October 10, 2007
SENATE REPUBLICAN LEADERSHIP TO
SEEK RECONSIDERATION OF SCHIP PLAN THAT WOULD FAIL TO MAKE PROGRESS IN COVERING
UNINSURED CHILDREN
By
Edwin Park and
Matthew Broaddus
Senator Mitch McConnell, the Senate Minority
Leader, plans to ask for reconsideration of the SCHIP legislation that he and
Senate Minority Whip Trent Lott offered as an alternative during Senate floor
debate on SCHIP on August 1. The McConnell-Lott proposal was defeated at that
time on a 61-35 vote.[1]
In contrast to the bipartisan SCHIP bill the
Senate and House approved last month but the President vetoed, which the
Congressional Budget Office estimates would cover 3.8 million children who
otherwise would be uninsured, the plan that Senator McConnell intends to offer
again would not make any progress in reducing the number of uninsured low-income
children.
The SCHIP Provisions
The Congressional Budget Office estimates that if
SCHIP funding remains frozen at the current level of $5 billion per year, states
will face a federal funding shortfall of $13.4 billion over the next five years
(fiscal years 2008-2012).[2]
CBO estimates that by 2012, some 35 states would have insufficient federal
funding to maintain their current programs, and the number of children and
pregnant women enrolled in an average month would fall well below today’s
level. CBO also estimates that the bipartisan SCHIP legislation that the Senate
and House approved would fully avert these shortfalls and thereby prevent
700,000 children from losing their SCHIP coverage and becoming uninsured by
2012. (The bipartisan legislation also would cover an additional 3.1 million
children who would otherwise be uninsured, so that a total of 3.8 million
children who otherwise would lack insurance would gain coverage by 2012.)
CBO estimates of the original Lott-McConnell
amendment from August show that only a net of 700,000 children who would
otherwise be uninsured would be covered in 2012, which is the number of children
just from ensuring that, in the aggregate, states can maintain their existing
SCHIP programs.[3]
(It is likely, moreover, that updated CBO estimates of the McConnell legislation
would find it would produce net coverage gains smaller than the gains
simply from maintaining states’ current SCHIP programs.[4])
The McConnell SCHIP plan produces these
disappointing children’s coverage results because it contains the following
features:
1. The plan would not provide states with
sufficient funding to maintain their existing SCHIP programs.
The plan would provide an additional $13.9 billion
over five years above current SCHIP funding levels, enough in the aggregate to
address the five-year SCHIP shortfall estimated by the Congressional Budget
Office, but only if perfectly targeted. Because some of these funds
would be inefficiently distributed among states, the plan would leave federal
funding shortfalls in more than one-third of the states by 2012. These states
would be at risk of having to institute cuts in their SCHIP programs and reduce
the number of children they cover.[5]
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The plan would use a formula to allocate SCHIP
funds among the states under which a portion of the bill’s $13.9 billion in
additional SCHIP funding would be directed to states that would not need the
funds, even as other states with greater funding needs were given insufficient
funds to maintain their current caseloads.
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Such mistargeting is not uncommon under
formula-driven block grants, but the plan would magnify the adverse effects of
the mistargeting by changing current law to prohibit the redistribution
of unspent funds from states that leave funds unused to states that need
them. Currently, funds provided to a state that remain unspent after three
years are redistributed to other states. The McConnell plan would reduce the
period during which funds are available to two years, starting with the 2008
SCHIP allotments, but prohibit the redistribution of the funds that remain
after the two-year period. As a result, the plan would result in an estimated
$714 million in unspent funds expiring and reverting to the U.S. Treasury over
the next five years, even as numerous states were at risk of having to cut
their programs due to a lack of adequate federal funding.
The net result of these features of the plan
would be an estimated total federal funding shortfall of $7.2 billion over the
next five years, according to our estimates. By 2012, some 20 states would have
inadequate federal SCHIP funding to sustain their current programs. The
shortfall would reach $2.3 billion in 2012 alone.
2. The plan sharply restricts existing state
flexibility in covering children and parents.
