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entitled Children's health Insurance: State Experiences in Implementing 
SCHIP and Considerations for Reauthorization' which was released on 
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Testimony: 

Before the Committee on Finance, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EST: 

Thursday, February 1, 2007: 

Children's Health Insurance: 

State Experiences in Implementing SCHIP and Considerations for 
Reauthorization: 

Statement of Kathryn G. Allen Director, Health Care: 

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

GAO-07-447T: 

GAO Highlights: 

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

Why GAO Did This Study: 

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

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

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

What GAO Found: 

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

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

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

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-447T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118 or allenk@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Committee: 

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

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

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

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

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

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

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

Background: 

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

SCHIP Allotments to States: 

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

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

SCHIP Design Choices: 

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

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

² Expenditures. In separate child health programs, federal matching 
funds cease after a state expends its allotment, and non-benefit- 
related expenses (for administration, direct services, and outreach) 
are limited to 10 percent of claims for services delivered to 
beneficiaries. In contrast, Medicaid expansion programs may continue to 
receive federal funds for benefits and for non-benefit-related expenses 
at the Medicaid matching rate after states exhaust their SCHIP 
allotments. 

² Enrollment. Separate child health programs may establish separate 
eligibility rules and establish enrollment caps. In addition, a 
separate child health program may limit its own annual contribution, 
create waiting lists, or stop enrollment once the funds it budgeted for 
SCHIP are exhausted. A Medicaid expansion must follow Medicaid 
eligibility rules regarding income, residency, and disability status, 
and thus cannot limit enrollment. 

² Benefits. Separate child health programs must use, for example, 
benchmark benefit standards that use specified private or public 
insurance plans as the basis for coverage. However, Medicaid--and 
therefore a Medicaid expansion--must provide coverage of all benefits 
available to the Medicaid population, including certain services for 
children. In particular, Early and Periodic Screening, Diagnosis, and 
Treatment (EPSDT) requires states to cover treatments or stabilize 
conditions diagnosed during routine screenings--regardless of whether 
the benefit would otherwise be covered under the state's Medicaid 
program.[Footnote 13] A separate child health program does not require 
EPSDT coverage. 

² Beneficiary cost-sharing. Separate child health programs may impose 
limited cost-sharing--through premiums, copayments, or enrollment fees--
for children in families with incomes above 150 percent of FPL up to 5 
percent of family income annually. Since the Medicaid program did not 
previously allow cost-sharing for children, a Medicaid expansion 
program under SCHIP would have followed this rule.[Footnote 14] 

SCHIP Coverage of Adults: 

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

² First, federal SCHIP law allows the coverage of adults in families 
with children eligible for SCHIP if a state can show that it is cost- 
effective to do so and demonstrates that such coverage does not result 
in "crowd-out"--a phenomenon in which new public programs or expansions 
of existing public programs designed to extend coverage to the 
uninsured prompt some privately insured persons to drop their private 
coverage and take advantage of the expanded public subsidy.[Footnote 
15] The cost-effectiveness test requires the states to demonstrate that 
covering both adults and children in a family under SCHIP is no more 
expensive than covering only the children. The states may also elect to 
cover children whose parents have access to employer-based or private 
health insurance coverage by using SCHIP funding to subsidize the cost. 

² Second, under section 1115 of the Social Security Act, states may 
receive approval to waive certain Medicaid or SCHIP requirements. The 
Secretary of Health and Human Services may approve waivers of statutory 
requirements in the case of experimental, pilot, or demonstration 
projects that are likely to promote program objectives.[Footnote 16] In 
August 2001, HHS indicated that it would allow states greater latitude 
in using section 1115 demonstration projects (or waivers) to modify 
their Medicaid and SCHIP programs and that it would expedite 
consideration of state proposals. One initiative, the Health Insurance 
Flexibility and Accountability Initiative (HIFA), focuses on proposals 
for covering more uninsured people while at the same time not raising 
program costs. States have received approval of section 1115 waivers 
that provide coverage of adults using SCHIP funding.[Footnote 17] 

SCHIP Enrollment Has Grown Rapidly; States' Rates of Uninsured Children 
Vary Significantly: 

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

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

Figure 1: SCHIP Enrollment, 1999-2005: 

[See PDF for image] 

Source: CMS and state enrollment data. 

