The Arduous Road to Renewal of CHIP Funding

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Doctor examines child with stethoscope
The Children’s Health Insurance Program (CHIP) serves beneficiaries across the nation, including more than two million in California.

After months of uncertainty, on January 22, 2018, Congress passed legislation renewing long-term federal funding for the Children’s Health Insurance Program (CHIP). Nearly nine million children and 370,000 pregnant women nationwide rely on the program for health coverage, including more than two million children and pregnant women in California.

Despite enjoying bipartisan support since its inception in 1997, Congress failed to pass renewed long-term funding for the CHIP program before it expired on September 30, 2017. Instead, the House and Senate took a series of short-term actions while continuing to pursue common ground for a long-term funding solution. It took 114 days after expiration to reach agreement and finalize the next six years of CHIP funding.

Following hearings in the House and Senate last fall, the House passed legislation reauthorizing CHIP on November 3, 2017. The bill passed along party lines because of disagreement over how the program should be paid for. The Senate version of CHIP reauthorization was a bipartisan effort, but it stalled too. Definitive action was anticipated for the better part of four months.

Without an agreement, Congress made short-term funding extensions. On December 7, the Centers for Medicare & Medicaid Services (CMS) ordered CHIP redistribution payments to states that would otherwise face budget shortfalls while awaiting congressional renewal. On December 22, Congress passed a continuing resolution appropriating $2.8 billion for CHIP allotments and extended the special rule for fund redistributions until March 31, 2018. California was projected to receive $1.2 billion in redistribution funding and was anticipated to exhaust its funding in March 2018 if Congress did not take additional action, according to the Medicaid and CHIP Payment and Access Commission (MACPAC).

Revising the CHIP Formula

CHIP is jointly financed by the state and federal government based on the Medicaid Federal Medical Assistance Percentage (FMAP) formula. The FMAP rate was bumped up by 23 percentage points under the Affordable Care Act (ACA). For California, this increased the proportion of CHIP paid for by the federal government from 65% to 88%. It was unclear whether this enhanced federal match would continue. California’s 2017-2018 fiscal year budget assumed CHIP would be extended at a lower FMAP rate of 65% given that the majority of proposals under congressional consideration proposed to gradually decrease the FMAP rate back to pre-ACA levels by 2021.

The uncertainty in Washington affected state governments nationwide, as well as the children and families the CHIP program was created to serve. As uncertainty regarding CHIP funding persisted, states scrambled to modify their programs. Administrative expenditures increased as states altered their enrollment systems in preparation for possible eligibility changes or state CHIP program closures. Doctors also scrambled to ensure that their most vulnerable pediatric patients, such as those undergoing cancer treatments, would continue to have access to needed treatments if CHIP funding were to fully expire.

In California, the uncertainty over CHIP put coverage for approximately 32,000 pregnant women and children at risk, since these children and families were unlikely to otherwise qualify for federally funded, full-scope Medicaid without CHIP’s financial support. The Georgetown Center for Children and Families published a comprehensive overview of the CHIP program in California that includes a description of these dynamics.

Positive Fiscal Impact

On January 5, the Congressional Budget Office (CBO) made a successful CHIP extension more likely when it significantly reduced its estimate of that policy’s budget impact. The updated estimate concluded that a 5-year extension would cost Congress only $800 million instead of the $7.5 billion previously estimated. CBO later declared that a 10-year extension would save the government more than $6 billion. The 6-year extension that was ultimately adopted is cost neutral.

The projected cost of CHIP reauthorization declined because of the passage of the tax law, which repealed the ACA’s individual mandate. The demise of the mandate will increase premiums in the individual market, thus making CHIP a more attractive alternative for families and a less costly form of coverage for the federal government than providing subsidies in the individual insurance market. That differential increases the government savings when people enroll in CHIP rather than commercial coverage. The total governmental savings grows with time — a fact that children’s health advocates like Mike Odeh from Children Now had hoped would prompt Congress to extend CHIP for 10 years instead of only 6.

The continuing resolution that ultimately secured CHIP funding extends federal funds through September 30, 2023. During that period, the share of CHIP paid by the federal government will decrease until 2021, when it reaches historic pre-ACA levels. The extension includes the 23% enhanced FMAP rate established by the ACA for the first two fiscal years, 2018 and 2019. The enhanced rate then phases down by 11.5 percentage points beginning in 2020 and returns to pre-ACA FMAP rates for 2021, 2022, and 2023. In California, the Legislative Analyst’s Office (LAO) estimates that the newly authorized federal CHIP funding will reduce the state’s general fund Medi-Cal costs by approximately $300 million in 2017/18 and $600 million in 2018/19.

After months of uncertainty, advocacy, and Congressional negotiations, CHIP funding for the next six years is finally secure. While a 10-year extension would be better for the families CHIP serves and the stability of state budgets, Congress has turned its focus to other topics. Additional extensions will have to wait. As 2023 draws near and CHIP is up for renewal again, our hope is that the next funding extension will be secured in a smoother, more timely fashion. The health of children, pregnant women, and families — as well as wise use of government funding — depends on it.