Revised, August 28, 1997

Overview of the New Child Health Block Grant
by Cindy Mann and Jocelyn Guyer

 

The Balanced Budget Act of 1997 includes a child health block grant that offers states $20.3 billion(1) in new federal funding over the next five years to provide "child health assistance to uninsured, low-income children in an effective and efficient manner that is coordinated with other sources of health benefits coverage for children." The law allows states to use these funds to expand coverage for children under the Medicaid program (at an "enhanced" federal Medicaid matching rate) or to create or expand separate child health insurance programs. States that opt to spend their funds in separate child health insurance programs will have wide latitude in determining eligibility criteria but must comply with federal standards relating to the benefits offered and the cost-sharing requirements imposed. Under either the Medicaid or the separate state program option, states must spend some of their own funds as a condition of receiving federal funds.

The choices states make with respect to these block grant funds will largely determine whether this new federal initiative realizes the goal of significantly reducing the number of uninsured children by providing children with meaningful, affordable coverage. This paper outlines the basic structure of the new initiative but does not discuss in detail many of the issues that states will confront when deciding how to use their new federal funds.(2),(3) The array of choices available to each state and the implications of those choices will be shaped to a significant extent by the state's current approaches to providing health care to low-income children through Medicaid, the existing Maternal and Child Health Block Grant program, and other public or private initiatives.

 

Initial Implementation

States can begin to receive their block grant funds as early as October 1, 1997, the beginning of federal fiscal year 1998. However, if a state does not use all of its block grant funds in any given year, including fiscal year 1998, it may spend the funds in the two succeeding fiscal years. The opportunity to "carry over" federal funds means that states are not at risk of losing any federal dollars if they do not begin full implementation on October 1, 1997.

To begin receiving block grant funds, a state must submit to the Secretary of Health and Human Services (HHS) a child health plan describing how it intends to spend its block grant funds.(4) Among other things, the child health plan must describe the state's eligibility standards and its system for establishing eligibility, the methods of delivering services and coverage, and how the state will undertake outreach and coordinate its use of block grant funds with existing Medicaid coverage. The Secretary must approve the child health plan to assure that it meets the requirements of the new law, although a plan is deemed approved if the Secretary fails to notify the state otherwise within 90 days of receipt.

 

Allowable Uses of Block Grant Funds

Some earlier versions of the child health block grant would have allowed states to use some or all of their federal block grant funds to pay for "direct services" to children (i.e. the direct purchase of health care services from providers), as well as to provide health insurance coverage. The "direct services" option would permit states to use federal child health dollars for a range of activities, including some that would do little to reduce the number of uninsured children or expand children's access to health care.(5) The final bill limits sharply the extent to which states can divert their child health funds to purposes other than providing coverage to children.

In general, the amount of block grant funds a state spends for purposes other than providing coverage may not exceed 10 percent of the amount it expends for coverage.(6) The funds spent for purposes other than coverage may be used for administrative costs and certain other broadly defined activities including outreach, "child health assistance" other than insurance coverage, and health services initiatives for "improving the health of children."

The law allows the Secretary of Health and Human Services to waive the 10 percent limitation on expenditures for purposes other than health insurance coverage if a state can demonstrate that it can meet three conditions:

Until the Secretary offers clarification of how she will interpret these criteria, it is difficult to assess the significance of the waiver option.

 

Options for Providing Insurance Coverage

The law permits states to use their block grant funds to expand coverage under the Medicaid program, to provide coverage under a separate state child health insurance program, or both. Under both the Medicaid expansion and separate state program option, a state must spend some of its own funds as a condition of drawing down the new federal funds. Regardless of whether a state elects the Medicaid or the separate state insurance program option (or a combination of both), it generally can use the funds to provide coverage only to children with family income below 200 percent of the federal poverty line.(8), (9)

Medicaid Option

Even prior to enactment of the new child health block grant, states had the option to expand Medicaid coverage to children beyond federal minimum requirements. If they exercised this option, the federal government would finance anywhere from 50 percent to 80 percent of the cost of such an expansion, with the exact portion picked up by the federal government determined by a state's "regular" Medicaid matching rate. The Balanced Budget Act of 1997 allows states to use their child health funds to implement an expansion of Medicaid coverage at an "enhanced" matching rate. Under the new enhanced matching rate option, the federal government will pick a greater share of the cost of an expansion as compared to a "regular" Medicaid expansion for children.(10) (The enhanced matching rate structure is described in more detail later in this paper).

