What Happens if SCHIP Is Not “Reauthorized”?

Order Code RS22712

Updated September 17, 2007

What Happens if SCHIP Is Not

“Reauthorized”?

Chris L. Peterson

Specialist in Social Legislation

Domestic Social Policy Division

Summary

The Balanced Budget Act of 1997 created the State Children’s Health Insurance

Program (SCHIP) and provided nearly $40 billion in appropriations over the 10-year

period FY1998 to FY2007. Legislative action would be necessary to provide new funds

for SCHIP for FY2008 and beyond, but SCHIP’s statutory provisions do not need to be

reauthorized as they will remain on the books unless Congress expressly repeals the

current law. In the absence of an FY2008 SCHIP allotment, states with unexpended

FY2006 and FY2007 federal SCHIP balances could continue to operate their programs

with those funds in FY2008. Fourteen states and the District of Columbia are projected

to be able to cover all of their federal FY2008 SCHIP spending even without an FY2008

SCHIP allotment. Among the 36 states projected to exhaust their federal SCHIP funds

in FY2008, some may be able to access Medicaid funding, though at a reduced matching

rate compared to SCHIP. However, 13 states would be in shortfall immediately,

entering FY2008 with no prior-year SCHIP balances. An amount equal to

approximately 18 days of these states’ federal SCHIP expenditures is projected to be

available from the redistribution of unspent FY2005 allotments. This report may be

updated in December 2007 with states’ more recent projections.

The Balanced Budget Act of 1997 created the State Children’s Health Insurance

Program (SCHIP), a direct spending program, and appropriated approximately $40 billion

from FY1998 to FY2007. SCHIP needs to be “reauthorized” in the sense that Congress

must take legislative action if it wishes to provide the program with new FY2008 funding.

However, the statutory provisions governing SCHIP do not need to be reauthorized, as

they do not expire or sunset as of the end of FY2007, and so would remain on the books.

Legislation has passed both the House (H.R. 3162) and Senate (S. 1893/H.R. 976),

described in other CRS reports, that would provide federal SCHIP appropriations at least

through FY2012.

Even if Congress does not appropriate funds for SCHIP for FY2008, legal authority

for the program provisions would continue in effect, unless Congress were expressly to

repeal the current law. Thus, states would have access to some (though, in some cases,

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very limited) federal SCHIP funds in FY2008. This is because (1) federal SCHIP

allotments are currently available to states for three years, and (2) any allotments unspent

after three years are available for redistribution to other states. Thus, under current law,

states will continue to have access to any unspent FY2006 and FY2007 SCHIP allotments

they might have; in addition, any unspent FY2005 allotments will be available for

redistribution to other states.

FY2006 and FY2007 Allotments Available in FY2008. According to currentlaw projections from the Centers for Medicare and Medicaid Services (CMS), based on

states’ August 2007 estimates of SCHIP spending in FY2007 and FY2008, 36 states

would exhaust all federal SCHIP funds at some point in FY2008 without a new

appropriation (that is, those states showing shortfalls in the last column of Table 1).

Comparing these states’ available FY2008 funding to their projected spending, their

shortfall of federal SCHIP funds would total $4.66 billion.

The District of Columbia and 14 states — Colorado, Connecticut, Delaware, Florida,

Idaho, Indiana, Nevada, New Hampshire, New York, Tennessee, Texas, Vermont,

Washington and Wyoming — are projected to have enough federal SCHIP funds to last

the entirety of FY2008 (states with amounts in Column D of Table 1).

Of the 36 states that would experience a shortfall of federal SCHIP funds in FY2008,

13 (Alaska, Georgia, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota,

Mississippi, Nebraska, New Jersey, Rhode Island, and Wisconsin) would face shortfalls

immediately in FY2008, which begins October 1, 2007. Their immediate shortfall would

result because these states are projected to exhaust all of their federal SCHIP allotments

in FY20071 and therefore have no prior-year balances in FY2008. Four other states —

California, Missouri, North Carolina, and North Dakota — are projected to have so little

in prior-year balances that they would also likely exhaust their federal SCHIP funds in

October 2007.

