SCHIP Financing: Funding Projections and State Redistribution Issues

Publication Date: May 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) created the State Children's Health Insurance Program (SCHIP), which is authorized through FY2007. The purpose of the program is to help states pay for health coverage of uninsured children in families whose income is above the levels that would allow them to be eligible for the state's Medicaid program as of March 31, 1997.

At the time of enactment, Congress appropriated to SCHIP nearly $40 billion for the 10-year period of its authorization, with each state receiving access to a portion of the annual amount. Because SCHIP is a capped-grant program, it is possible for states to exhaust all of the federal SCHIP funds available to them in a given year.

Only two states (Alaska and Rhode Island) have ever exhausted all of their available federal SCHIP funds. Alaska faced shortfalls in FY2000 ($419,000) and FY2001 ($2,000). Rhode Island faced shortfalls in FY2003 ($30,000) and FY2004 ($19 million). These states had the option to file most of their SCHIP claims under regular Medicaid when their SCHIP funds were exhausted. By claiming under Medicaid, however, they received a 17% to 19% smaller federal payment than they would have received under SCHIP for those claims.

Six states faced a shortfall of federal SCHIP funds in FY2005 (Arizona, Minnesota, Mississippi, Nebraska, New Jersey, and Rhode Island). However, the Secretary of Health and Human Services was able to target unspent FY2002 allotments from other states to these six states' shortfalls. As a result, no state finished FY2005 with a shortfall of federal SCHIP funds.

The methodology that eliminated the FY2005 shortfalls could not cover the FY2006 projected shortfalls. For FY2006, the unspent funds available for redistribution were projected to be approximately $283 million shy of covering the shortfalls. To cover this difference, Congress appropriated $283 million in the Deficit Reduction Act of 2005 (DRA, P.L. 109-171). The Congressional Research Service (CRS) SCHIP Projection Model projects that four states will still experience shortfalls in FY2006, totaling $2.75 million. The relatively small shortfall left by the DRA funds will fall to states with SCHIP enrollees who are non-pregnant adults.

The CRS model projects that 18 states will experience shortfalls of federal SCHIP funds in FY2007. The amount of these shortfalls is projected to total $944 million, although some states may use Medicaid funds to cover some of that.

This report provides an overview of SCHIP financing and spending since the program's inception and provides state-level projections of the FY2006 and FY2007 shortfalls. The report also provides state-level projections of the impact of the SCHIP proposal outlined in the President's budget. Depending on the actual details of that plan, it may eliminate the FY2007 shortfalls. This report will be updated as new data become available that might substantially alter the results.