Throughout the SCHIP program’s history, states
have enjoyed flexibility to provide SCHIP coverage to children in modest-income
families — that is, families with incomes above 200 percent of the poverty line
(now about $34,300 for a family of three). Currently, 24 states, including the
District of Columbia, cover children above 200 percent of the poverty line or
are in the process of implementing such an expansion.
Eleven additional states use their flexibility
under SCHIP on how to measure income to disregard income used for certain
purposes, such as child care costs, and as a result enable some children with
gross incomes above 200 percent of the poverty line to qualify.
The McConnell legislation would effectively
prohibit all of these states from continuing to cover SCHIP-eligible children in
families with gross incomes above 200 percent of the poverty line. Under the
plan, “income disregards” would be eliminated. In addition, states would only
be able to claim the lower federal Medicaid matching rate (which averages 57
percent, compared to the federal SCHIP matching rate, which averages 70 percent)
for children in families with incomes above 200 percent of the poverty line who
are already enrolled. States would be prohibited from using any SCHIP
funds for new children who have gross incomes above 200 percent of the
poverty line, including children who qualify under their state’s current SCHIP
income limits. Thus, as children who are currently enrolled cycle out of the
program (as they age out, their incomes rise, or they become ineligible for
other reasons), states would be barred from replacing them with newly eligible
children. This means that coverage of children with gross incomes above 200
percent of the poverty line in these 35 states would be entirely eliminated over
time.
This would create a risk that substantial numbers
of children in these states who would otherwise be eligible and enrolled in
SCHIP would end up without health insurance. In fact, the CBO estimates of the
original Lott-McConnell proposal indicate that about 200,000 children who would
otherwise be covered through SCHIP in 2012 would instead be uninsured, due to
these restrictions.
The plan also would effectively prohibit the
relatively small number of states now using SCHIP funds to provide health
insurance to some low-income parents of children enrolled in Medicaid or
SCHIP from continuing to do so. (These states provide such coverage under
waivers approved by the federal government — in the overwhelming majority of
cases, by the Bush Administration.) As with the plan’s treatment of children,
states would be able to claim the lower Medicaid matching rate for parents who
are already enrolled, but would not be able to use any SCHIP funds for new
parents. As parents who are currently enrolled leave the program, states would
be barred from replacing them with newly eligible parents, so over time, all
coverage of low-income parents through SCHIP would end.
Various studies have found that covering children
and their parents together results in a larger share of the eligible children
being enrolled and receiving needed health care services. In response to a
question posed during the Senate Finance Committee’s consideration of SCHIP
legislation on July 19, Congressional Budget Office director Peter Orszag
explained that “restricting eligibility to parents does have an effect on take
up among children…. for every 3 or 4 parents you lose, you might lose 1 or 2
kids, for example.”[6]
As a consequence, not only would SCHIP coverage of parents be eliminated in
these states, leaving many low-income parents uninsured, but some of the
eligible children of these parents likely would end up unenrolled, and
uninsured, as well. (The bipartisan SCHIP bill passed by the Senate and House
also contains provisions to restrict parent enrollment, by barring any new
waivers from being granted to states to cover parents and by reducing the
federal matching rate for parent coverage in states that already have waivers to
cover parents under SCHIP. The bipartisan bill’s parent provisions are less
severe, however, than those in the McConnell legislation.[7])
3. The McConnell plan contains no new tools or
financial incentives for states to enroll more eligible but uninsured children.
Peer-reviewed academic studies have estimated
that there are between 5 million and 6 million low-income children who are
eligible for Medicaid or SCHIP but are not enrolled and are uninsured. (The
Congressional Budget Office concurs that this is the best estimate.[8])
Both the bipartisan children’s health legislation approved by the Senate and
House include new tools to help states find and enroll more of these eligible,
uninsured low-income children.
