The State Children's Health Insurance Program (SCHIP) targets
uninsured children in working families who earn too much to qualify
for Medicaid. As such, Congress created SCHIP as a stand alone
program with unique features that distinguish it from other health
care programs. States have more flexibility in designing the
program, can include private coverage options in benefit packages,
can establish cost-sharing requirements for enrolled families, and
can manage the program's growth and cost. To protect taxpayers and
preserve private sector options for enrollees, Congress must stop
the erosion of legal and structural distinctions that is turning
SCHIP into an extension of Medicaid.
SCHIP Benefit Design Choices
States can choose from three basic SCHIP designs. States can
expand the existing Medicaid program, set up a separate SCHIP
program, or use a combination of the two. To date, 10 states and
the District of Columbia have a Medicaid expansion, 18 states have
a separate program, and 22 states use a combination of
States that choose to expand Medicaid must adhere to Medicaid's
rules and benefit requirements, whereas states that establish a
separate SCHIP plan use benchmarks based on private sector
coverage. Thirty-three states organize part or all of SCHIP as a
Medicaid expansion, making the two programs almost
indistinguishable in those states. Further eroding the differences
are efforts to expand Medicaid benefit requirements like Early
Periodic Screening, Diagnosis, and Treatment (EPSDT), which
provides practically unlimited benefits to all SCHIP enrollees.
Furthermore, excessive administrative and regulatory requirements
have discouraged all but a handful of states from adopting one of
SCHIP's most promising provisions-allowing states to enroll
eligible children into private coverage.
SCHIP Cost-Sharing Choices
Because SCHIP targets working families and not the truly poor, it
is reasonable to require parents to bear some financial
responsibility for their children's medical care. Although SCHIP
allows states to establish cost-sharing requirements for its
enrollees in some instances, the practice is not as common as many
believe it to be.
States with a separate SCHIP plan can require premiums and
cost-sharing so long as the total annual aggregate in cost-sharing
does not exceed 5 percent of a family's annual income. The law
forbids such cost-sharing standards in states that have a Medicaid
expansion in place or for families with incomes below 150 percent
of the federal poverty line (FPL). In these instances, Medicaid
cost-sharing rules, which are minimal, must apply. Unfortunately, even
with these modest requirements, only 16 states require both a
premium and a co-payment (and the range varies significantly by
state) and 11 states require no cost-sharing at all.
SCHIP Administrative Choices
SCHIP is based on a fixed block grant structure that is designed
to keep federal and state spending in check. Some states have
established waiting lists and enrollment caps to keep SCHIP
spending within the fixed allotment of federal funds.
However, at both the state and federal level, momentum is
building to discourage or prohibit states from limiting enrollment.
Hidden behind the guise of "outreach" and/or "enrollment
simplification" are efforts to streamline eligibility and expand
access. These trends would lead SCHIP away from a
fixed funding structure based on fiscal prudence toward an open
ended entitlement where the focus is on maximizing enrollment.
What Congress Should Do
Congress should implement the following recommendations to prevent
SCHIP from further morphing into an extension of
- Remove Medicaid rules and regulations from
SCHIP. The replacement of SCHIP standards with Medicaid
rules diminishes the distinction between the two programs and
complicates administration. Congress should apply SCHIP rules
across the full spectrum of the program and resist efforts to
further expand Medicaid benefits or rules to SCHIP.
- Reform the premium assistance option under
SCHIP. Congress should eliminate the administrative
hurdles that make it difficult for states to use SCHIP funds to
purchase private health care coverage for enrollees. Congress
should also encourage the adoption of a premium assistance
component in states that have not already done so.
- Establish firm cost-sharing requirements within
SCHIP. Congress should make cost-sharing a requirement
applicable to all of SCHIP in order to help transition working
families into private coverage, where cost-sharing is common.
- Protect the states' ability to manage SCHIP.
To preserve its block grant structure, Congress must ensure that
federal funding remains fixed and that states are free to use
techniques like waiting lists and enrollment caps to manage the
growth of SCHIP. Moreover, Congress should not succumb to efforts
focused on expanding and simplifying enrollment, which will
ultimately result in further federal and state
The intended distinctions between SCHIP and Medicaid are
diminishing. To protect taxpayers from yet another open ended
entitlement or state funded mandate, Congress should reinforce the
unique features of SCHIP that make it operate more like private
coverage than a welfare program and better integrate private
coverage into its basic structure.
Owcharenko is Senior Policy Analyst in the Center for Health
Policy Studies at The Heritage Foundation.
purposes of this discussion, Tennessee is considered to have a
combination approach. See Kathryn G. Allen, Director, Health Care,
U.S. Government Accountability Office, "Children's Health
Insurance: States' SCHIP Enrollment and Spending Experiences in
Implementing SCHIP and Considerations for Reauthorization,"
statement before the Subcommittee on Health, Committee on Energy
and Commerce, U.S. House of Representatives, February 15, 2007,
GAO-07-447T, p. 13, at www.gao.gov/new.items/d07501t.pdf
leading SCHIP reauthorization proposals H.R. 1535/S. 895 and S.
a discussion of the obstacles to premium assistance, see Cynthia
Shirk and Jennifer Ryan, "Premium Assistance in Medicaid and SCHIP:
Ace in the Hole or House of Cards?" National Health Policy Forum
Issue Brief No. 812, July 17, 2006, at www.nhpf.org/pdfs_ib/IB812_PremiumAssist_07-17-06.pdf.
co-pay for those children with family incomes between 101 and 150
percent of the FPL can be slightly higher than for traditional
Medicaid. See Elicia J. Herz, Bernadette Fernandez, and Chris L.
Petereson, "States Children's Health Insurance Program (SCHIP): A
Brief Overview," Congressional Research Service Report for
Congress, August 4, 2005, p.4.
Allen, p. 18. See also Donna Cohen Ross, Laura Cox, and Caryn
Marks, "Resuming the Path to Health Coverage for Children and
Parents: A 50 State Update on Eligibility Rules, Enrollment and
Renewal Procedures, and Cost-Sharing Practices in Medicaid and
SCHIP in 2006," Henry J. Kaiser Family Foundation, January 2007,
pp. 59-62, at www.kff.org/medicaid/upload/7608.pdf.
Ross, Cox, and Marks. See also H.R. 1535/S. 895 and S. 1224.
These requirements are even more relevant since enactment of the
Deficit Reduction Act, which allows states to apply SCHIP-style
cost sharing on certain Medicaid