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

[End of figure] 

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

Based on a 3-year average of 2003 through 2005 CPS data, the percentage 
of uninsured children varied considerably by state and had a national 
average of 11.7 percent.[Footnote 19] The percentage of uninsured 
children ranged from 5.6 percent in Vermont to 20.4 percent in Texas 
(see fig. 2).[Footnote 20] Generally, the proportion of children 
without insurance tended to be lower in the Midwest or Northeast and 
higher in the South and the West. 

Figure 2: Percentage of Uninsured Children, by State, 2003-2005: 

[See PDF for image] 

Source: GAO analysis of CPS data, 3-year average (2003 through 2005). 

[End of figure] 

States' SCHIP Programs Reflect a Variety of Approaches to Providing 
Health Care Coverage: 

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

States Employ All Three Design Approaches, with Coverage Generally 
Extending to 200 Percent of FPL: 

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

Figure 3: State SCHIP Design Choices as of July 2006: 

[See PDF for image] 

Source: Copyright Corel Corp. All rights reserved (map); GAO analysis 
of CMS data. 

[End of figure] 

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

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

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

[See PDF for image] 

Source: GAO analysis of states' annual SCHIP reports for 2005 and the 
national Academy for State Health Policy. 

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

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

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

[End of figure] 

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

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

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

Basis of coverage: Benchmark (14 states); 
Description: Federal Employees Health Benefits Program (FEHBP) Blue 
Cross Blue Shield standard option, or coverage generally available to 
state employees, or coverage under the states' health maintenance 
organization with the largest insured commercial non-Medicaid 
enrollment; 
State: Alabama, California, Connecticut, Delaware, Iowa,[A] Kansas, 
Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, New 
Jersey, North Carolina, Texas. 

Basis of coverage: Benchmark-equivalent (12 states); 
Description: Basic coverage for inpatient and outpatient hospital, 
physicians' surgical and medical, laboratory and x-ray, and well-baby 
and well-child care, including age-appropriate immunizations. Coverage 
must be equal to the value of benchmark coverage; 
State: Colorado, Georgia, Illinois, Indiana, Iowa,[A] Kentucky, 
Montana, North Dakota, Rhode Island, Utah, Virginia, West Virginia. 

Basis of coverage: Existing comprehensive state coverage (3 states); 
Description: Coverage equivalent to state-funded child health programs 
in Florida, New York, or Pennsylvania; 
State: Florida, New York, Pennsylvania. 

Basis of coverage: Secretary-approved (8 states); 
Description: Coverage determined appropriate for targeted low-income 
children; 
State: Arizona, Arkansas, Idaho, Maine, Nevada, Oregon, Vermont, 
Wyoming. 

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

[A] State's SCHIP program reports using two bases of coverage-- 
benchmark and benchmark-equivalent. 

[End of table] 

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

² In 2003, Texas discontinued dental services, hospice services, 
skilled nursing facilities coverage, tobacco cessation programs, vision 
services, and chiropractic services. In 2005, the state added many of 
these services (chiropractic services, hospice services, skilled 
nursing facilities, tobacco cessation services, and vision care) back 
into the SCHIP benefit package and increased coverage of mental health 
and substance abuse services. 

² In January 2002, Utah changed its benefit structure for dental 
services, reducing coverage for preventive (cleanings, examinations, 
and x-rays) and emergency dental services in order to cover as many 
children as possible with limited funding. In September 2002, the 
dental benefit package was further restructured to include coverage for 
an accidental dental benefit, fluoride treatments, and sealants. 

Most SCHIP Programs Require Cost-Sharing, but Amounts Charged Vary 
Considerably: 

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

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

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

[See PDF for image] 

Source: Copyright Corel Corp. All rights reserved (map); GAO analysis 
of states' annual SCHIP reports. 

[A] State charged an enrollment fee. 

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

[End of figure] 

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

Few States Offer Premium Assistance Programs: 

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

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

State: Idaho; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1906; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]; 
Supplemental coverage for benefits or cost-sharing: No. 