If a state opts to expand coverage under the Medicaid program, it would do so by increasing its income eligibility standards or otherwise expanding eligibility to cover children who do not qualify for Medicaid under state rules in effect as of April 15, 1997.(11) For example, under Medicaid law, all states must cover children under age six with incomes up to 133 percent of the poverty line. A state that as of April 15, 1997 has not expanded Medicaid coverage for older children to the same income level could do so at an enhanced federal matching rate using the new child health funds. Or, it could receive an enhanced federal matching rate for expanding coverage to all children under six with incomes up to 150 percent of the poverty line.

If a state uses some or all of its block grant funds to cover more children under the Medicaid program, Medicaid rules relating to entitlement, benefits, cost-sharing and delivery of services would apply to the newly covered group of children, just as these rules apply to other children served under Medicaid. A Medicaid expansion, therefore, assures children a broad range of benefits and other protections provided under federal Medicaid law. A Medicaid expansion also makes it easier for states to take advantage of the substantial purchasing power of their existing Medicaid programs. Even though the child health block grant represents a significant new source of funding for children's health care, a state's allocation is not likely to give the state the same leverage to negotiate rates with providers and managed care companies as it has under its Medicaid program unless the state uses its allocation to expand Medicaid.(12) A state that elects to expand Medicaid also will avoid the need to establish a new program that duplicates many of the functions carried out by the state's existing Medicaid program, including enrollment, management of contracts with participating providers and health plans, and quality assurance.

Separate State Insurance Program Option

States also can use their block grant funds to establish or expand a separate child health insurance program. Under a separate state insurance program, a state would have broad flexibility to determine whether to operate an insurance program of its own or whether to purchase insurance coverage for children in the private marketplace. Regardless of the form a state's separate program takes, states must ensure that the coverage it provides conforms with the benefit and cost-sharing rules established under the new law (see below).

In part to prevent states from substituting coverage under a separate state insurance program for existing Medicaid coverage, the law denies the new child health funds to states that lower their Medicaid eligibility standards for children below their June 1, 1997 levels.

Beyond this restriction and the income limits noted above, states that opt to establish or expand separate state programs have very broad flexibility to determine which children to cover. States may distinguish among children based on age, the length of time they have resided in the state, and whether they have access to other health coverage. States also may limit coverage to children residing in certain parts of the state and impose a time limit on the coverage provided. States may not, however, impose different eligibility standards based on diagnosis nor may they deny eligibility based on a preexisting medical condition. The law specifically allows states to consider disability status when establishing eligibility standards "so long as any standard relating to such status does not restrict eligibility." For example, a state could allow children with disabilities to receive assistance at higher income levels than children without disabilities, but it could not set a lower income limit for disabled children than for other children. Since the block grant does not create an entitlement to coverage for any child served under a separate state program, states can limit enrollment to a certain number of children and create waiting lists if more children apply.(13) The waiting lists can vary from county to county within a state.

The law also gives states full responsibility for determining how to administer a separate state program and how to deliver care. For example, the federal law leaves states to contend with the issue of which agency within the state should administer the program. On an even more basic level, it allows states to decide whether the program will be administered by a state agency or by one or more private organizations. Similarly, a state electing the separate state program option must decide which providers will be allowed to participate in the program, what delivery system it will use for providing care, and how to monitor the quality of care that is provided.(14), (15)

States that use their block grant funds to cover children under separate child health programs must establish enrollment systems that are coordinated with Medicaid and other sources of health coverage for children. The law requires states that elect the separate state program option to screen children during the application process to determine if they are eligible for Medicaid and to enroll those who are eligible in the Medicaid program.

 

Distribution of Funds

The block grant offers states $20.3 billion in federal funds over the first five years of the new program (fiscal year 1998 through fiscal year 2002) and an additional $19.4 billion over the second five years of the budget period (fiscal year 2003 through fiscal year 2007). The amount of federal funding available for distribution to the states in any given year varies over time. For each of the first four years, the amount available for distribution to the states is $4.275 billion. In fiscal year 2002, however, the total allotment drops to $3.15 billion. It remains at $3.15 billion for fiscal years 2003 and 2004 and then jumps back up to $4.05 billion in fiscal year 2005 and fiscal year 2006. Finally, in fiscal year 2007, it reaches $5 billion.

