SCHIP Financing Issues for the 108th Congress

Publication Date: August 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

The State Children's Health Insurance Program (SCHIP) offers federal matching funds for states and territories to provide health insurance to uninsured, low-income children in families whose annual incomes are too high to qualify for Medicaid. Unlike Medicaid, which operates as an individual entitlement, SCHIP operates as a capped grant program. Allotment of funds among states is determined by a formula set in law. Once a state depletes a given year's original allotment, other than funds from prior years made available through redistribution, no additional federal funds will be made available to that state for that year. States have the flexibility to design their programs to operate within these funding constraints.

The allotment and redistribution methods under current law have been incompatible with state spending patterns to date. Spending in the first several years of the program was well below appropriations -- cumulative expenditure data through the end of FY2002 show that states spent approximately 46.9% of all federal funds available since the start of the program. Relative to state spending, the appropriation levels were high early on as it took time for states to set up their programs and build enrollment. Once programs are established, states differ in the extent to which they utilize their allotment.

FY2002 is the first fiscal year in which total spending exceeded that year's appropriations. This trend is likely to continue as additional states spend all of their available funds and are eligible for redistributions. Further, FY2002 is the first of 3 years in which the total federal appropriation is 26% less than it was for each of FY1998-FY2001. At the end of FY2002 $1.3 billion of the FY1998 and FY1999 reallocations expired from the program and CBO predicts an additional $1.4 billion to expire at the close of FY2003. While more states will be eligible for redistributions, there will be fewer funds available for redistribution to such states. In fact, the Centers for Medicare and Medicaid Services (CMS) projects shortfalls for some states over the second half of the program, (FY2003-FY2006).

SCHIP financing issues are being addressed by the 108th Congress because states with unspent funds from the FY1998 and FY1999 reallocations are interested in recouping those expired amounts and all states want to make sure that other unspent amounts from subsequent years remain available to their programs. On June 26, 2003, the Senate passed legislation, S. 312, which would extend the availability of expired funds and establish a new method for redistributing unspent FY2000 and FY2001 allotments among all states. For specified years, S. 312 would also allow "qualifying states" to use up to 20% of their available SCHIP funds for certain Medicaid medical assistance payments. The House-passed bill, H.R. 531, is identical to S. 312 except that it does not include the latter provision. On July 25, 2003, the House passed a new version of the bill, H.R. 2854, to restore unspent SCHIP funds to all states according to the method described in S. 312. H.R. 2854 also establishes alternative criteria for states that would qualify to use up to 20% of their available SCHIP funds for certain Medicaid medical assistance payments. On July 31, 2003 the Senate passed H.R. 2854; the bill was signed into law on August 15, 2003 as P.L. 108-74. This report will be updated as legislative activity occurs.