State: Idaho; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check. 

State: Illinois; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [A]; 
Supplemental coverage for benefits or cost-sharing: No. 

State: Louisiana; 
Design of SCHIP program: Medicaid expansion; 
Authority for premium assistance program: Section 1906; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check; 
Supplemental coverage for benefits or cost- sharing: Yes, for benefits 
and cost-sharing. 

State: Massachusetts; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Premium assistance under 
SCHIP plan; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]; 
Supplemental coverage for benefits or cost-sharing: No. 

State: Massachusetts; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 non-HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]. 

State: New Jersey; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 non-HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check; 
Supplemental coverage for benefits or cost-sharing: Yes, for benefits 
and cost-sharing. 

State: Oregon; 
Design of SCHIP program: Separate program; 
Authority for premium assistance program: Section 1115 HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check; 
Supplemental coverage for benefits or cost-sharing: No. 

State: Rhode Island; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Premium assistance under 
SCHIP plan; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]; 
Supplemental coverage for benefits or cost-sharing: Yes, for benefits 
and cost-sharing. 

State: Rhode Island; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Family coverage under SCHIP 
plan; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check. 

State: Rhode Island; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 non-HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check. 

State: Rhode Island; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1906; 
Population covered under authority: Children: [Empty]; 
Population covered under authority: Adults: check. 

State: Virginia[B]; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Premium assistance under 
SCHIP plan; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]; 
Supplemental coverage for benefits or cost-sharing: Yes, for 
benefits[C]. 

State: Virginia[B]; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1115 HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: [Empty]. 

State: Virginia[B]; 
Design of SCHIP program: Combination; 
Authority for premium assistance program: Section 1906; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check. 

State: Wisconsin; 
Design of SCHIP program: Medicaid expansion; 
Authority for premium assistance program: Section 1115 non-HIFA; 
Population covered under authority: Children: check; 
Population covered under authority: Adults: check; 
Supplemental coverage for benefits or cost- sharing: Yes, for benefits 
and cost-sharing. 

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

[A] Coverage of adults under Illinois' program became effective January 
1, 2006. 

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

[C] Virginia's supplemental payments were limited to immunizations not 
covered by the employer/private health plan. 

[End of table] 

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

Adult Coverage in SCHIP Is Primarily Accomplished through Waivers: 

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

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

State: Arkansas; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200. 

State: Arizona; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 200 (parents); 100 (childless adults). 

State: Colorado; 
Covered adults: Parents: [Empty]; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200. 

State: Idaho; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 185. 

State: Illinois; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 185. 

State: Michigan; 
Covered adults: Parents: [Empty]; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 35. 

State: Minnesota; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200. 

State: Nevada; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200 (parents); 185 (pregnant women). 

State: New Jersey; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200. 

State: New Mexico; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 200. 

State: Oregon; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: a; 
Percentage of FPL: 185. 

State: Rhode Island; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 185 (parents); 250 (pregnant women). 

State: Virginia; 
Covered adults: Parents: [Empty]; 
Covered adults: Pregnant women: a; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 166. 

State: Wisconsin; 
Covered adults: Parents: a; 
Covered adults: Pregnant women: [Empty]; 
Covered adults: Childless adults[A]: [Empty]; 
Percentage of FPL: 200. 

Sources: GAO analysis of CMS, as of February 2007. 

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

[End of table] 

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

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

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

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

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

[See PDF for image] 

Source: GAO analysis of CMS data. 

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

[End of figure] 

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

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

[See PDF for image] 

Source: GAO analysis of CMS data. 

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

[End of figure] 

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

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

[See PDF for image] 

Source: GAO analysis of CMS data. 

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

[End of figure] 

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

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

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

Some States Consistently Spent More than Their Allotted Funds: 

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

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

[See PDF for image] 

Source: GAO analysis of data obtained from CMS and Congressional 
Research Service (CRS). 

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

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

[End of figure] 

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

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

SCHIP program characteristic: Medicaid expansion or combination 
programs; 
Percentage of states: Shortfall states (n=18): 83; 
Percentage of states: Nonshortfall states (n=32): 53. 

