP participants would be
substituting their private insurance for public coverage.  If 10
percent dropped coverage, then the crowd-out would amount to 22
percent of the new SCHIP children.  See Lisa Dubay, Session 5: 
Exploring Potential for "Crowd Out" Under CHIP, presentation at the
Agency for Health Care Policy and Research Workshop entitled CHIP: 
Implementing Effective Programs and Understanding Their Impacts,
Portland, Oregon, Sept.  1998. 

\71 The survey was conducted as part of a larger study of
employer-based coverage of dependent children.  The sample consisted
of an equal distribution of small, medium, and large businesses and
was regionally stratified.  Small businesses had 10 to 99 employees,
medium-sized businesses had 99 to 1,000 employees, and large
businesses had more than 1,000 employees.  The sample included a
significant proportion of businesses most likely to employ low- and
moderate-wage workers.  See Fox and McManus, The Potential for Crowd
Out Due to CHIP. 

\72 See David M.  Cutler and Jonathan Gruber, "The Effect of Medicaid
Expansions on Public Insurance, Private Insurance, and
Redistribution," American Economic Review, 86:2 (1996), pp.  378-83;
Chollet, Birnbaum, and Sherman, Deterring Crowd-Out in Public
Insurance Programs; Robert Wood Johnson Foundation October 1997
Monograph; and John Holahan, "Crowding Out:  How Big a Problem?"
Health Affairs, 16:1 (1997), pp.  204-6. 

\73 David M.  Cutler and Jonathan Gruber, "Medicaid and Private
Insurance:  Evidence and Implications," Health Affairs, 16:1 (1997),
pp.  194-200. 

   HCFA FOCUSES CROWD-OUT SCRUTINY
   ON HIGH-RISK SCHIP DESIGNS
--------------------------------------------------------- Appendix V:2

While title XXI requires the states to address crowd-out, the
Congress provided no direction to HCFA or the states on how to do so. 
In fact, title XXI somewhat limits the states' ability to employ
higher cost-sharing or benefit limitations, tools used previously to
prevent crowd-out.  As we noted in appendix II, the states must
follow either Medicaid or SCHIP restrictions on cost sharing,
depending on the state plan design and a child's family income level. 
However, several states, including Arkansas and Nevada, have
indicated a preference for gradually increasing cost-sharing levels
for children in families with higher incomes.  They suggest that
SCHIP's limits on cost sharing for higher-income families make their
contributions artificially low compared with those in the private
market.  Thus, the limit may reduce incentives to keep private
coverage.  The states are required to use one of several benchmark
benefit packages outlined in title XXI.  For some states with
employer-based coverage less generous than SCHIP coverage, the
relative richness of these benchmark packages contributes to the
crowd-out concern. 

As a consequence of title XXI's limited direction on crowd-out,
HCFA's guidance to the states was based on the available research and
has evolved as the agency has gained more experience in reviewing
state plans.  On February 13, 1998, the agency issued guidance for
states that elected to provide coverage directly through a
stand-alone program or a Medicaid expansion and issued separate
requirements for states electing to subsidize employer-sponsored
group health plans.  Regarding the former, HCFA imposed no specific
crowd-out mechanisms; rather, it indicated that the states,
especially those with higher income eligibility levels, must address
the crowd-out of private insurance in some manner.  The states were
put on notice that HCFA would later review their crowd-out efforts
and might require them to alter their plans if crowd-out proved to be
a problem.  Because HCFA believes that there is greater potential for
substitution when states attempt to subsidize employer-based
coverage, the guidance spells out a specific five-point mandate for
states that pursue this option.  Their SCHIP programs must
incorporate provisions that are "substantially equivalent" to the
following: 

  -- adopting a 6-to-12-month waiting period during which children
     must have no existing insurance;

  -- allowing subsidies only where the employer covers at least 60
     percent of the employee cost;

  -- demonstrating cost-effectiveness of family coverage, where the
     cost is no greater than the cost of covering the children alone;

  -- ensuring that the employer pays the highest level of premium
     possible; and

  -- requiring a crowd-out study to help demonstrate
     cost-effectiveness. 

