CONGRESS CAN PRESERVE
$1.1 BILLION IN EXPIRING CHILDREN’S HEALTH
INSURANCE FUNDS AND HELP AVERT SCHIP CUTBACKS
by Edwin Park and Matt Broaddus
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Before Congress adjourns in October, it has the opportunity to enact bipartisan legislation to extend the availability of nearly $1.1 billion in federal funds for the State Children’s Health Insurance Program (SCHIP) that are scheduled to expire and revert to the Treasury after September 30. Such legislation would help lessen or defer looming cuts in children’s health insurance enrollment by providing more adequate federal funding to states that will face federal SCHIP funding shortfalls over the next several years.
State budget deficits have taken a toll on the SCHIP program. According to a recent Kaiser Commission survey, SCHIP enrollment fell for the first time in 2003, as states instituted SCHIP eligibility cuts, capped enrollment and raised premiums.
[1] State budgets are now beginning to recover in many states, and states should be better able to fund their share of SCHIP costs. But a number of states now face the prospect of receiving insufficient federal funding in coming years to sustain their existing SCHIP programs. Under current law, 18 states are projected to have insufficient federal funding for their SCHIP programs between now and fiscal year 2007. As a result, the number of children insured through SCHIP is expected to fall by more than 200,000 by 2007.Bipartisan legislation introduced in July in the Senate by Senators Jay Rockefeller (D-WV) and Lincoln Chafee (R-RI) and in the House by Representatives by John Dingell (D-MI) and Joe Barton (R-TX), the Ranking Member and Chairman, respectively, of the House Energy and Commerce Committee (which oversees SCHIP), would preserve nearly $1.1 billion in federal SCHIP funds that are slated to expire and revert to the federal Treasury on September 30.
[2] This legislation, which the National Governors Association has endorsed,[3] would target the large majority of these funds to the states that need the funds the most to sustain their children’s health insurance programs. The legislation (S. 2759 in the Senate and H.R. 4936 in the House) also would ensure that no other federal SCHIP funds expire and revert to the Treasury through the end of 2007. Finally, the legislation would extend current rules governing how federal SCHIP funds that remain unused after three years by the state to which they were originally allocated are to be redistributed to other states.Extending these expiring funds is an essential step. Ultimately, Congress will need to develop a more comprehensive SCHIP financing solution; the legislation discussed here would limit or delay, but not entirely eliminate, the federal funding shortfalls that a number of states eventually will face. This legislation does not, and is not intended to, ensure that every state has sufficient federal funding to sustain (and where possible to grow) its SCHIP program over the longer term. Those federal SCHIP funding issues can be addressed more adequately when Congress considers reauthorizing the SCHIP program in 2007.
Looming Federal SCHIP Funding Shortfalls
Under current law, a number of states
are expected to have insufficient federal funding to sustain their SCHIP
programs. Using the state-by-state SCHIP financing model originally
designed by the Office of the Actuary at the Centers for Medicare and
Medicaid Services in the U.S. Department of
These expected federal funding shortfalls are the result of several factors.
- Annual expenditures of federal SCHIP funds now exceed annual federal SCHIP allocations. After SCHIP funds were first made available in fiscal year 1998, it took several years for states to develop and fully implement their SCHIP programs. As a result, annual federal funding exceeded states’ needs for these funds in the early years of the program from 1998 through 2001, and states developed reserves of unspent SCHIP funds from those years. Since 2002, however, the amount of federal SCHIP funds expended each year has exceeded the federal SCHIP funding being made available for that year; the additional costs have been financed out of the reserves of prior-year funds (see Figure 1). With health care costs continuing the rise, annual SCHIP expenditures are projected to continue to exceed federal SCHIP allotments in the years ahead. But the reserves of unspent funds from prior years are either being exhausted or are slated to revert to the federal Treasury. (See bullet below.)
- Annual federal SCHIP funding was reduced 26 percent, starting in 2002. Under the terms of the 1997 Balanced Budget Act, which created SCHIP, in order to meet overall deficit reduction goals for the out-years, total federal funding for SCHIP was reduced by more than $1 billion — or about 26 percent — in fiscal year 2002, as compared to the amount of funding provided each year from 1998-2001. Federal funding remains at this reduced level through fiscal year 2004. (See Figure 2.) During a period in which SCHIP costs have continued to grow, federal SCHIP funding has declined by more than one-quarter.
- The unspent SCHIP funds from earlier years have provided an essential SCHIP funding reserve, but those funds are being expended or are expiring. Because billions of dollars in SCHIP funds allocated to states in the early years of the SCHIP program remained available, states have been able to draw on those surplus funds in recent years to help finance their SCHIP programs. Those unspent funds, however, are being exhausted. Only nine states are expected to have unspent funds from fiscal years 1998-2000 remaining at the end of this fiscal year. (It is the SCHIP funds in these nine states, totaling nearly $1.1 billion, that are scheduled to expire and revert to the Treasury just a few weeks from now, on September 30. See Table 2.)
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Most states will qualify over time for redistributed SCHIP funds, but the pool of funds available for redistribution is dwindling. Another reason that up until now, all states have had sufficient federal funding to sustain their SCHIP programs is that the states that fully expended their SCHIP allotments could qualify for additional SCHIP funds, consisting of unspent funds redistributed from other states. Under SCHIP program rules, states have three year to spend their annual SCHIP allotments. Any funds remaining unspent at the end of the third year are reallocated to states that have fully used their allotments.
Because many states initially did not fully expend their allotments for the early years of the program, a relatively small number of states initially qualified to receive additional SCHIP funds through this redistribution process. That trend is now reversing, however, as more states fully expend their annual allotments and need redistributed funds to maintain their SCHIP programs. In fiscal year 2004, some 19 states qualified for the nearly $1.75 billion in unspent fiscal year 2001 funds that were redistributed. In fiscal year 2005, some 30 states are projected to qualify under current law for an anticipated redistribution of about $624 million in unspent fiscal year 2002 funds. By 2007, a projected 42 states will qualify for redistributed funds. (See Figure 3 and Figure 4.) But as more states fully expend their allotments and qualify for — and need — additional funds to maintain their programs, the amount of unspent funds available for redistribution will dwindle. In 2007, when 42 states are expected to qualify for redistributed funds, only $153 million is projected to be available for redistribution. (See Figure 4.) As a result, the amount of redistributed funds states will receive will increasingly fall short of the amounts that states will need to maintain their programs. As a result, more and more states will have to shrink their programs and to insure fewer low-income children.
