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CMS Directive Limits State Coverage Expansions

In August 2007, the Centers for Medicare and Medicaid Services (CMS) issued a directive that limits states' ability to expand the State Children's Health Insurance Program (SCHIP) to cover children in families with income above 250 percent of the federal poverty level (FPL). According to the directive, states would be allowed to increase SCHIP eligibility above 250 percent of poverty only if they could first prove that 95 percent of children in families with income below 200 percent of poverty were enrolled in Medicaid or SCHIP. Twenty-three states have been directly affected by this directive—10 that had already implemented coverage expansions beyond 250 percent of FPL and another 14 that had been planning to do so (Washington State fits both categories).

New Jersey, California, and eventually five other states filed lawsuits to challenge the authority of the directive. The U.S. Government Accountability Office and Congressional Research Service also examined it and concluded the directive exceeded the scope of the Administration's power and was therefore illegal.

On September 29, 2008, lawyers for CMS told a U.S. District Court judge the directive was only meant to be "policy guidance" and repeated an earlier announcement that CMS does not plan to take compliance actions against states if they fail to meet the requirements in the directive. However, the directive has not been rescinded, leaving states uncertain about how to plan for the future. Whether or not the directive is ever enforced, it has already resulted in a number of states limiting or delaying their plans to expand coverage for children. The judge who heard the case called it "complex" and reserved his judgment. The situation remains uncertain, and will likely emerge as an early test of the next administration's thinking about how to use—or not use—Medicaid and SCHIP to cover uninsured Americans.

For More Information
See: CMS Directive to State Health Officials, August 17, 2007.
Congressional Review Act: Applicability to CMS Letter on State Children's Health Insurance Program, U.S. General Accounting Office, May 15, 2008.
R. Schwaneberg, NJ and Feds Tangle in Court over Kids' Health Care Rules," The New Jersey Star-Ledger, September 30, 2008.

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