As indicated in HCFA's guidance, the most scrutiny was directed
toward programs with eligibility at higher poverty levels and those
proposing or considering employer subsidies.  HCFA officials told us
that any Medicaid expansion that raises income eligibility to higher
levels will also be held to crowd out prevention requirements. 
However, HCFA officials told us that during SCHIP plan review, the
agency was sensitive to the states' different needs and
circumstances.  For example, the states chose different time periods
for their waiting periods and will design their own crowd-out
studies. 

   CROWD-OUT STRATEGIES REFLECT
   STATE DESIGN CHOICES AND
   EXPERIENCE
--------------------------------------------------------- Appendix V:3

Among the 15 states in our sample, strategies to avoid crowd-out
varied, depending on program design and poverty level eligibility
standards.  Title XXI allows all participating states to impose a
waiting period, but generally only states that select a stand-alone
approach may use cost sharing or the SCHIP benefit design to
discourage crowd-out.  Unless operating with a section 1115 waiver,
states that elect to expand Medicaid must offer the Medicaid benefits
package and may not introduce cost sharing for most children.  State
strategies also differed depending on their level of concern
regarding crowd-out, which for some was influenced by previous
experience with a state-funded children's health insurance program. 
At issue for some states was the level of crowd-out that could be
considered acceptable and, thus, not serious enough to address. 
While several states said that they developed their crowd-out
strategies because of local concern, others included prevention
measures only as a result of the legislative mandate or HCFA's
review.  In general, states covering children at higher income levels
tend to have more aggressive crowd-out strategies

      STATE VIEWS ABOUT CROWD-OUT
      RANGE WIDELY
------------------------------------------------------- Appendix V:3.1

The SCHIP plans of 13 of the 15 states in our sample included
strategies that were intended, either directly or indirectly, to help
prevent crowd-out.  Each of these 13 states' SCHIP programs had
income eligibility levels greater than 150 percent of the poverty
level.\74 In South Carolina and Texas, the Medicaid expansions were
at poverty levels low enough (150 percent and 100 percent,
respectively) that significant crowd-out was not considered likely. 

States in our sample ranged from exhibiting a deep concern about
crowd-out to a conviction, in part based on previous experience, that
crowd-out was unlikely to be a problem.  For example, Missouri, a
Medicaid expansion state raising its eligibility level to 300 percent
of the poverty level, had serious concerns about crowd-out and
instituted broad-ranging preventive measures, including a 6-month
waiting period and cost sharing.  In a unique provision, the state
required children whose family incomes are between 225 and 300
percent of the poverty level to wait 30 days after enrollment before
using health care services.  State officials believe this will
prevent people from "shopping for health care" only when they are
ill. 

Several other states agreed to mitigation plans or crowd-out studies
only after discussion with HCFA.  Connecticut's crowd-out
provision--a 6-month waiting period without employer-sponsored
insurance--was a response to federal concerns and was developed by
studying the tactics of other states and charting a middle course
between what others states had chosen.  Connecticut officials said
that the state built "flexibility" into its prevention strategies by
establishing ten exceptions to its waiting period requirement and
increasing the waiting period to 12 months if crowd-out proves to be
a serious problem.\75 Most states with waiting periods also allow
some exceptions, although in most of the states in our sample they
are not as extensive as in Connecticut.  Connecticut also coordinates
with employers to review 20 percent of its applicants to ensure that
they do not have insurance or did not drop available insurance
coverage. 

--------------------
\74 A July 1998 HCFA report also shows that states with higher
eligibility levels had more comprehensive crowd-out prevention
components.  Of the 23 states profiled, the 15 with higher income
levels planned waiting periods or studies.  The remaining eight
states planning only to monitor the situation were covering children
with family incomes at or less than 150 percent of the poverty level. 

\75 Exceptions include the loss of employment for reasons other than
voluntary termination, a change to a new employer that does not
provide a dependent coverage option, and discontinuation of health
benefits to all employees by the applicant's employer. 