Redistributed FY2005 Allotments Available in FY2008. At the end of

FY2007, states’ FY2005 allotments will have been available for three years, with the

unspent amounts available for redistribution to other states in FY2008. Current

projections indicate that four states will have unspent FY2005 funds at the end of FY2007

totaling $108 million.2 It is unlikely these funds will be available on October 1, 2007.

The redistribution of FY2005 funds will likely occur once final expenditure reports are

filed. In recent years, CMS has given states until November 30 to submit expenditure

reports for the previous fiscal year. However, CMS could require states to file those

reports earlier in order to redistribute the FY2005 funds sooner. CMS is not required to

give states a minimum amount of time to file those reports.

1

States exhausting their federal SCHIP funds in FY2007 will receive appropriations to cover

their FY2007 shortfalls. The appropriation (not to exceed $650 million) was enacted on May 25,

2007, as part of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq

Accountability Appropriations Act, 2007 (P.L. 110-28).

2

Based on states’ August 2007 projections of expenditures, states forgoing unspent FY2005

funds would be Connecticut ($0.7 million), Tennessee ($33.4 million), Texas ($56.8 million), and

Washington ($17.2 million).

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Current law permits the Secretary of Health and Human Services (HHS) to

redistribute the unspent funds among states that had exhausted the FY2005 allotment

using “an appropriate procedure.”3 In previous years in which the Secretary had this

flexibility and states faced shortfalls, the Secretary redistributed unspent funds first to

shortfall states.4 For FY2007, the Secretary was required to redistribute FY2004 funds

to shortfall states “in the order in which states realize funding shortfalls.”5 If, for

example, the Secretary redistributed the currently projected $108 million in unspent

FY2005 funds proportionally among the 13 states with no other federal SCHIP funds, the

funds could cover approximately 18 days of their projected FY2008 SCHIP spending.

Medicaid Fallback Financing for Certain States. When states exhaust their

federal SCHIP funds, some have the ability to draw down federal Medicaid funds as a

fallback option. This can occur in one of two ways.

First, states that have an SCHIP-financed expansion of Medicaid may access federal

Medicaid funds at the regular Medicaid matching rate, although this match rate is lower

than the SCHIP matching rate.6 States that have an SCHIP program entirely separate from

Medicaid cannot revert to Medicaid funds when their SCHIP funds are exhausted, except

as discussed below. Table 1 shows whether a state’s SCHIP program is a Medicaid

expansion (M), is separate from Medicaid (S), or both (C, for combination). Most SCHIP

enrollees are in a separate SCHIP program,7 although historical analyses have shown that

“states that were projected to have shortfalls [in FY2005, FY2006, or FY2007] ... were

more likely to have a Medicaid component to their SCHIP program.”8

In general, Section 1115 of the Social Security Act provides the Secretary with broad

authority to waive certain statutory requirements in Medicaid and/or SCHIP. Some states

have approval under Section 1115 waiver authority, in the event of a shortfall, to draw

federal Medicaid funds for the portion of their SCHIP program that is not a Medicaid

expansion. Arizona, Hawaii, Massachusetts, Oregon, and Rhode Island are known to

have such provisions in their approved waivers.

3

§ 2104(f) of the Social Security Act.

4

This was the Secretary’s approach for the redistribution of unspent FY2002 funds in FY2005

and the redistribution of unspent FY2003 funds in FY2006. In all other redistributions, Congress

prescribed the way in which the funds would be redistributed.

5

§ 2104(h)(1)(C) of the Social Security Act, as added by the National Institutes of Health Reform

Act of 2006 (NIHRA, P.L. 109-482, enacted on January 15, 2007).

6

The federal government matching rate for Medicaid expenditures — the Medicaid federal

medical assistance percentage (FMAP) — ranges across states from 50% to 75.89% in FY2007.

The enhanced SCHIP FMAP ranges from 65% to 83.12%. The difference between the

percentages results from the states’ share of expenditures being 30% smaller in SCHIP compared

to Medicaid.

7

See Table 1 of CRS Report RL30473, State Children’s Health Insurance Program (SCHIP):

A Brief Overview, by Elicia J. Herz and Chris L. Peterson.

