Urban Institute Press Release 10/1/2002

WASHINGTON, D.C., October 1, 2002—Despite mounting budget pressures, State Children's Health Insurance Program (SCHIP) directors in 13 key states have so far resisted cutbacks in program eligibility and benefits, according to a new survey of program administrators and other officials conducted this summer by Urban Institute researchers for its Assessing the New Federalism (ANF) project.

But such restraint may not last. With 3.8 million children enrolled nationally in SCHIP, the joint federal-state program is facing its first real fiscal challenge as states contend with deficits surpassing $36 billion in fiscal year 2002.

The states surveyed—Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin—account for 64 percent of SCHIP enrollment.

The survey findings are reported in "SCHIP Dodges the First Budget Ax" by Urban Institute health policy researchers Embry Howell, Ian Hill, and Heidi Kapustka. In most of these states, they observe, SCHIP is under exceptional pressure because of constricting state budgets, rapid growth in enrollment, or the lack of carryover SCHIP funds from earlier years. During the first year under the budget ax, however, SCHIP directors report very few cutbacks, especially in eligibility or benefits. Only New Jersey, with swiftly rising enrollment and a large forecasted deficit, restricted eligibility, but for parents and not for children.

No state cut its benefit package this year; in fact, Colorado, Florida, Mississippi, and New York enhanced their benefits, primarily for dental care, reflecting policy changes from prior years that were put into place in 2002. Many ANF states have reduced their outreach efforts, because of a perception in some states that there is less need to advertise a mature program. In addition, New Jersey began raising its premiums and Texas imposed additional copayments on some services. Only Minnesota has cut, by 0.5 percent, reimbursement rates to health plans. As for the future, the SCHIP directors indicate more states are considering cuts than expansions.

Why Is SCHIP Resilient?

SCHIP directors identified a number of reasons why the program has been largely immune from significant cuts this year:

SCHIP is widely viewed as successfully addressing a vital need.
SCHIP is not seen as overly costly, especially compared to Medicaid.
Governors and legislators like programs they feel they can control, and the fact that SCHIP is generally not an entitlement reinforces this attribute.
High federal match rates make it extremely difficult to justify major program cuts.
No governor or legislator wants to cut a program that explicitly serves children, especially during an election year.
If state budget difficulties continue, SCHIP enrollment climbs, or federal funding becomes uncertain, Howell, Hill, and Kapustka conclude, states will likely look for further cuts.

States with parental coverage may first cut those benefits before reducing ones for children, say the authors. "If they do modify their SCHIP programs for children, they are likely to make minor modifications initially, in the hope that the gains in access to care for low-income children will not be reversed," they add.

SCHIP Succeeds with Near-Poor Children, but Doesn't Dent Trend for Poor Kids

In a related study, "Five Things Everyone Should Know about SCHIP," Lisa Dubay, Ian Hill, and Genevieve Kenney provide a concise reading of SCHIP on its fifth anniversary, recapping how

states have taken advantage of SCHIP's flexibility;
SCHIP funds have been plentiful, but may run short;
coverage gains have occurred for many children;
most uninsured children could be covered by SCHIP or Medicaid; and
further improvements are needed in both SCHIP and Medicaid.
The uninsurance rate for near-poor children, the focus of SCHIP, declined from 23.3 percent to 17.5 percent between 1996 and 2000. During that period, the number of uninsured near-poor children (whose family income is between 100 and 200 percent of the federal poverty level) dropped by just over a million. The researchers attribute much of the drop to expansions in SCHIP eligibility and to outreach and eligibility simplification by both SCHIP and Medicaid. An estimated 2.7 million near-poor children, however, remain without medical coverage.

For poor children (those below 100 percent of the poverty level), the rate of uninsurance and its trend are much less encouraging, say Dubay, Hill, and Kenney. This group's uninsurance rate has been stagnant at around 27 percent from 1996 to 2000. At about 21 percent of all children, the 4.5 million poor uninsured kids make up almost 46 percent of uninsured children.

Parents are not enrolling their children for a number of reasons, including:

not knowing that the programs exist, that their child is eligible, or that welfare is not a prerequisite for Medicaid/SCHIP enrollment;
administrative hassles with enrollment, such as documentation requirements or language barriers; and
not wanting public insurance coverage for their children.
"Addressing these issues requires additional resources, but emerging funding problems and the recent economic downturn may make it difficult for states to attack these issues," Dubay, Hill, and Kenney say.

Complicating SCHIP's fiscal future, they note, is the so-called "SCHIP dip," which saw federal funding start at $4.2 billion in fiscal 1998 and drop to $3.1 billion for fiscal 2002 through 2004. "The question," they point out, "is whether states can preserve and even build upon the gains they have made in providing insurance coverage to children, when state budgets are under so much strain and federal funding is uncertain."