      STATES MOST OFTEN CHOOSE A
      WAITING PERIOD AS A
      PREVENTION STRATEGY
------------------------------------------------------- Appendix V:3.2

The crowd-out strategy adopted most often by the states in our sample
was to impose a waiting period, as shown in table V.1.\76 The
assumption is that parents will not want currently covered children
to go without health insurance for several months and, as a result,
will be discouraged from dropping private coverage.  California
initially has selected a 3-month waiting period that will be
increased to 6 months if the state finds that it is covering
substantial numbers of children previously covered under
employer-sponsored plans.  In contrast, Rhode Island implemented
crowd-out provisions in 1994 when it received approval to expand
eligibility and operate its Medicaid program under a section 1115
waiver.  The state continued to require a 12-month waiting period
when it expanded the program to incorporate SCHIP and requires
applicants to be not only uninsured but without access to affordable
insurance before applying for SCHIP.\77 All four states conducting
studies to determine whether SCHIP programs either resulted in or
increased crowd-out will impose some type of waiting period if the
studies find that sufficient crowd-out exists. 

                               Table V.1
                
                   Crowd-Out Strategies in 15 States

Strategy                            State
----------------------------------  ----------------------------------
Waiting period with no insurance

1 month                             Vt.

3 months                            Calif., Colo., Wisc.

6 months                            Conn., Mich., Mo., Oreg.

12 months                           R.I.

Crowd-out study and implement       Fla., Mass., N.Y., Pa.
waiting period or limits to access
if needed

Cost-sharing (premiums or           Calif., Mo., N.Y., Wisc.
copayments)\a

Compare SCHIP enrollment to         Mass., Mich., Pa., Wisc.
private coverage

State insurance regulation          Calif.
----------------------------------------------------------------------
\a Texas noted plans to use cost sharing in proposed phase II
components to prevent crowd-out.  Neither Texas' nor South Carolina's
Medicaid expansion imposes cost sharing. 

Two of these states, Florida and New York, had found low levels of
substitution in studies of their previous state-funded children's
health programs and questioned how much priority they should place on
the issue.  Pennsylvania did not have a previous crowd-out study but
also disagreed with the importance attached to crowd-out during the
review of state SCHIP plans.  In the end, all three states finally
complied with HCFA's request to include prevention components in
their plans.  HCFA expressed concern that the existing evaluations
might poorly predict SCHIP substitution effects because children
targeted under SCHIP had higher incomes than those already in their
state-funded programs.  Under the agreement reached with HCFA,
Florida will conduct a crowd-out study after 6 months of enrollment
and will add a 3-month waiting period if crowd-out is greater than
that found previously.  Florida officials also decided to fully study
and reevaluate crowd-out after 36 months of operation.  New York
agreed to study crowd-out for 9 months and impose a waiting period or
restrictions for children with access to insurance if more than 8
percent of SCHIP enrollment is attributed to crowd-out.  New York
also had argued that a waiting period "penalized" children for
actions taken by a parent or employer to drop private coverage.  For
example, the state was opposed to making a child with asthma wait 6
months for care.  Finally, after studying both Florida's and New
York's mitigation plans, Pennsylvania agreed to take crowd-out action
if at least 12 percent of SCHIP enrollment is the result of crowding
out of private insurance. 

While 11 states in our sample required participants to pay either
premiums or copayments, only 4 characterized their cost-sharing
provisions as intended to prevent crowd-out (see appendix II, table
II.6).  Cost sharing helps narrow the cost difference between public
and private insurance, reducing the likelihood that lower
out-of-pocket costs for SCHIP will attract individuals with existing
insurance.  In addition to using waiting periods and cost sharing,
some states are using other methods to prevent crowd-out.  A few
states asserted that eliminating or limiting dental coverage within
benefits packages may make a plan less attractive to families with
existing insurance.  Several states indicated that they plan to
periodically check their SCHIP enrollment with private insurers to
identify and disenroll or deny coverage to persons who have private
coverage or have recently dropped it.  For example, Pennsylvania
provides SCHIP benefits through five state grantees--a health
maintenance organization and four subsidiaries of large health
insurance providers.  These grantees will compare SCHIP applicants'
names with the names of their commercial subscribers to determine
whether they have other coverage.  Michigan is considering whether to
contract with Blue Cross and Blue Shield to compare its applicants
with their commercial enrollees and with Medicaid.  This venture
would allow the state to review coverage for about 75 percent of
people with health insurance in Michigan.  To protect its public
programs, California passed insurance regulations that prohibit
insurance agents from referring children covered by employee plans to
the state's stand-alone program.\78 The state also makes it an unfair
labor practice for an employer to either refer a covered employee to
SCHIP or change the employee's coverage or cost sharing to induce
enrollment in the state program. 