For example, the bipartisan bill includes an
“Express Lane” state option to allow SCHIP and Medicaid agencies to use income
information collected by other benefit programs to streamline the enrollment
process. The bipartisan bill also would provide financial incentives for states
to increase enrollment among eligible low-income children, particularly poor
uninsured children who are eligible for Medicaid. These incentives are a
primary reason that CBO estimates the bipartisan bill would lead to 3.8 million
uninsured children gaining coverage. Of these children, 1.7 million would be
uninsured children who are eligible for Medicaid, many of whom live below the
poverty line.
McConnell Legislation Would
Reduce Benefits and Increase Cost-Sharing for SCHIP-Eligible Children with
Access to Employer-Based Coverage
Under current law, states have the option to
subsidize private insurance for SCHIP-eligible children whose families have
access to employer-sponsored health insurance, if doing so would be
cost-effective and the children have access to the same benefits and do not
incur higher cost-sharing charges. The bipartisan SCHIP bill passed by the
House and Senate includes additional provisions to make it easier for states
to adopt this “premium assistance” option.
The McConnell legislation, however, would
modify current law and likely make some children now on SCHIP worse off.
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States would no longer be required to provide
supplemental “wrap-around” coverage if the employer plan does not provide
benefits equal to those under the SCHIP plan and/or if the employer plan
imposes higher co-payments than are charged under the SCHIP plan.
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States would explicitly be given the option to
subsidize high-deductible health insurance plans attached to Health
Savings Accounts offered by employers, even though low-income families
whose children are eligible for SCHIP are unlikely to be able to afford
high deductibles of $2,200 or more before their children receive any
benefits.
-
States could make
“premium assistance” mandatory, even if SCHIP-eligible children ended up
receiving fewer benefits and facing higher co-payments than they would if
they received SCHIP coverage directly.
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The McConnell legislation, by contrast, would not
provide any new enrollment tools or financial incentives for states. The
plan would merely provide a modest amount of outreach funding — $400 million
over five years — to states and other organizations to enroll children who are
eligible for SCHIP but are uninsured. This outreach funding appears to ignore
uninsured children who are eligible for Medicaid, even though two-thirds
of the eligible but uninsured low-income children are children who are eligible
for Medicaid, and they are the poorest uninsured children in the United States.
The Medicaid “Offset” Provisions
Medicaid administrative costs
constitute only about 5 percent of total program costs, well below the levels
found in private insurance plans. To offset the costs of its SCHIP provisions,
however, the McConnell legislation includes two provisions that would
substantially reduce federal support for the administrative costs that states
incur in operating Medicaid.
While the federal government
generally pays 50 percent of most costs that states incur in administering the
program, certain administrative activities are eligible for a higher matching
rate. The federal government pays 75 percent of the operational costs related
to Medicaid management information systems, the inspection and certification of
nursing homes, the operation of state Medicaid fraud and abuse control units,
and the performance of utilization and quality reviews of hospitals and managed
care plans. The federal government also pays 100 percent of the costs of
operating an immigration status verification system for use in determining
Medicaid eligibility. The McConnell plan would reduce federal support for these
costs, weakening states’ ability to devote adequate resources to limiting fraud
and abuse, guaranteeing the quality of care, and accurately determining
eligibility for Medicaid. In examining the original Lott-McConnell amendment,
CBO determined that this provision would reduce federal Medicaid matching
payments to states by $8.4 billion over five years.
The McConnell plan also would
reduce federal Medicaid matching payments to 46 states that historically have
pooled the administrative costs of making eligibility determinations for
families receiving Medicaid, food stamps and welfare. CBO estimates this
provision would reduce federal Medicaid matching payments to states by an
additional $1.8 billion over five years.
By limiting federal support for
states’ Medicaid administrative costs, the McConnell plan would likely weaken
efforts to encourage states to seek out and enroll more of the uninsured
children who are eligible for Medicaid, most of whom are children living below
the poverty line. (State outreach and enrollment efforts are financed as
Medicaid administrative costs.) Unlike the bipartisan SCHIP bill, which
provides states with new policy tools and fiscal incentives to encourage them to
enroll more eligible children in Medicaid and SCHIP, the McConnell legislation
moves in the opposite direction, weakening state efforts to enroll the
lowest-income uninsured children.
