SCHIP Original Allotments: Funding Formula Issues and Options

Publication Date: April 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

Type:

Abstract:

The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) authorized the State Children's Health Insurance Program (SCHIP) for FY1998-FY2007. In BBA 97, Congress appropriated annual funding levels totaling nearly $40 billion for the 10-year period of SCHIP's authorization, with each state receiving access to a portion of the annual amount. Each state's portion -- the original allotment -- is calculated based on a formula that has been altered one time since the program's inception.

SCHIP's authorization expires at the end of FY2007. When Congress takes up reauthorization, the focus regarding SCHIP original allotments will be on (1) setting the national annual appropriations for SCHIP, and (2) deciding how those funds will be allotted to individual states. Some of the issues are technical -- for example, whether there is a better data source for estimating the number of low-income children. Other issues raise more fundamental questions about the program.

For example, beginning in FY2002, states' total spending of federal SCHIP funds has exceeded their annual original allotments, a trend projected to continue through the current authorization. Shortfalls of federal SCHIP funds have largely been avoided by leftover prior-year balances and because administrative actions targeted unspent funds from other states to those states facing shortfalls. However, the funds available for redistribution have been shrinking over the past several years. In fact, because such amounts will be inadequate to prevent shortfalls in FY2006, Congress appropriated an additional $283 million for projected shortfall states in the Deficit Reduction Act of 2005 (DRA, P.L. 109-171). As a result, how much is provided to states in their original allotments is becoming increasingly important.

Increasing current SCHIP appropriations across the board to match total national demand for funds would not necessarily prevent shortfalls because there is wide state-level variation between how much states are allotted and how much they spend. In reauthorization, Congress will have to decide the extent to which other factors, such as states' historical spending and the populations they cover under SCHIP, should be added to the original allotment formula.

If current allotment formulas continue to be used -- for example, if states' SCHIP spending has no bearing on their original allotments, as is currently the case -- then several states will face chronic shortfalls of federal SCHIP funds. However, such shortfalls are an inherent possibility in a capped-grant program such as SCHIP. Congress will be grappling with a number of issues in determining the level and distribution of original allotments in reauthorization. These include whether SCHIP is effectively operating as an open-ended entitlement to states and whether the current original allotment structure is inadequate.

This report describes how SCHIP original allotments have operated from FY1998 to FY2007, and discusses issues and options Congress might consider for reauthorization. This report will be updated as major developments occur.