Several state officials expressed concern that HCFA did not use
consistent standards among states for crowd-out studies.  HCFA
officials acknowledged that crowd-out scrutiny evolved as they gained
more review experience.  Agency representatives said that they
intentionally did not set specific crowd-out study standards in order
to consider each state's previous crowd-out research and its
expectations of SCHIP's effect.  For example, New York's previous
study, which was conducted when the state provided only outpatient
care and not the hospitalization included in the SCHIP expansion,
found only a 2-percent crowd-out effect.  HCFA, however, believed
that the expansion of both the poverty level and benefits under New
York's SCHIP stand-alone would increase crowd-out.  After
negotiations, the state agreed that an 8-percent crowd-out effect
would trigger prevention measures.  In contrast, Florida's study had
indicated a 10-percent crowd-out effect under its previous state
program.  Therefore, HCFA officials said, Florida's waiting period
should be triggered if the same level, or higher, crowd-out occurs
with its SCHIP program. 

--------------------
\76 Notably, even Medicaid expansion plans were allowed to implement
waiting periods.  A HCFA official said that imposing a waiting period
on the "targeted low-income children" eligible under SCHIP does not
violate Medicaid entitlement rules because the eligibility focus is
on the child's income level rather than on the Medicaid eligibility
categories.  In effect, SCHIP Medicaid expansions can require
eligibility criteria for children different from those of regular
Medicaid programs. 

\77 Rhode Island describes affordable coverage as costing less than
$150 per month for premiums for an individual or less than $300 per
month in premiums for a family. 

\78 In addition to California, Rhode Island had previously enacted
legislation that prohibits employers from dropping coverage for
lower-income employees who might be eligible for publicly funded
programs while maintaining insurance coverage for higher-income
employees.  The law includes civil penalties and extends a federal
requirement that applies only to employers who choose to bear the
financial risk of offering coverage themselves to firms that rely on
an insurance company to bear the risk. 

      STATES FACE CROWD-OUT
      SCRUTINY IF THEY EXPLORE
      EMPLOYER-BASED OPTIONS
------------------------------------------------------- Appendix V:3.3

Although HCFA views crowd-out as particularly worrisome for states
that elect to subsidize employer-based insurance, some states and
analysts view such subsidization as helping preserve employer-based
coverage.  As of April 1, 1999, only Massachusetts and Wisconsin had
received approval for the employer-subsidy option under their SCHIP
programs, although several other states have expressed interest in
this option for future SCHIP amendments.  Massachusetts believes that
the incentives for employees to drop workplace coverage are removed
with its premium assistance program; the SCHIP stand-alone program
covers low-income families with access to employer insurance who have
not enrolled, while the state's section 1115 Medicaid waiver can
assist those who already pay for employer coverage.  State officials
said that their challenge will be to educate families that they do
not have to drop existing employer coverage in order to be eligible
for premium assistance.  Massachusetts is more concerned about the
response of employers that may have an incentive to reduce their
premium contribution, thereby increasing the public subsidy, or to
drop dependent coverage entirely.  The state will conduct a survey of
employers to track contribution levels and other state insurance
trends.  If it finds evidence of employer-connected crowd-out
practices, Massachusetts will attempt to develop corrective action
plans.  California, which is planning to submit an employer subsidy
amendment, told us that keeping children in their parents'
employer-based insurance programs ameliorates crowd-out by providing
an affordable option to families.  With the SCHIP subsidy, families
are able to buy the previously unaffordable dependent coverage
offered at their workplace. 

   COORDINATION REQUIREMENTS SEEK
   TO LIMIT SCHIP'S CROWDING OUT
   OF MEDICAID
--------------------------------------------------------- Appendix V:4

Title XXI reflects a concern that SCHIP might substitute for
traditional Medicaid coverage.  The states might have an incentive to
enroll children who are eligible for Medicaid in SCHIP, since the
federal financial match is higher for the new program.  Children's
advocates were concerned that children who are eligible for Medicaid
and are incorrectly enrolled in a stand-alone program would have less
generous benefits or would find themselves dropped from coverage when
or if SCHIP funding ended, because the program, unlike Medicaid, is
not an entitlement.  As a result, state coordination efforts were
mandated to ensure that children who qualify for Medicaid are
enrolled in that program rather than in a SCHIP program and that
their applications are fully processed for Medicaid when they are not
eligible for SCHIP.  HCFA's plan review process led some states to
upgrade their screening strategies to check children first for
Medicaid eligibility and to create closer links between stand-alone
and Medicaid programs. 