SCHIP program characteristic: Eligibility corridor for children aged 6 
and older that is broader than the median[A]; 
Percentage of states: Shortfall states (n=18): 28; 
Percentage of states: Nonshortfall states (n=32): 16. 

SCHIP program characteristic: Adult coverage in SCHIP under section 
1115 waivers before FY 2007[B]; 
Percentage of states: Shortfall states (n=18): 33; 
Percentage of states: Nonshortfall states (n=32): 19. 

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

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

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

[B] In fiscal year 2007, two nonshortfall states implemented SCHIP- 
funded coverage for adultsæArkansas on October 1, 2006, and Nevada on 
December 1, 2006. 

[End of table] 

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

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

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

Shortfall states[C]:  

State[A]: Arizona; 
Total enrollment: Total: 201,626; 
Total enrollment: Children: 88,005; 
Total enrollment: Adults: 113,621; 
Total enrollment: Adults as a percentage of total[B]: 56. 

State[A]: Illinois; 
Total enrollment: Total: 457,426; 
Total enrollment: Children: 281,432; 
Total enrollment: Adults: 175,994; 
Total enrollment: Adults as a percentage of total[B]: 38. 

State[A]: Minnesota; 
Total enrollment: Total: 40,087; 
Total enrollment: Children: 5,076; 
Total enrollment: Adults: 35,011; 
Total enrollment: Adults as a percentage of total[B]: 87. 

State[A]: New Jersey; 
Total enrollment: Total: 196,418; 
Total enrollment: Children: 129,591; 
Total enrollment: Adults: 66,827; 
Total enrollment: Adults as a percentage of total[B]: 34. 

State[A]: Rhode Island; 
Total enrollment: Total: 51,313; 
Total enrollment: Children: 27,144; 
Total enrollment: Adults: 24,169; 
Total enrollment: Adults as a percentage of total[B]: 47. 

State[A]: Wisconsin; 
Total enrollment: Total: 165,973; 
Total enrollment: Children: 57,165; 
Total enrollment: Adults: 108,808; 
Total enrollment: Adults as a percentage of total[B]: 66. 

 Nonshortfall states[D]: 

State[A]: Colorado; 
Total enrollment: Total: 61,105; 
Total enrollment: Children: 59,530; 
Total enrollment: Adults: 1,575; 
Total enrollment: Adults as a percentage of total[B]: 3. 

State[A]: Michigan; 
Total enrollment: Total: 190,540; 
Total enrollment: Children: 89,257; 
Total enrollment: Adults: 101,283; 
Total enrollment: Adults as a percentage of total[B]: 53. 

State[A]: Oregon; 
Total enrollment: Total: 64,088; 
Total enrollment: Children: 52,722; 
Total enrollment: Adults: 11,366; 
Total enrollment: Adults as a percentage of total[B]: 18. 

Summary: 

Shortfall states (6); 
Total enrollment: Total: 1,112,843; 
Total enrollment: Children: 588,413; 
Total enrollment: Adults: 524,430; 
Total enrollment: Adults as a percentage of total[B]: 55. 

Nonshortfall states (3); 
Total enrollment: Total: 315,733; 
Total enrollment: Children: 201,509; 
Total enrollment: Adults: 114,224; 
Total enrollment: Adults as a percentage of total[B]: 24. 

All states (9); 
Total enrollment: Total: 1,428,576; 
Total enrollment: Children: 789,922; 
Total enrollment: Adults: 638,654; 
Total enrollment: Adults as a percentage of total[B]: 45. 

Source: GAO analysis of CMS data. 

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

[B] Summary data shown in this column are averages of the state 
percentages. 

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

[D] Nonshortfall states are states that were not projected to 
experience such shortfalls in any of the 3 years. 

[End of table] 

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

² Inaccuracies in the CPS-based estimates on which states' allotments 
were based. North Carolina, a shortfall state, offers a case in point. 
In 2004, the state had more low-income children enrolled in the program 
than CPS estimates indicated were eligible. To curb spending, North 
Carolina shifted children through age 5 from the state's separate 
program to a Medicaid expansion, reduced provider payments, and limited 
enrollment growth. 