Formula for distributing the block grant funds

States will receive federal block grant payments on a matching basis, up to a limit established for each state based on an allocation formula in the law. For the first three years of the block grant (i.e., fiscal years 1998 through 2000), each state's allocation will be based on its share of the nation's uninsured children with family incomes below 200 percent of the federal poverty line. Beginning in 2001, the formula relies partly on the state's share of uninsured children under 200 percent of the poverty line and partly on the state's share of all children with family incomes below 200 percent of the poverty line. The allocations are adjusted to reflect regional variations in health care costs.

The General Accounting Office's (GAO) estimate of each state's allocation is set out in Table 1. The responsibility for determining the final allocation lies with the Secretary of Health and Human Services.

State matching requirement

Federal block grant funds will be distributed to states on a "matching" basis. In other words, a state must spend some of its own funds as a condition of receiving the federal child health block grant funds.(16) The level of state spending required is based on an "enhanced" federal matching rate that assures the federal government will pick up anywhere from 65 percent to 85 percent of the cost of a state's Medicaid expansion or its state health insurance program, up to the extent of the state's block grant allotment.

Each state's "enhanced" matching rate is equal to its "regular" federal Medicaid matching rate plus 30 percent of the difference between its regular Medicaid matching rate and 100 percent, except that the enhanced matching rate cannot exceed 85 percent. In essence, the enhanced matching rate reduces by 30 percent a state's share of the cost of financing children's health insurance, as compared to the state's share of health care costs under the basic Medicaid matching system. For example, a state with a regular federal Medicaid matching rate of 50 percent would have an enhanced matching rate of 65 percent under the block grant. Similarly, a state with a regular federal Medicaid matching rate of 60 percent would receive an enhanced matching rate of 72 percent under the child health block grant. Table 2 shows each state's enhanced matching rate for fiscal year 1998.(17)

The same matching requirements apply regardless of whether a state uses its child health funds to create or expand a separate state program or to expand coverage under Medicaid.(18) Once a state has used up its child health block grant allocation, however, it will be eligible for additional federal matching funds at the regular matching rate — as opposed to the enhanced matching rate — if it has elected the Medicaid expansion option. In contrast, a state that elects to put its block grant funds into a separate state insurance program cannot receive additional federal funds for the cost of covering more children under this program once the state has exhausted its child health block grant allocation.

An Example: Separate State Program or Medicaid Expansion?

Consider the following two examples of the implications of the matching rules and the allocation under both the Medicaid expansion option and the separate state program option. For both examples, the state is assumed to qualify for a $20 million block grant payment and to have a regular Medicaid matching rate of 50 percent and an enhanced matching rate of 65 percent.

The state chooses to establish or expand a separate child health insurance program: The state's $20 million child health allocation and enhanced matching rate of 65 percent mean that for every $100 of coverage provided under the separate state program, the state will receive $65 in federal block grant funds. The state will receive those funds until its full $20 million block grant allocation is expended. If the federal block grant funds run out prior to the end of the fiscal year, the state can cover additional children or any increase in the cost of serving children already enrolled in the program at state expense. Alternatively, it can limit eligibility or scale back benefits (subject to the federal minimum benefit standards) to reduce costs. It also could close down enrollment altogether and establish waiting lists or reduce provider payment rates.

The state chooses to use its funds to expand Medicaid coverage for children:* The state will still receive $65 in federal block grant funds for each $100 expended, and the state will receive these "enhanced" federal matching payments until the $20 million in its block grant allocation is used up. However, if the block grant allocation runs out before the end of the fiscal year, the state will continue receiving a "regular" Medicaid matching payment (in this example, based on the 50 percent matching rate) for any additional children served or any additional cost of serving children already enrolled in Medicaid. The state also can roll back the eligibility standards to make fewer children eligible and it can scale back benefits (although neither eligibility nor benefits can be lowered below federal minimum standards). The state can also reduce provider payment rates, but it cannot simply stop enrolling eligible children and place new applicants who are eligible on waiting lists.(19)

___________________________
* Some states have expanded Medicaid under a section 1115 waiver that allows them to cap enrollment. Otherwise, all children who meet a state's Medicaid eligibility standards and apply for coverage under the program must be enrolled.