The possibility of SCHIP substitution is highlighted by the large
numbers of children who are eligible for Medicaid now but have no
health insurance.  Nearly one-fourth of the children who currently
are eligible are not enrolled.  For example, California has estimated
that while it has 400,000 children eligible for its stand-alone
program, another 600,000 children are eligible but not enrolled in
its Medicaid program.  Children who are eligible for Medicaid but not
enrolled may be likely to apply for SCHIP programs if they are
attracted by the new outreach efforts that the states have developed
to attract children and their families eligible for SCHIP.  CBO
estimated that nationwide the "outreach effect" of SCHIP will
increase Medicaid spending by $2.4 billion over the first 5 years of
SCHIP enrollment because of an increased enrollment of 460,000
children eligible for Medicaid each year.\79

Title XXI contains three provisions aimed at preventing SCHIP from
substituting for Medicaid coverage.  First, the states must include
assurances in their program plans that they will develop Medicaid
coordination strategies.  Second, statutory maintenance-of-effort
provisions for Medicaid eligibility apply to both Medicaid expansion
and SCHIP stand-alone plans.  States with stand-alone components
cannot adopt income and resource methodologies for children eligible
for Medicaid that are more restrictive than those in effect on June
1, 1997.  Medicaid expansion programs cannot use the SCHIP enhanced
match rate for any child who would have been eligible for Medicaid
under standards in effect on March 31, 1997.  Finally, any child who
applies for SCHIP must be screened for Medicaid and then enrolled if
found eligible.  Missouri officials listed the strong coordination
requirements in the legislation as a factor that supported the
decision to fold SCHIP into an application for a section 1115 waiver
and an expanded Medicaid program. 

HCFA's approach during plan review was to query states closely and
require assurances that they would plan to screen and enroll
applicants eligible for Medicaid.  HCFA asked 8 of our 15 sample
states for more information about how they intended to meet the
screening and enrolling requirement, and a few states amended or
revised their planned screening processes to meet HCFA's standards. 
In response to HCFA's review, for example, Pennsylvania developed a
common application form and initial Medicaid screening to ensure
Medicaid enrollment.  Colorado had developed a nonautomated screen to
prevent children eligible for Medicaid from enrolling in its
previously state-funded insurance program.  Because HCFA did not
consider the screen adequate for SCHIP, the state hired a Medicaid
consultant to create a new computer-based program to screen
applicants.  Even with this computerized method, Colorado officials
characterized the screening process as time-consuming and
administratively costly. 

--------------------
\79 Medicaid:  Demographics of Nonenrolled Children Suggest State
Outreach Strategies (GAO/HEHS-98-93, Mar.  20, 1998). 

      STATES FIND THAT THEIR
      SCREENS FOR MEDICAID
      ELIGIBILITY MEET THE TITLE
      XXI MANDATE
------------------------------------------------------- Appendix V:4.1

Coordination with Medicaid is easy for a Medicaid expansion state
because SCHIP is administratively part of its Medicaid program.  In
contrast, some stand-alone programs went to significant time and
expense to create new administrative structures and find ways to
connect them with Medicaid.  The most practical way for states with
stand-alone components to meet the legislative mandate to screen and
enroll is to check first for Medicaid eligibility.  The states in our
sample with stand-alone components have all included screening for
Medicaid eligibility as the first step in the eligibility
determination process.  They are also using a joint application form
for both programs, which simplifies the process.  All but 2 of the 48
states whose applications had been submitted to HCFA by October 8,
1998, were using or planning to use a single application for regular
Medicaid and SCHIP-related applicants.\80