² Annual funding levels that did not reflect enrollment growth. Iowa, 
another shortfall state, noted that annual allocations provided too 
many funds in the early years of the program and too few in the later 
years. Iowa did not use all its allocations in the first 4 years and 
thus the state's funds were redistributed to other states. 
Subsequently, however, the state has faced shortfalls as its program 
matured. 

² Impact of policies designed to curb or expand program growth. Some 
states have attempted to manage program growth through ongoing 
adjustments to program parameters and outreach efforts. For example, 
when Florida's enrollment exceeded a predetermined target in 2003, the 
state implemented a waiting list and eliminated outreach funding. When 
enrollment began to decline, the state reinstituted open enrollment and 
outreach. Similarly, Texasæcommensurate with its budget constraints and 
projected surplusesæhas tightened and loosened eligibility requirements 
and limited and expanded benefits over time in order to manage 
enrollment and spending. 

Considerations for SCHIP Reauthorization: 

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

² Maintaining flexibility without compromising the goals of SCHIP. The 
federal-state SCHIP partnership has provided an important opportunity 
for innovation on the part of states for the overall benefit of 
children's health. Providing three design choices for states--Medicaid 
expansions, separate child health programs, or a combination of both 
approaches--affords them the opportunity to focus on their own unique 
and specific priorities. For example, expansions of Medicaid offer 
Medicaid's comprehensive benefits and administrative structures and 
ensure children's coverage if states exhaust their SCHIP allotments. 
However, this entitlement status also increases financial risk to 
states. In contrast, SCHIP separate child health programs offer a 
"block grant" approach to covering children. As long as the states meet 
statutory requirements, they have the flexibility to structure coverage 
on an employer-based health plan model and can better control program 
spending than they can with a Medicaid expansion. 

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

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

² Considering the federal financing strategy, including the financial 
sustainability of public commitments. As SCHIP programs have matured, 
states' spending experience can help inform future federal financing 
decisions. CRS testified in July 2006 that 40 states were now spending 
more annually than they received in their annual original SCHIP 
allotments.[Footnote 51] While many of them did not face shortfalls in 
2006 because of available prior-year balances, redistributed funds, and 
the supplemental DRA appropriation, 14 states are currently projected 
to face shortfalls in 2007. With the pool of funds available for 
redistribution virtually exhausted, the continued potential for funding 
shortfalls for many states raises some fundamental questions about 
SCHIP financing. If SCHIP is indeed a capped grant program, to what 
extent does the federal government have a responsibility to address 
shortfalls in individual states, especially those that have chosen to 
expand their programs beyond certain parameters? In contrast, if the 
policy goal is to ensure that states do not exhaust their federal SCHIP 
allotments, by providing for the continuing redistribution of funds or 
additional federal appropriations, does the program begin to take on 
the characteristics of an entitlement similar to Medicaid? What overall 
implications does this have for the federal budget? 

² Assessing issues associated with equity. The 10 years of SCHIP 
experience that states now have could help inform any policy decisions 
with respect to equity as part of the SCHIP reauthorization process. 
Although SCHIP generally targets children in families with incomes at 
or below 200 percent of FPL, 9 states are relatively more restrictive 
with their eligibility levels, while 14 states are more expansive, 
ranging as high as 350 percent of FPL. Given the policy goal of 
reducing the rate of uninsured among the nation's children, to what 
extent should SCHIP funds be targeted to those states that have not yet 
achieved certain minimum coverage levels? Given current and future 
federal fiscal constraints, to what extent should the federal 
government provide federal financial participation above certain 
thresholds? What broader implications might this have for flexibility, 
choice, and equity across state programs? Another consideration is 
whether the formulas used in SCHIP--both the formula to determine the 
federal matching rate and the formula to allocate funds to states--
could be refined to better target funding to certain states for the 
benefit of covering uninsured children. Because the SCHIP formula is 
based on the Medicaid formula for federal matching funds, it has some 
inherent shortcomings that are likely beyond the scope of consideration 
for SCHIP reauthorization.[Footnote 52] 

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

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

GAO Contacts and Acknowledgments: 

For future contacts regarding this testimony, please contact Kathryn G. 
Allen at (202) 512-7118 or at allenk@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this testimony. Carolyn L. Yocom, Assistant Director; 
Nancy Fasciano; Kaycee M. Glavich; Paul B. Gold; JoAnn Martinez- 
Shriver; and Elizabeth T. Morrison made key contributions to this 
statement. 