8

Kathryn G. Allen, “Children’s Health Insurance: States’ SCHIP Enrollment and Spending

Experiences and Considerations for Reauthorization,” Government Accountability Office,

statement before the House Energy and Commerce Subcommittee on Health, March 1, 2007, p.

32, at [http://www.gao.gov/new.items/d07558t.pdf].

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Federal Requirements Before Terminating SCHIP

There are laws and regulations that pertain to states’ ability to terminate SCHIPfinanced coverage. None specifically mentions doing so as a result of the absence of a

federal allotment for a given fiscal year. HHS may issue guidance for states terminating

coverage because of the absence of federal funding, although nothing prohibits states from

continuing to operate their SCHIP programs at 100% state cost, with the opportunity to

receive a federal match from future SCHIP funds.9 This section briefly discusses some

of the pertinent laws and regulations for states terminating individuals’ SCHIP-financed

coverage, which vary for Medicaid-expansion programs (in which case Medicaid

limitations apply, based on Title XIX of the Social Security Act) and separate-SCHIP

programs (in which case SCHIP limitations apply, based on Title XXI).

Separate SCHIP Programs. Under Title XXI, “An approved [SCHIP program]

shall continue in effect unless and until the State amends the plan,” with such an

amendment contingent on approval by the Secretary.10 Thus, even in the absence of any

federal SCHIP funding, a state would ultimately need to submit a State Plan Amendment

(SPA) to terminate coverage in its separate SCHIP program.

The law states that “[a]ny plan amendment that eliminates or restricts eligibility or

benefits under the plan may not take effect unless the State certifies that it has provided

prior public notice of the change, in a form and manner provided under applicable State

law.”11 Federal regulations also require that if “eligibility is denied, suspended or

terminated,” a state “must provide enrollees and applicants timely written notice.”12 In

addition, if eligibility is suspended or terminated, the state must provide “sufficient notice

to enable the child’s parent or caretaker to take any appropriate actions that may be

required to allow coverage to continue without interruption.”13 Neither federal statute nor

regulation appears to provide a specific length of time.

Having met these requirements, the state may terminate individuals’ eligibility

without prior Secretary approval, as long as the SPA is transmitted to the Secretary within

60 days of the state having implemented the policy.14 A SPA is considered approved

unless the Secretary notifies the state in writing within 90 days after receiving the SPA

that it is disapproved (and the reasons for disapproval) or that specified additional

information is needed.15

Medicaid-Expansion SCHIP Programs. Under Title XIX, the effective date

of a SPA that terminates or suspends coverage to an enrollment group, such as SCHIP9

States may receive federal reimbursement for SCHIP claims even if the expenditures were

incurred before a particular SCHIP allotment was available (42 CFR § 457.614(a)).

10

§ 2106(e).

11

§ 2106(b)(3)(B)(i).

12

42 CFR § 457.340(e)(2) and 42 CFR § 457.1180.

13

42 CFR § 457.340(e)(2).

14

§ 2106(b)(3)(B)(ii).

15

§ 2106(c)(2).

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financed enrollees, “may be a date requested by the State if CMS approves it.”16

Enrollees must receive “timely and adequate notice of proposed action to terminate,

discontinue, or suspend their eligibility.”17 Again, there appears to be no specific length

of time required.

Assumptions Required for Budget Purposes

Under current law, SCHIP has no federal appropriations for FY2008 onward.

However, for budget enforcement purposes, funding for SCHIP through FY2012 will

remain in the baseline budget projections and the budget resolution (S.Con.Res. 21,

H.Rept. 110-153) at least until the end of 2007. In developing its baseline budget

projections, the Congressional Budget Office is required to assume that the program

continues at the last-appropriated level, which is currently approximately $5 billion in

FY2007. The FY2008 budget resolution also assumed the continuation of the program

at the FY2007 level. Therefore, at least until the end of 2007, legislation providing that

level of funding for each year covering FY2008-FY2012 ($25 billion over the period)

presumably would not be subject to points of order under PAYGO rules or rules enforcing

the levels associated with the budget resolution.