Some states are also using a single agency or entity to screen and
track referrals for both programs or are developing a coordination
plan if two offices are involved.  For example, Connecticut and
Michigan use a private contractor to accept applications for both the
expanded Medicaid and the new stand-alone programs and to forward
appropriate applications to the state Medicaid eligibility agency. 
Connecticut's Single Point of Entry Servicer screens all applications
and, if a family appears to be eligible for Medicaid, sends its
application to the Department of Social Services (DSS) for final
eligibility determination.  The contractor keeps daily logs of
referrals to DSS, and the state has a tracking system to follow
referrals once they reach the DSS office.  In Colorado, the
stand-alone administrator and Medicaid office developed an agreement
that each will forward applications for children who appear to
qualify for the other's program.  Other states, including California
and New York, compare SCHIP participant lists against Medicaid
enrollment files to ensure that children are not already covered. 

As anticipated under the enabling legislation, several states have
found a significant number of children who are eligible for Medicaid
as initial applicants for their new SCHIP programs.  Connecticut has
found that approximately 8,000 of the 11,000 children determined to
be eligible since SCHIP's implementation are eligible for Medicaid,
including the SCHIP Medicaid expansion component.  The remaining
3,000 are in the state's stand-alone SCHIP component.  New York
officials believe that anywhere from 20 to 40 percent of the
approximately 170,000 children already in its existing state program
will be found to be eligible for Medicaid.  New York's request for
retroactive funding for its state-turned-SCHIP program was denied
because its state-funded program lacked an extensive Medicaid
screening and enrollment process and because its program did not meet
the title XXI premium and cost-sharing limits.  HCFA indicated that
it will not include expenses for children eligible for Medicaid in a
payment for health expenses retroactive to October 1997.  New York
has requested an "indefinite continuance" of its appeal, which is
before an administrative law judge.  Others have reported finding
applicants inflating income in order to qualify for SCHIP rather than
Medicaid or refusing to continue the application process, once they
are deemed ineligible for SCHIP, to avoid Medicaid enrollment. 

As SCHIP programs evolve, coordination plans may be complicated by
the income volatility many low-income families experience from
fluctuation in their paychecks and changing employment.  Periodic
reviews of SCHIP eligibility will result in states shifting any
children found eligible for Medicaid out of SCHIP and into title XIX. 
This suggests that at redetermination of eligibility, there could be
significant movement in and out of stand-alone and Medicaid programs. 
The changes may result in either health care coverage lapses as
children move into and out of programs or situations in which states
use SCHIP funds to cover individuals whose changed income has made
them ineligible.  The states may offset these problems by choosing to
allow continuous eligibility for up to 12 months for participants in
both Medicaid and SCHIP programs.  Eight of the 15 states in our
sample use 12 months of continuous eligibility for SCHIP programs,
while 3 have a 6-month allowance.  Additionally, California has
instituted a 1-month bridge eligibility transition period from
Medicaid to the stand-alone SCHIP program to give those who lose
Medicaid eligibility time to enroll in the SCHIP program while
continuing to receive health coverage.  Michigan allows children who
become eligible for Medicaid because of high medical expenses to
remain enrolled in SCHIP to ensure continuity of care.  Finally, HCFA
officials noted that if a family's financial circumstances changed,
making its children eligible for Medicaid, it could request that the
children be switched from SCHIP to Medicaid. 

--------------------
\80 HCFA reported that Colorado, Florida, Montana, Nevada, and North
Carolina, all with stand-alone components, are not using joint
applications.  However, Colorado and Florida indicated in interviews
that they are using joint applications, while North Carolina had
adopted a joint application by April 1, 1999. 

KEY SCHIP DESIGN CHARACTERISTICS
IN 15 STATES AS OF FEBRUARY 1999
========================================================== Appendix VI

                                                   Eligibility\a                                          Potential amendment
                                            ---------------------------                                  ----------------------
                     FY 1998                                                                                           Stand-
                       SCHIP                                                               Cost-                       alone     Eligibility and
                  allocation  Initial            Maximum   % of federal  Stand-alone       sharing                     componen  enrollment            Crowd-out
State             (millions)  design              income  poverty level  coverage basis\b  practice      Coverage      t         simplification\c      strategy\d       Enrollment\e
--------------  ------------  ------------  ------------  -------------  ----------------  ------------  ------------  --------  --------------------  ---------------  ------------
California            $854.6  Combination        $32,900           200%  Secretary-        Premiums,     Employer                No asset test,        Waiting period,        63,100
                                                                         approved          copayments    buy-in for              continuous            cost sharing,
                                                                         coverage                        children                eligibility           insurance
                                                                                                                                                       regulation

