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Children's health program faces cloudy future under Obamacare

The Children’s Health Insurance Program got a big boost under the Affordable Care Act, which called for an increase in federal funding for the program and required states to maintain 2010 enrollment levels through 2019.

But in the waning days of the lame-duck Congress, it is still not clear when or whether funding for the federal-state, low-income children’s health plan known as CHIP will be authorized beyond Sept. 30, when it is set to expire.

At issue is whether the subsidized health plans offered on the state and federal health insurance exchanges created under the ACA are an adequate alternative to CHIP. Program advocates say current exchange insurance policies are no substitute for CHIP coverage, although they may improve over time. The question is how soon.

“CHIP was designed with children in mind,” said Jim Kaufman, vice president of public policy for the Children’s Hospital Association. “That’s the key.”  In contrast, he said, ACA insurance exchange policies were designed primarily for adults. “That has very real implications for the quality of care kids receive.”

Advocates for the program have been pressuring Congress for more than a year to reauthorize funding as soon as possible to avoid a gap in the $13 billion program, which more than 8 million kids and their families rely on. At least 39 governors, Democrats and Republicans, are part of the chorus.

The Children’s Health Insurance Program got a big boost under the Affordable Care Act, which called for an increase in federal funding for the program and required states to maintain 2010 enrollment levels through 2019.

But in the waning days of the lame-duck Congress, it is still not clear when or whether funding for the federal-state, low-income children’s health plan known as CHIP will be authorized beyond Sept. 30, when it is set to expire.

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At issue is whether the subsidized health plans offered on the state and federal health insurance exchanges created under the ACA are an adequate alternative to CHIP. Program advocates say current exchange insurance policies are no substitute for CHIP coverage, although they may improve over time. The question is how soon.

“CHIP was designed with children in mind,” said Jim Kaufman, vice president of public policy for the Children’s Hospital Association. “That’s the key.”  In contrast, he said, ACA insurance exchange policies were designed primarily for adults. “That has very real implications for the quality of care kids receive.”

Advocates for the program have been pressuring Congress for more than a year to reauthorize funding as soon as possible to avoid a gap in the $13 billion program, which more than 8 million kids and their families rely on. At least 39 governors, Democrats and Republicans, are part of the chorus.

The Family Glitch

About 4 million children—or half of all covered children—would be at risk of losing CHIP coverage in the first year if Congress fails to renew funding, according to preliminary estimates by the Georgetown University center and another family advocacy group, the Center on Budget and Policy Priorities. Of those kids, as many as 2 million would not qualify for exchange subsidies because of what is known as “the family glitch,” according to a report from the U.S. Government Accountability Office.

An apparent drafting error, the “family glitch” in the ACA requires employers to provide “affordable” insurance only for the workers themselves – not for their families.  Premiums for individual employee-offered coverage may not exceed 9.5 percent of a worker’s salary. But there is no limit on what employees have to pay for family coverage, which typically costs close to three times as much as individual coverage. 

Under the ACA, people with incomes between the federal poverty level ($11,670 for an individual) and 400 percent of the federal poverty level ($45,600 for an individual) whose employers have not offered them “affordable” insurance (with premiums that do not exceed 9.5 percent of the worker’s salary) are eligible for federal subsidies to help them purchase insurance on an exchange.  But because of the “family glitch,” those who need family coverage have nowhere to go except CHIP or Medicaid.

Historically, CHIP has covered kids up to 19 years old with family incomes ranging from 138 percent of the federal poverty level ($32,913 for a family of four) to as high as 405 percent ($96,592 for a family of four), depending on the state. In families with incomes below 138 percent of poverty, young children from infancy to 6 years old are covered by Medicaid.

Programs administered through Medicaid would continue to receive federal funding even if CHIP funding is cut off, although the federal share would be lower. At the House committee hearing, MACPAC’s Schwartz clarified that states running CHIP programs as an extension of Medicaid would have to continue those programs until 2019 even if federal CHIP funds are cut off. 

However, “states operating separate CHIP programs are not obligated to continue funding their programs if federal CHIP funding is exhausted and will most likely terminate such coverage,” Schwartz said.

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Cost and Spending

The current average federal share of Medicaid spending is 57 percent, compared to an average of 70 percent for CHIP, according to data from the Kaiser Family Foundation. If Congress extends the program, the ACA calls for the federal government to cover more than 93 percent of the cost of CHIP.

Across the states, an average of 88 percent of eligible children were enrolled in either CHIP or Medicaid in 2012, compared to only 74 percent of eligible adults enrolled in Medicaid, according to an analysis from the Urban Institute. CHIP’s high enrollment rate is due in part to the high matching rate, but state’s also get bonus payments for enrolling more kids. In 21 states, participation rates are 90 percent or higher, while four states — Alaska, Montana, Nevada and Utah — signed up fewer than 80 percent of those eligible.

Since its enactment, CHIP has been instrumental in lowering uninsured rates among children, according to a new report from the Pew Charitable Trusts (Pew funds Stateline). The number of uninsured kids has fallen from 10.7 million (15 percent of all children) in 1997 to 6.6 million (9 percent) in 2012.

Although costs to states and the federal government have risen because of increased enrollment, the Pew study found CHIP spending per child to be about 40 percent less than employer-sponsored insurance and Medicaid in 2010, the last year for which data were available for all insurance types.

In Alabama, which has one of the highest CHIP enrollment rates in the nation at 91 percent, the ACA-mandated increase in federal funding means the state’s share would drop to zero.

When the Alabama legislature convenes in January, the state’s CHIP agency may be in the awkward position of having to ask for state money without knowing whether Congress will continue the program, said Cathy Caldwell, director of Alabama’s CHIP agency.

Alabama has 63,000 kids enrolled in a separate CHIP program that almost certainly would be shut down if Congress does not approve funding.  If that were to happen, Caldwell said, “it would create complete chaos.”  She noted that some parents already are hearing about the national debate over federal funding. “They’re saying, ‘Oh no! Are we going to get cut off?’”

Stateline is a nonpartisan, nonprofit news service of the Pew Charitable Trusts that provides daily reporting and analysis on trends in state policy.

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