Table 1. Projected FY2008 Federal SCHIP Financing Under Current

Law (Without FY2008 Allotment), in Millions of Dollars

State

A

Alabama (S)

Alaska (M)

Arizona (S)

Arkansas (C)

California (C)

Colorado (S)

Connecticut (S)

Delaware (C)

DC (M)

Florida (C)

Georgia (S)

Hawaii (M)

Idaho (C)

Illinois (C)

Indiana (C)

Iowa (C)

Kansas (S)

Kentucky (C)

Projected balances

of unspent FY2006 States’ projected

and FY2007

FY2008 federal

allotments

SCHIP spending Projected unspent

Projected

available in

(provided in

balances at the

shortfalls at the

FY2008

August 2007)

end of FY2008

end of FY2008

B

C

D = B - C, if any E = C - B, if any

$44.75

$112.55

$67.79

$23.01

$23.01

$35.50

$138.44

$102.95

$53.00

$117.19

$64.19

$94.61

$1,226.26

$1,131.65

$102.43

$70.69

$31.75

$74.43

$35.67

$38.75

$17.31

$10.18

$7.13

$18.05

$9.57

$8.48

$448.59

$259.74

$188.85

$370.42

$370.42

$13.87

$19.93

$6.06

$36.78

$31.11

$5.67

$465.15

$465.15

$118.38

$98.75

$19.63

$69.17

$69.17

$18.44

$51.42

$32.99

$65.26

$83.03

$17.77

16

42 CFR 430.20(b)(3).

17

42 CFR 435.919(a).

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Projected balances

of unspent FY2006 States’ projected

and FY2007

FY2008 federal

SCHIP spending Projected unspent

Projected

allotments

available in

(provided in

balances at the

shortfalls at the

State

FY2008

August 2007)

end of FY2008

end of FY2008

A

B

C

D = B - C, if any E = C - B, if any

Louisiana (M)

$43.01

$130.97

$87.96

Maine (C)

$32.94

$32.94

Maryland (C)

$162.44

$162.44

Massachusetts (C)

$275.09

$275.09

Michigan (C)

$36.12

$182.46

$146.34

Minnesota (C)

$90.26

$90.26

Mississippi (S)

$116.76

$116.76

Missouri (M)

$4.39

$126.23

$121.84

Montana (S)

$14.02

$24.28

$10.25

Nebraska (M)

$35.51

$35.51

Nevada (S)

$89.65

$37.94

$51.70

New Hampshire (C)

$14.86

$13.33

$1.53

New Jersey (C)

$334.05

$334.05

New Mexico (M)

$78.21

$105.95

$27.74

New York (C)

$437.28

$412.08

$25.20

North Carolina (C)

$9.02

$194.65

$185.64

North Dakota (C)

$0.70

$13.47

$12.77

Ohio (M)

$59.01

$228.80

$169.79

Oklahoma (M)

$32.00

$124.36

$92.36

Oregon (S)

$61.04

$105.17

$44.12

Pennsylvania (S)

$154.36

$230.08

$75.72

Rhode Island (C)

$77.02

$77.02

South Carolina (M)

$117.24

$120.86

$3.62

South Dakota (C)

$2.77

$13.95

$11.18

Tennessee (C)

$177.87

$66.38

$111.49

Texas (S)

$1,012.72

$800.25

$212.47

Utah (S)

$34.81

$56.09

$21.28

Vermont (S)

$9.80

$4.39

$5.41

Virginia (C)

$65.92

$124.62

$58.70

Washington (S)

$144.59

$29.65

$114.93

West Virginia (S)

$23.25

$41.32

$18.06

Wisconsin (M)

$101.63

$101.63

Wyoming (S)

$9.80

$9.08

$0.72

TOTAL

$3,773.83

$7,614.31

$823.73

$4,664.21

Projected amount available from redistribution of unspent FY2005 funds

$108.2

Total projected state shortfalls if no FY2008 allotment (in millions)

$4,556.0

Source: Centers for Medicare and Medicaid Services (CMS) “FY07-08SF-Cht.xls,” provided on September

14, 2007, based on states’ projections of FY2007 and FY2008 SCHIP spending as of August 2007. SCHIP

program types from Table 1 of CRS Report RL30473, State Children’s Health Insurance Program

(SCHIP): A Brief Overview, by Elicia J. Herz and Chris L. Peterson.

Notes: S — Separate child health program. M — Medicaid expansion program. C — Combination

program.