Colorado                41.8  Stand-alone         30,433            185  Benchmark         Premiums,     Family                  Continuous            Waiting period         17,400
                                                                         equivalent        copayments                            eligibility

Connecticut             34.9  Combination         49,350            300  Secretary-        Premiums,     Family                  No asset test,        Waiting period          6,900
                                                                         approved          copayments                            presumptive
                                                                         coverage                                                eligibility,
                                                                                                                                 continuous
                                                                                                                                 eligibility

Florida                270.2  Combination         32,900            200  Existing state    Premiums,     Employer                No asset test,        Crowd-out study        60,500
                                                                         coverage          copayments    buy-in for              continuous
                                                                                                         children                eligibility

Massachusetts           42.8  Combination         32,900            200  Benchmark         Premiums,     None                    No asset test,        Crowd-out              42,100
                                                                                           copayments                            presumptive           study, compare
                                                                                                                                 eligibility           enrollment with
                                                                                                                                                       private data

Michigan                91.6  Combination         32,900            200  Benchmark         Premiums      Family                  No asset test,        Waiting period,        11,600
                                                                                                                                 presumptive           compare
                                                                                                                                 eligibility,          enrollment with
                                                                                                                                 continuous            private data
                                                                                                                                 eligibility

Missouri                51.7  Medicaid            49,350            300                    Premiums,     None          None      No asset test,        Waiting period,        23,900
                              expansion                                                    copayments                            presumptive           cost sharing
                                                                                                                                 eligibility,
                                                                                                                                 continuous
                                                                                                                                 eligibility

New York               255.6  Stand-alone         36,519            222  Existing state    Premiums      None                    No asset test,        Crowd-out             270,700
                                                                         coverage                                                presumptive           study, cost
                                                                                                                                 eligibility           sharing

Oregon                  39.1  Stand-alone         27,965            170  Secretary-        None          Family                  Continuous            Waiting period         10,400
                                                                         approved                                                eligibility
                                                                         coverage

Pennsylvania           117.5  Stand-alone         32,900            200  Existing state    None          None                    No asset test,        Crowd-out              68,400
                                                                         coverage                                                continuous            study, compare
                                                                                                                                 eligibility           enrollment with
                                                                                                                                                       private data

Rhode Island            10.7  Medicaid            49,350            300                    Premiums,     Family        None      No asset test,        Waiting period          2,900
                              expansion                                                    copayments                            continuous
                                                                                                                                 eligibility

South Carolina          63.6  Medicaid            24,675            150                    None          None          None      No asset test,        None                   44,500
                              expansion                                                                                          continuous
                                                                                                                                 eligibility

Texas                  561.3  Medicaid            16,450            100                    None          None          Planning  None                  None                   39,000
                              expansion

Vermont                  3.5  Stand-alone         49,350            300  Secretary-        Premiums,     None                    No asset test         Waiting period            400
                                                                         approved          copayments
                                                                         coverage

Wisconsin               40.6  Medicaid            32,900            200                    Premiums,     None          None      No asset test         Waiting period,          None
                              expansion                                                    copayments                                                  cost sharing,
                                                                                                                                                       compare
                                                                                                                                                       enrollment with
                                                                                                                                                       private data
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a Maximum income is for a family of four at that poverty level. 
States may increase eligibility up to 50 percentage points above
current Medicaid eligibility levels or to 200 percent of the federal
poverty level.  Some states do not consider certain portions of
income, thereby effectively increasing eligibility level above 200
percent. 

\b For a description of benchmark coverage options, see appendix II. 

\c For a description of state approaches to simplifying eligibility
and enrollment, see appendix IV. 

\d For a description of state strategies to prevent the substitution
of SCHIP for either Medicaid or private health insurance, see
appendix V. 

\e States generally reported enrollment to HCFA as of December 31,
1998.  (See appendix IV.)

(See figure in printed edition.)Appendix VII
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
========================================================== Appendix VI

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

*** End of document. ***