 

Health Insurance Coverage Standards

If a state elects to use its child health funds to expand Medicaid coverage, the Medicaid program rules on benefits and the scope of coverage will apply to the group of children covered under the expansion in the same manner that they apply to children already eligible under the Medicaid program. If a state elects to use its child health funds to cover children under a state insurance program, however, the coverage it offers must meet the benefit and cost-sharing standards established in the new law. These standards are described below.

Benefit Standards

The law gives most states four options for meeting minimum federal benefit standards for insurance coverage offered to uninsured children under a separate state program.(20) State benefit packages can exceed these standards.

1. Federal Employees Health Benefit Plan-Equivalent CoverageA state may offer health benefits coverage equivalent to the benefits offered under the standard Blue Cross/Blue Shield preferred provider option service plan offered to federal employees.

2. State Employee CoverageA state may offer health benefits coverage equivalent to the benefits provided under a health plan that is offered and generally available to a state's public employees.

3. HMO CoverageA state may offer health benefits coverage equivalent to the benefits offered by the HMO within the state that has the highest commercial enrollment (excluding Medicaid enrollment).

4. "Benchmark Equivalent Coverage" — A state can choose one of the three plans listed above to serve as a "benchmark" for an alternative package of benefits. The alternative must meet three criteria: (1) it must have an "aggregate actuarial value" equivalent to the benchmark plan selected by the state; (2) it must offer hospital, physician, lab and x-ray, and well-baby and well-child care (although the state can determine the scope of the coverage offered in each of these categories); and (3) if the state's benchmark offers coverage for prescription drugs, mental health, vision, or hearing benefits, the children's benefit package must offer some coverage in each of these areas. (Specifically, the coverage must have an actuarial value that is equal to at least 75 percent of the actuarial value of the coverage under the benchmark plan.)

In addition, Florida, New York, and Pennsylvania are allowed to continue to use the benefit packages they currently offer under existing state-funded insurance programs for children.(21) Finally, the Secretary of Health and Human Services has the authority to allow states to use alternative benefit packages if she determines that they are appropriate for low-income children.

The Secretary of Health and Human Services has the authority to enforce the requirements of the new law, including these benefit package standards.

Premium and Cost-Sharing Limitations

The new law limits the extent to which states can impose premiums or cost-sharing (i.e., deductibles, coinsurance, and co-payments) on children enrolled in separate state programs financed with child health block grant funds. In general, states cannot adopt cost-sharing or premium policies that favor higher-income families over lower-income families. They also are prohibited from imposing cost-sharing for well-baby and well-child care, including immunizations. Finally, states cannot count money raised through premiums or cost-sharing as state dollars for purposes of meeting the block grant's matching requirements.

Beyond these general restrictions, the law offers special protections from premiums and cost-sharing to children in families with income below 150 percent of the poverty line. States cannot impose higher premiums on these children than the premiums that federal rules allow states to charge "medically needy" Medicaid beneficiaries.(22) In addition, states can impose cost-sharing for all but preventive services, but the cost-sharing imposed on children in families with incomes below 150 percent of poverty must be "nominal." The law specifies that "nominal" means the level of cost-sharing that can be imposed under Medicaid on those groups of beneficiaries that can be subjected to cost-sharing.(23) For purposes of a separate state insurance program financed with block grant funds, the Secretary has the authority to adjust the Medicaid standards of "nominal" for inflation or other factors she determines to be reasonable.

For families with incomes above 150 percent of poverty, a state may impose premiums and cost-sharing on a sliding-scale basis related to income. Aggregate premium and cost-sharing charges for all eligible children in the family cannot, however, consume more than five percent of a family's annual income.

 

Other Child Health Provisions

In addition to the child health block grant, the new law includes a number of provisions designed to increase children's health care coverage through the Medicaid program. These provisions are largely independent of the new child health block grant and apply regardless of whether a state elects to use its block grant funds to expand Medicaid or establish a separate state program.(24)

Presumptive Eligibility(25)

The law offers states the option of establishing a "presumptive" Medicaid eligibility procedure to facilitate the enrollment of children. States already have a similar option to conduct presumptive eligibility determinations for pregnant women, and many have exercised it. As of February 1996, some 30 states had implemented this option.

