Will Congress Patch Up Kids’ Coverage?

States facing S-CHIP shortfalls

Federal S-CHIP shortfall (millions) Shortfall after regular redistribution of leftover funds (millions) Alaska .4 .3 Georgia .6 .1 Illinois Iowa Louisiana .4 .9 Maine sh.7 sh.6 Maryland .3 Massachusetts .9 Minnesota .3 .5 Mississippi .7 .9 Missouri .6 Nebraska .8 .4 New Jersey .7 .5 North Carolina .7 .6 Rhode Island .3 South Dakota .9 .6 Wisconsin .8

Source: Center on Budget and Policy Priorities analysis

States want the lame-duck Congress meeting next week to find a way to patch up a major health insurance program for children before the lawmakers leave Washington, D.C. But timing and the big price tag of such a fix may stand in the way.

An estimated 17 states could run out of money for the State Children’s Health Insurance Program (S-CHIP) by next October, unless Congress acts. But shoring up the program for just another year could cost the federal government more than $920 million.

Congress reconvenes on Tuesday (Dec. 5) and could wrap up business as soon as Thursday.

If Congress does nothing this month, it could take up the issue when it comes back in January. But even then, there’s no guarantee that Congress will find the money for a fix.

“It looks like it’s going to be very hard with only a few days in the lame-duck session to get this package passed,” said Jill Kozeny, a spokeswoman for Senate Finance Committee Chairman Chuck Grassley (R-Iowa).

The National Governors Association is pushing for immediate action, along with dozens of medical organizations and advocacy groups, including the American Pediatrics Society, Catholic Charities, Families USA, the American Nurses Association and the American Federation of State, County and Municipal Employees.

They have pressed Congress to address the issue before adjourning, rather than waiting for the next session to convene in January. These organizations remain concerned that Congress will wait to address the shortfall until it figures out a new funding scheme for the entire program.

Meanwhile,officials from several states say delaying action would make it difficult for governors, legislators and administrators to plan for the future or just keep their programs running.

“Failure to fund these shortfalls will cause some states to reduce or cease health care coverage for children. We cannot allow that to happen,” said Ann Kohler, the director of New Jersey’s Division of Medical Assistance and Health Services, at a congressional hearing last month.

S-CHIP covers 4 million children nationwide and cost $6 billion in 2004. It is a companion program to Medicaid, the joint venture between states and the federal government that provides health insurance to the poor.

Like Medicaid, S-CHIP is paid for by both state and federal governments. But the feds pick up an even bigger share of the tab in the children’s program. And states have far more leeway in S-CHIP to decide what benefits to offer and how much to charge enrollees for premiums or co-payments.

Medicaid is an open-ended entitlement, which means that the federal government will match state spending no matter how much the states spend. But S-CHIP is a block grant to the states, which means that the federal government is only supposed to match state spending up until a predetermined ceiling.

That means individual states can run out of federal money, even if there’s extra money available to other states.

If no changes are made to the formula this year, Illinois, New Jersey, Massachusetts and Georgia would face the biggest shortfalls, with each expected to be short more than $100 million by next October. But other states would be left scrambling, too. Rhode Island, for instance, would be short $43 million out of the $63.4 million it’s projected to spend.

“It really penalizes the states that have been the most aggressive to sign up (children) and make sure children don’t go without insurance if you don’t do the reallocation,” said Anne Marie Murphy, Illinois’ Medicaid director.

Without federal intervention, the 17 states would have to find state money to fill the gap, reduce benefits or curb enrollment.

The impact could vary widely by state. Although Illinois faces an estimated shortfall of $270 million – the largest of any state – it has budgeted enough money to make up for the loss, Murphy said.

But Georgia officials are far more worried. They anticipate the state will run out of money for its Peach Care program by March unless Congress acts first. And if Congress decides to give out less money than the states anticipate, it should act quickly to give states time to plan, said Georgia Medicaid Director Mark Trail.

The longer Congress waits, the “more draconian” the cuts Georgia would have to make, Trail said. As an example, he said it could make the difference between scaling back dental and vision benefits and cutting off enrollment.

Georgia officials aren’t ruling out any option yet. Their choices range from moving kids in Peach Care into Medicaid, which operates as a separate program in Georgia, to shutting down the Peach Care program, which covers 260,000 kids, entirely.

For many of the “shortfall states” spending more than their annual S-CHIP allocation is nothing new. Congress has routinely redirected money not spent by other states to states that spent too much.

But as more states expand their programs, there’s less money left to split up. And the line of states waiting for a slice of the leftovers keeps growing.

So for this federal fiscal year, which ends Sept. 30, 2007, only 13 states and the District of Columbia are expected to spend less than their federal allocation. Twenty states could dip into money they haven’t spent from earlier years. That leaves the 17 states still facing shortfalls.

Congress has confronted similar situations before. As part of the Deficit Reduction Act signed into law earlier this year, it allocated $283 million to help 12 states that overspent their allocations last fiscal year.

But the fix for the current fiscal year poses new problems. Most importantly, Congress faces reauthorizing the entire S-CHIP program in 2007. While the program remains popular on Capitol Hill and in statehouses, the recurring financial shortfalls will need to be addressed when the program is renewed.

States worry that Congress will wait to address the shortfalls until it figures out how to overhaul S-CHIP’s funding formulas as part of next year’s renewal efforts.