[End of section] 

Related GAO Products: 

Children's Health Insurance: Recent HHS-OIG Reviews Inform the Congress 
on Improper Enrollment and Reductions in Low-Income, Uninsured 
Children. GAO-06-457R. Washington, D.C.: March 9, 2006. 

21st Century Challenges: Reexamining the Base of the Federal 
Government. GAO-05-325SP. Washington, D.C.: February 2005. 

Medicaid and SCHIP: States' Premium and Cost Sharing Requirements for 
Beneficiaries. GAO-04-491. Washington, D.C.: March 31, 2004. 

SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with 
Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004. 

Medicaid Formula: Differences in Funding Ability among States Often Are 
Widened. GAO-03-620. Washington, D.C.: July 10, 2003. 

Medicaid and SCHIP: States Use Varying Approaches to Monitor Children's 
Access to Care. GAO-03-222. Washington, D.C.: January 14, 2003. 

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002. 

Children's Health Insurance: Inspector General Reviews Should Be 
Expanded to Further Inform the Congress. GAO-02-512. Washington, D.C.: 
March 29, 2002. 

Long-Term Care: Aging Baby Boom Generation Will Increase Demand and 
Burden on Federal and State Budgets. GAO-02-544T. Washington, D.C.: 
March 21, 2002. 

Children's Health Insurance: SCHIP Enrollment and Expenditure 
Information. GAO-01-993R. Washington, D.C.: July 25, 2001. 

Medicaid: Stronger Efforts Needed to Ensure Children's Access to Health 
Screening Services. GAO-01-749. Washington, D.C.: July 13, 2001. 

Medicaid and SCHIP: Comparisons of Outreach, Enrollment Practices, and 
Benefits. GAO/HEHS-00-86. Washington, D.C.: April 14, 2000. 

Children's Health Insurance Program: State Implementation Approaches 
Are Evolving. GAO/HEHS-99-65. Washington, D.C.: May 14, 1999. 

FOOTNOTES 

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

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

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

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

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

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

[7] 42 U.S.C. § 1397jj(b). For example, Alabama covered children aged 
15 to 18 up to 15 percent of FPL, while Washington covered this same 
group up to 200 percent of FPL. Therefore, Alabama would be allowed to 
establish SCHIP eligibility for children in families with incomes up to 
200 percent of FPL, while Washington would be allowed to go as high as 
250 percent FPL. 

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

[9] 42 U.S.C. § 1397dd(e),(f). 

[10] 42 U.S.C. § 1397dd(f). 

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

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

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

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

[15] 42 U.S.C. § 1397ee(c)(3). 

[16] 42 U.S.C. § 1315. 

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

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

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

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

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

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

[23] 42 U.S.C. § 1396a(a)(10)(A)(i)(vii) requires states to provide 
Medicaid coverage to children born after September 30, 1983, aged 6 to 
18. 

[24] 42 U.S.C. § 1396a(a)(10)(A)(i), (iv), (vi), (vii). 

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

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

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

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

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

[30] 42 U.S.C. § 1397cc(e). Federal SCHIP regulations include other 
limits on cost-sharing. For example, states with separate child health 
programs are not permitted to impose any cost-sharing on covered well- 
baby and well-child care services. Additionally, states may require 
cost-sharing for children in families with incomes at or below 150 
percent of FPL, but premium amounts cannot exceed the maximum charges 
that are permitted under Medicaid. States are also prohibited from 
charging cost-sharing to American Indians or Alaska Natives. 42 C.F.R. 
§§ 457.520, et. seq. 

[31] GAO-04-491. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[46] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005); and GAO, 
Long-Term Care: Aging Baby Boom Generation Will Increase Demand and 
Burden on Federal and State Budgets, GAO-02-544T (Washington, D.C.: 
Mar. 21, 2002). 

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

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

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

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

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

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

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