Under the option to extend presumptive eligibility determinations to children, states can allow community health centers, Head Start programs, WIC providers, agencies that determine eligibility for child care subsidies, and other "qualified entities" to enroll children in Medicaid on a temporary basis, relying on information supplied by the family that its income falls below the Medicaid income eligibility standards.(26) To retain Medicaid coverage beyond the presumptive eligibility period, families must submit an application to the state, and the child must be found eligible by the state agency.(27) This option allows health care providers and community-based organizations that provide services to low-income families to play an important role in conducting Medicaid outreach and can help ensure that children are enrolled in the program in a timely manner. It can be a particularly useful tool for reaching children who are not receiving welfare and whose parents are employed at low-wage jobs that do not offer health insurance coverage.

The federal share of the cost of providing coverage to a child during the presumptive eligibility period — the period between the time the child is enrolled in the program on the basis of preliminary information and the time the state makes a final eligibility determination — will be offset against the state's federal child health block grant allocation. The costs associated with providing Medicaid coverage to children initially enrolled on a presumptive basis after the state determines they are eligible for the program will be financed under the regular Medicaid program.(28)

Coverage of SSI Children

The new law requires states to continue Medicaid coverage for all disabled children who lose their SSI eligibility solely as a result of provisions in last year's welfare law that restrict the SSI child disability standards. In the absence of this provision, some of the children losing SSI because of the welfare law would become ineligible for Medicaid when they are terminated from SSI. This provision is a grandfathering of Medicaid eligibility. It protects only children who were actually receiving SSI on the date the welfare law was signed (August 22, 1996).

Option to Provide 12 Months of Continuous Coverage

The new law gives states the option to guarantee 12 months of coverage to children enrolled in Medicaid regardless of whether the children experience changes in family income or other circumstances that otherwise would render them ineligible for Medicaid during the 12-month period. (The 12-month continuous eligibility option does not apply to children who become ineligible because they reach age 19.) This option permits stability in coverage for children and helps to minimize disruptions in eligibility that can interfere with the effective delivery of services through managed care plans.

 

Conclusion

In the coming months, states will be making important decisions about how to use the new federal block grant funds to expand health care coverage to uninsured, low-income children. These decisions will determine how broad the expansion of coverage will be, whether the benefits provided will be affordable and adequate, where children will be receiving their care, and whether the new expansion builds on or at least coordinates closely with states' current Medicaid programs.

The Congressional Budget Office has projected, however, that notwithstanding the large amount of new federal funds invested in this initiative, only about 1.6 million uninsured children a year will actually receive health care coverage under the programs that states develop with the block grant funds.(29) An efficient and effective deployment of funds can assure that a substantially greater number of children are provided meaningful coverage through this initiative and that the funds will contribute significantly to reducing the number of children in this country who lack health insurance.

Table 1:
Estimated Federal Allocation Under Child Health Block Grant

(in millions)

 

