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Debt Talks Put Children’s Health Program in Spotlight, Once Again

By John Reichard, CQ HealthBeat Editor

July 8, 2011 -- The Children’s Health Insurance Program (CHIP) could take a major hit in coming years because of two proposals under discussion in the ongoing debt ceiling negotiations.

It’s not because the program is unpopular. In fact, CHIP isn’t itself a target, advocates say. It’s that negotiators are considering changes to Medicaid that could have the effect of allowing states to cut the program.

“The big thing about it is no one is overtly trying to eliminate CHIP,” says Bruce Lesley, president of the Washington, D.C.-based children’s health advocacy group First Focus. “No one is focused on it.”

This is not the first time CHIP has been on the bargaining table, and this time, as in the past, advocates have come out in force.

The program has enjoyed a loyal and bipartisan following since it was created as part of the 1997 balanced-budget law (PL 105-33). Working behind the scenes, Republicans led by Sen. Orrin G. Hatch of Utah negotiated language with the Clinton White House creating the program to cover kids in families making too little to afford private coverage and too much to be on Medicaid. When Congress debated the health overhaul in 2009, Hatch cited CHIP as a model, praising its fixed allotments to the states and their leeway to fashion their own programs.

CHIP has elicited the same passion from the other side of the aisle. When early drafts of the health care law threatened CHIP’s extinction, Democratic Sen. John D. Rockefeller IV of West Virginia almost single-handedly saved the program. He stepped in after other lawmakers had decided to drop CHIP because of provisions that would cover the uninsured by sharply expanding Medicaid and subsidizing the purchase of coverage in insurance exchanges. The law requires that states keep their CHIP programs at current eligibility levels through 2019.

Now, pressure on state budgets is causing Republicans to push for elimination of Medicaid “maintenance of effort” requirements in the 2010 health law (PL 111-148, PL 111-152). This rule says states must maintain current Medicaid eligibility levels for adults until 2014, when state insurance exchanges start, and for children through 2019. Lawmakers seeking an end to the maintenance of effort rule are focused on reducing Medicaid eligibility, not CHIP, Lesley says. But erasing the requirement in any debt deal would also end the mandate that states maintain CHIP programs through 2019.

If that happens, the Congressional Budget Office (CBO) estimates, half the states would end their CHIP programs after insurance exchanges open in 2014. CHIP enrollees could get their coverage from the exchanges, using federal subsidies for their families to buy private insurance. According to CBO, the number of CHIP enrollees would drop by 1.7 million by 2016 under that scenario, and not all of them would qualify for the exchanges. About 300,000, CBO says, would go uncovered.

An Uncertain Fate
An even bigger threat in the debt talks, according to Lesley, is an Obama administration proposal to save $100 billion by establishing a uniform figure for the percentage the federal government pays of Medicaid costs. Now, the federal percentage varies state by state. A uniform figure, calculated by blending together the current state-by state federal percentages, might also be used to set the federal share of CHIP payments. If Washington pays the same percentage for both Medicaid and CHIP costs, states won’t have an incentive to set up a separate CHIP program and there may be less money to do so, he says.

Rockefeller said Thursday that if the president does “the wrong thing” and the proposal is part of the final debt deal, Obama will “get rid of CHIP.”

For CHIP’s passionate supporters, that would be a disaster. Rockefeller says the insurance offered by exchanges will be “watered down” compared to that provided in CHIP. Lesley says that a study commissioned by First Focus shows that exchange coverage will involve paying higher out-of-pocket costs than families pay under CHIP. And he points to the CBO assessment that not all enrollees would stay insured if CHIP coverage ends.

Health and Human Services Secretary Kathleen Sebelius, speaking Friday, appeared to downplay the chances that a blended rate would be used to make cuts. “A lot of states get nervous” about the idea of a blended rate that would reduce overall federal funding, she said in a telephone call with reporters.

But even if the debt deal only eliminates the maintenance of effort requirement, CHIP enrollment would still take a big hit. And even if the requirement stays, there’s still plenty of uncertainty about CHIP’s long-term future.

The health law only funds CHIP through 2015, which will prompt an analysis that year of how well exchanges are serving children and whether CHIP is really needed.

“I think CHIP is a great program but I think exchange coverage is going to be good too,” says Matt Salo, executive director of the National Association of Medicaid Directors. After 2014, “you’re not dumping people out with a safety net,” he adds. “At that point, states can make the same business decision that employers will make: provide direct coverage or facilitate coverage through the exchange.”

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