Conclusion
The McConnell legislation is seriously flawed.
It targets poorly the SCHIP funds that it provides, and would cause substantial
funding to revert unspent to the Treasury even as some states were being
compelled to cut back their programs due a to lack of adequate federal
resources. It would restrict state flexibility in covering children and require
many states to make their eligibility criteria considerably more restrictive and
thereby to disqualify many children (and some parents) who now are covered. It
also would fail to provide tools or financial incentives to help states reach
and enroll the substantial numbers of low-income children who are eligible for
SCHIP or Medicaid but remain uninsured.
In addition, it includes harmful provisions that
would shift Medicaid costs to states and likely undermine ongoing efforts by
states to enroll more of the uninsured low-income children who are eligible for
Medicaid. As a result, unlike the bipartisan SCHIP reauthorization bill that
the Senate and the House approved — which would preserve coverage for 700,000
SCHIP children who would otherwise become uninsured due to inadequate federal
funding, and also cover an additional 3.1 million uninsured children by 2012 —
the McConnell plan would at best merely allow states as a group to maintain
their existing SCHIP programs (and cause some states to have to cut their
programs). It would fail to make any progress in covering more of the nation’s
low-income children.
End Notes:
[1] The SCHIP provisions in the current McConnell proposal (S.
2152) are identical to those in the Lott-McConnell amendment (S. Amdt. 2593)
offered on August 1 as a substitute to the original Senate SCHIP bill. The new
version omits several non-SCHIP provisions that would preempt state health
insurance laws and expand Health Savings Accounts.
[2] See Congressional Budget Office, “Fact Sheet for CBO’s March
2007 Baseline: State Children’s Health Insurance Program,” February 23, 2007 and
Edwin Park, “CBO Estimates That States Will Face Federal SCHIP Shortfalls of
$13.4 Billion Over Next Five Years,” Center on Budget and Policy Priorities,
February 26, 2007. Because of substantially higher SCHIP spending projections
reported by states in the most recent SCHIP expenditure data from August 2007,
the total federal funding shortfall would likely be significantly larger than
what CBO previously estimated in March 2007.
[3] Congressional Budget Office, “Preliminary CBO Estimate of
Changes in SCHIP and Medicaid Enrollment under the Kids First Act of 2007,”
August 1, 2007.
[4] Since August, CBO has reduced its estimate of the number of
uninsured children who gain coverage when states are provided sufficient funding
to maintain their current programs from 800,000 to 700,000. When it originally
estimated the enrollment effects of the Lott-McConnell plan in August, CBO
estimated a coverage gain of 700,000 — or 100,000 short of the 800,000 who would
be covered if current state SCHIP programs are maintained. It is likely that
CBO would now reestimate a coverage gain of 600,000 under the McConnell
legislation, which would then continue to fall short by 100,000 children of the
gains simply from maintaining current SCHIP programs.
[5] These estimates come from the Center on Budget and Policy
Priorities’ SCHIP expenditure model, which is based on the model developed by
the actuaries at the Center for Medicare and Medicaid Services at the U.S.
Department of Health and Human Services. The estimates measure how short states
would fall of the funding they would need to maintain their current SCHIP
programs, with current state participation rates and eligibility criteria.
[6] See also Leighton Ku, “Collateral Damage: Children Can Lose
Coverage When Their Parents Lose Health Insurance,” Center on Budget and Policy
Priorities, September 17, 2007.
[7] The legislation approved by the Senate and the House would
move the coverage of parents under existing SCHIP waivers outside of SCHIP in
2010, and lower the federal matching rate for covering such parents starting in
2011. It would set the reduced matching rate halfway between the SCHIP and
Medicaid matching rates. States would have to meet certain benchmarks in their
children’s coverage to qualify for this matching rate.
[8] Letter from Peter Orszag to Senator Max Baucus, Chairman of
the Senate Finance Committee, Congressional Budget Office, July 24, 2007. |