FY 1998

FY 1999

FY 2000

FY 2001

FY 2002

5 year total

Alabama $86

$86

$86

$82

$58

$397

Alaska $5

$5

$5

$6

$5

$27

Arizona $113

$113

$113

$104

$71

$514

Arkansas $47

$47

$47

$45

$32

$218

California $855

$855

$855

$811

$572

$3,949

Colorado $43

$43

$43

$44

$33

$206

Connecticut $36

$36

$36

$38

$29

$176

Delaware $8

$8

$8

$9

$7

$41

District of Col. $14

$14

$14

$15

$11

$69

Florida $279

$279

$279

$269

$193

$1,299

Georgia $127

$127

$127

$123

$89

$592

Hawaii $11

$11

$11

$13

$11

$58

Idaho $16

$16

$16

$17

$13

$77

Illinois $129

$129

$129

$145

$117

$648

Indiana $73

$73

$73

$78

$60

$357

Iowa $33

$33

$33

$33

$25

$157

Kansas $31

$31

$31

$33

$26

$153

Kentucky $51

$51

$51

$54

$42

$248

Louisiana $102

$102

$102

$97

$68

$471

Maine $13

$13

$13

$13

$10

$62

Maryland $62

$62

$62

$64

$49

$298

Massachusetts $45

$45

$45

$52

$43

$231

Michigan $92

$92

$92

$109

$90

$475

Minnesota $27

$27

$27

$35

$30

$146

Mississippi $56

$56

$56

$54

$39

$260

Missouri $59

$59

$59

$63

$49

$290

Montana $10

$10

$10

$10

$8

$47

Nebraska $15

$15

$15

$17

$14

$77

Nevada $33

$33

$33

$30

$21

$149

New Hampshire $11

$11

$11

$11

$8

$52

New Jersey $92

$92

$92

$92

$68

$435

New Mexico $57

$57

$57

$50

$33

$253

New York $266

$266

$266

$283

$219

$1,300

North Carolina $80

$80

$80

$84

$64

$388

North Dakota $5

$5

$5

$6

$5

$26

Ohio $114

$114

$114

$130

$105

$578

Oklahoma $79

$79

$79

$71

$47

$356

Oregon $42

$42

$42

$44

$34

$204

Pennsylvania $123

$123

$123

$136

$107

$613

Rhode Island $11

$11

$11

$11

$8

$51

South Carolina $65

$65

$65

$68

$52

$316

South Dakota $8

$8

$8

$9

$7

$39

Tennessee $67

$67

$67

$75

$60

$335

Texas $559

$559

$559

$493

$324

$2,493

Utah $25

$25

$25

$28

$22

$126

Vermont $4

$4

$4

$5

$4

$21

Virginia $71

$71

$71

$75

$58

$348

Washington $47

$47

$47

$51

$40

$233

West Virginia $23

$23

$23

$24

$18

$112

Wisconsin $37

$37

$37

$45

$38

$195

Wyoming $7

$7

$7

$7

$5

$35

Territories $11

$11

$11

$11

$8

$51

Total $4,275

$4,275

$4,275

$4,275

$3,150

$20,250

Source: General Accounting Office, August 12, 1997. Note: These figures represent unofficial estimates. Formal estimates from HHS will be forthcoming.

.

Table 2:
Enhanced Federal Matching Rate
Under the Child Health Block Grant

 

Regular Medicaid matching rate (FY1998)

Enhanced matching rate

Alabama 69.0

78.3

Alaska 50.0

65.0

Arizona 65.0

75.5

Arkansas 73.0

81.1

California 51.0

65.7

Colorado 52.0

66.4

Connecticut 50.0

65.0

Delaware 50.0

65.0

District of Col. 50.0

65.0

Florida 56.0

69.2

Georgia 61.0

72.7

Hawaii 50.0

65.0

Idaho 70.0

79.0

Illinois 50.0

65.0

Indiana 61.0

72.7

Iowa 64.0

74.8

Kansas 60.0

72.0

Kentucky 70.0

79.0

Louisiana 70.0

79.0

Maine 66.0

76.2

Maryland 50.0

65.0

Massachusetts 50.0

65.0

Michigan 54.0

67.8

Minnesota 52.0

66.4

Mississippi 77.0

83.9

Missouri 61.0

72.7

Montana 71.0

79.7

Nebraska 61.0

72.7

Nevada 50.0

65.0

New Hampshire 50.0

65.0

New Jersey 50.0

65.0

New Mexico 73.0

81.1

New York 50.0

65.0

North Carolina 63.0

74.1

North Dakota 70.0

79.0

Ohio 58.0

70.6

Oklahoma 71.0

79.7

Oregon 61.0

72.7

Pennsylvania 53.0

67.1

Rhode Island 53.0

67.1

South Carolina 70.0

79.0

South Dakota 68.0

77.6

Tennessee 63.0

74.1

Texas 62.0

73.4

Utah 73.0

81.1

Vermont 62.0

73.4

Virginia 51.0

65.7

Washington 52.0

66.4

West Virginia 74.0

81.8

Wisconsin 59.0

71.3

Wyoming 63.0

74.1

Source: HHS.    

 

 

 


End Notes:

1. The Balanced Budget Act of 1997, PL 105-33, includes several provisions related to children's health care coverage in addition to the child health block grant. While the child health block grant alone represents $20.3 billion in new federal spending between fiscal year 1998 and fiscal year 2002, the Congressional Budget Office (CBO) has estimated that all of the child health provisions in the Act taken together will increase federal spending on children's health care by $23.8 billion (CBO, Budgetary Implications of the Balanced Budget Act of 1997, August 12, 1997).

2. The Secretary of Health and Human Services (HHS) has the responsibility for enforcing and interpreting the requirements under the new child health block grant. This analysis of the new block grant is based on the statutory language; guidance from HHS will likely be forthcoming.

3. The Center on Budget and Policy Priorities plans to issue a paper in the near future that will explore in more detail the choice confronting states of whether to use their child health funds to expand Medicaid and/or to establish a separate state insurance program, as well as other issues states will face when implementing the new child health block grant.

4. The statute is ambiguous on the issue of whether a state needs to submit a state plan if it has decided to use all of its block grant funds for a Medicaid expansion. It may be that a state electing the Medicaid option need only submit a Medicaid state plan amendment in order to begin using its child health block grant. HHS guidance on this issue is likely to be forthcoming.

5. See Jocelyn Guyer and Cindy Mann, The Child Health Block Grant: Health Insurance for Children or Windfall for States?, Center on Budget and Policy Priorities, July 1, 1997. A major concern is that the "direct services" option could allow states to use the new child health funds to simply replace current state spending or to offset reductions in federal Disproportionate Share Hospital (DSH) payments.

6. For example, if a state's total allocation under the block grant for a year was $20 million and the state spent its entire allocation, the most it could use for administrative costs and items other than coverage would be $1.8 million. The remaining $18.2 million must be spent on health insurance coverage. The $1.8 million which it could expend for other purposes is equal to 10 percent of the $18.2 billion it would be spending on coverage.

7. Section 2105 (c)(2)(B) of the Social Security Act as created by the Balanced Budget Act of 1997.

8. However, if a state already covers children at or above 200 percent of the federal poverty line under its Medicaid program as of June 1, 1997, the state may use the block grant funds to cover children with incomes up to 50 percentage points above the state's Medicaid income limit. For example, if a state already extends Medicaid coverage to children with incomes below 225 percent of the federal poverty line, it could use the new child health funds to cover children with incomes up to 275 percent of the poverty line either in a separate state program or through a further expansion of its Medicaid program.

9. While the new law does not specifically address the issue of immigration status, it appears that under provisions included in last year's welfare law, states may not be able to use their federal block grant funds to cover legal immigrant children who enter the United States on or after August 22, 1996.

10. Nothing in the new child health block grant eliminates the opportunity that states already had prior to enactment of the Balanced Budget Act of 1997 to expand Medicaid coverage to children beyond federal minimum requirements at the "regular" Medicaid matching rate. Thus, even if a state elects to use all of its new child health block grant funds to establish a separate state insurance program, it still retains the option to expand Medicaid coverage for children at the "regular" Medicaid matching rate.

11. Specifically, a state can receive an enhanced federal matching rate for the cost of covering children who would not have been eligible for Medicaid under the eligibility criteria that a state had in place as of April 15, 1997. The only exception is that a state cannot receive an enhanced matching rate for the cost of covering a child who is not eligible for Medicaid under the standards a state had in place as of April 15, 1997, but who becomes eligible for Medicaid as a result of the mandatory phase-in of coverage for older children with family income below 100 percent of the poverty line. The enhanced matching rate would, however, apply if a state opted to accelerate the phase-in so that older poor children were eligible for Medicaid before federal law required their coverage.

12. In fiscal year 1998, the federal government expects to spend $15.8 billion on Medicaid benefits for children (CBO baseline, February 1997) but only $4.3 billion on the child health block grant. In total, federal and state spending on Medicaid benefits for children during fiscal year 1998 is likely to be around $27.8 billion. During that same fiscal year, total spending on the child health block grant is likely to be around $6.1 billion ($4.3 billion in federal funds and $1.8 billion in state funds.)

13. States must file plan amendments if they wish to make changes in their plan to eliminate or restrict eligibility or benefits the plan otherwise provides. The plan amendment does not need to be filed in advance of taking such action (the law provides that the change will be effective for up to 60 days without a state plan amendment), but the restrictions may not take effect unless the state certifies that it has provided prior public notice of the change.

14. Even if a state operating a separate child health insurance program elects to turn over administration and implementation of the program to a private entity(ies), it still presumably must address these issues in the context of the contracts it enters into with the parties it pays to administer and implement the program.

15. The only exception to states' discretion to determine who can provide services under a separate state program is that a state cannot allow a provider barred from participating in Medicaid or Medicare to participate.

16. The new law also includes a maintenance-of-effort provision apparently intended to require states to maintain their spending on state-funded health insurance programs at fiscal year 1996 levels as a condition of receiving their full block grant allocations. However, the provision has been drafted in such a way that it effectively imposes a maintenance-of-effort requirement only on Florida, New York, and Pennsylvania. It is possible that the provision effectively applies only to these three states because of a drafting error.

17. Federal Medicaid matching rates are set annually based on a formula that primarily considers state per capita income. Thus, in future years, a state's regular and enhanced matching rate may vary from what is shown in Table 2.

18. In addition, the rules that generally prohibit states from using sham state financing mechanisms in the Medicaid program apply to the child health block funds as well. States also are prohibited from using federal funds as well as premiums and other payments from beneficiaries to meet their state matching payment.

19. Tennessee has expanded Medicaid under a section 1115 waiver that allows it to cap enrollment. Otherwise, all children who meet a state's Medicaid eligibility standards and apply for coverage under the program must be enrolled.

20. States may also purchase group health insurance coverage that meets these standards.

21. The benefits offered in these states as of the date of the enactment of the law are deemed to meet the federal benefit coverage standards. These three states can modify their benefits as long as the modifications meet certain requirements set out in the new law.

22. The rules that apply to medically needy beneficiaries do not offer as much protection from premium charges as those that apply to "categorically needy" Medicaid beneficiaries. (States are not allowed to charge "categorically needy" Medicaid beneficiaries any premiums.) The schedule of premiums allowed for medically needy beneficiaries at different income levels and in various family sizes appears in the Medicaid regulations at 42 CFR section 447.52. For example, a three or four person family can be charged a maximum premium of $16 per month if it has income of $1,000 or more. If its income is lower, the maximum it can be charged is less.

23. The Medicaid program's definition of nominal cost-sharing is set forth in the Medicaid regulations at 42 CFR section 447.54. It provides a cost-sharing schedule based on a state's reimbursement rate for a service (applicable in the Medicaid context only to selected services and eligibility groups). For example, a state can charge a co-payment of no more than $3 for a service that costs $50 or more.

24. The provisions are described here even though they are largely independent of the child health block grant because they increase federal spending on children's health initiatives from the $20.3 billion available as a result of the block grant to $23.8 billion, the figure commonly cited for the amount of new spending in the Balanced Budget Act of 1997 that is dedicated to children's health care. For a more detailed discussion of these provisions, as well as other changes in the Medicaid program that affect children's access to health care, see Overview of Medicaid Provisions in the Balanced Budget Act of 1997, P.L. 105-33 by Andy Schneider of the Center on Budget and Policy Priorities, August 21, 1997, on the Medicaid changes included in the Balanced Budget Agreement of 1997.

25. For more information on the presumptive eligibility option, see Donna Cohen Ross, Presumptive Eligibility for Children: A Promising New Strategy for Enrolling Uninsured Children in Medicaid, Center on Budget and Policy Priorities, August, 1997.

26. States have the authority to determine which providers among the "qualified entities" identified in the law they will allow to conduct presumptive eligibility determinations.

27. Specifically, a family must submit an application to the state by the end of the month following the month in which the presumptive eligibility determination is made. For example, if a child is found presumptively eligible for Medicaid on September 10, the child's family must submit a formal Medicaid application no later than October 31. Medicaid eligibility continues while the agency processes the application.

28. Note that if a state has elected to use its block grant funds to expand Medicaid, the ongoing cost of providing Medicaid coverage to a child will be financed out of a state's child health block grant if the child falls into the expanded coverage income range (for which a state receives an enhanced matching rate). If the child would have been eligible for Medicaid under the standards the state had in place as of April 15, 1997, the federal government will reimburse the state at the regular Medicaid matching rate for the ongoing cost of providing the child with Medicaid coverage. For states electing the separate program option, the cost of ongoing coverage is financed under the regular Medicaid program.

29. CBO projects that 2.7 million children will be covered annually by state health insurance programs funded with block grant funds. Of these children, some 1.6 million are expected to have been previously uninsured and 1.1 million to have been previously insured. An additional 0.7 million children are expected to be enrolled in Medicaid as a result of children who apply for separate state insurance programs learning that they are eligible for Medicaid and being enrolled in the program, as well as the 12-month enrollment and presumptive eligibility options. In total, CBO projects that 3.4 million children will be covered by either Medicaid or child health programs as a result of the new federal initiative, including 2 million previously uninsured children and 1.4 million previously insured children. See CBO, Budgetary Implications of the Balanced Budget Act of 1997, August 12, 1997.