Expiration of federal funding threatens state CHIP programs

In light of the fact that federal funding for the Children’s Health Insurance Program (CHIP) expired on September 30, 2017, the Kaiser Family Foundation (KFF) analyzed the impact upon states and potential outcomes. Without an extension of federal funding for CHIP, KFF reported that states have or will run out of federal CHIP funding and may face budget shortfalls for CHIP, which covered 8.9 million children in 2016.

According to KFF under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) the enhanced federal funding matching rate was further increased by 23 percent. With this, the CHIP federal matching rate ranged from 88 percent to 100 percent. Because nearly all the states included federal funding for CHIP when creating their FY 2018 state budgets, nearly all the states will face a budget shortfall if the federal funding is not extended.

In the absence of an extension of federal funding for CHIP, some states will have to reduce CHIP coverage. States that have CHIP-funded Medicaid expansions must maintain the underage under the ACA “maintenance of effort” requirement, leaving state costs to increase in the face of lower federal Medicaid match rate. However, states with separate CHIP coverage are not required to maintain it, and states may freeze enrollment or discontinue CHIP coverage altogether.

In the short run, states can continue to use federal funding accrued through the September 30 expiration. Eleven states reported that they would run out of federal funding for CHIP by the end of FY 2017, and at least one state reported that their funding would be depleted at the expiration date. By redistribution of unspent CHIP funds, the Centers for Medicare and Medicaid Services (CMS) was able to provide enough additional funding to allow that state to maintain coverage without a budget shortfall through October. CMS was also able to provide redistributed funds to several other states that were close to running out of funds.

In order to address the expected states’ budget shortfalls, Congress is working on legislation for continued funding. Both the Senate and the House have reported bills out of committee to provide an extension of federal funding for CHIP. The bills from the House and Senate contain many of the same provisions, including a five-year extension for federal funding of CHIP and a transition down from the enhanced 23 percent match provided by the ACA. However, the House bill includes some additional provisions not included in the Senate bill. Both bills still need to be debated and voted upon by the full House and Senate, and if both are passed, Congress will have to reconcile the difference between the two bills.

CHIP and DSHs face difficult financial roads without quick congressional move

Without congressional action, authorization for the Children’s Health Insurance Program will end on September 30, 2017, with the end of fiscal year (FY) 2017. Cuts to disproportionate share hospital (DSH) payments are also scheduled to take effect on October 1, 2017. If the authorization lapses and the cuts take effect, states will face budget shortages in their attempts to keep the CHIP program solvent and DSHs, which already operate on tight budgets, will be exposed to greater financial strain. A number of other health care related provisions are also slated to lapse on September 30, 2017, if Congress does not act, according to a Congressional Research Service (CSR) report.

Action

On September 28, 2017, the Energy and Commerce Committee announced that it would markup a bill to extend funding to the CHIP program. On the same day, members of Congress authored a letter to House Speaker Paul Ryan (R-Wis) and Democratic Leader Nancy Pelosi (D-Calif) expressing concerns regarding the impact of the DSH cuts and calling for congressional action.

DSH cuts

Stakeholders have made ongoing attempts to procure action from Congress to delay the DSH cuts. On September 18, nine hospital organizations urged lawmakers to further delay the start of Medicaid DSH cuts authorized by Section 2551 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) (see Hospital organizations again advocate for delay of Medicaid DSH reductions, September 19, 2017). The cuts would have gone into effect in 2014 but legislation delayed the reduction. The reduced payments were designed to account for decreases in uncompensated care, yet, DSHs warn that planned increases in coverage rates under the ACA have not been realized, exposing providers to unfair payment reductions.

CHIP

Although the impact of a delay in CHIP reauthorization will differ from state to state, a Kaiser Family Foundation analysis revealed that “states would face budget pressures, children would lose coverage, and implementation of program changes could result in increased costs and administrative burden for states” if Congress does not reauthorize the CHIP program by the end of FY 2017 (see States face budget shortages if Congress doesn’t extend CHIP funding, September 11, 2017).

States face budget shortages if Congress doesn’t extend CHIP funding

“Without federal funding [for the Children’s Health Insurance Program (CHIP)], states would face budget pressures, children would lose coverage, and implementation of program changes could result in increased costs and administrative burden for states as well as confusion for families,” according to a Kaiser Family Foundation (KFF) report published on September 6, 2017. Federal funding for CHIP is set to expire on September 30, 2017. The KFF report provides an overview of states’ plans for CHIP in light of the uncertainty about the future of federal funding and describes how the lack of federal funding will impact states and how children and their families will be affected.

States’ CHIP programs

States can provide CHIP through a separate CHIP program, a CHIP-funded Medicaid expansion, or a combination of the two approaches. If federal funding ends, states with separate CHIP coverage would not be required to maintain coverage. Under the Patient Protection and Affordable Act (ACA) (P.L. 111-148); however, states with CHIP-funded Medicaid expansions or a combination of both approaches would be required to maintain this coverage under the maintenance of effort requirement (see ACA sections 2001, 2101, 10203). Without federal funding, states’ costs would increase, KFF predicted.

Findings from surveys of states

KFF and Health Management Associates surveyed state Medicaid officials about their current budgets and their future plans for the CHIP program.In addition, KFF, along with the Georgetown University Center for Children and Families, conducted interviews with several state CHIP directors.

Key findings include:

  • Forty-eight out of 50 responding states, including the District of Columbia, assumed continuation of federal CHIP funding in the fiscal year (FY) state budgets. Thirty-four states assumed the funding would continue with the 23% enhancement that was included in the ACA.
  • Because states assumed continued federal funding in their state budgets, the majority of the states will face a funding shortage if federal funding is not extended. KFF noted that because state budgets have passed, addressing shortfalls will likely require special legislative sessions and/or governor action. Challenges include replacing federal dollars, costs of implementing program changes as well as system changes, outreach and training costs, and costs to close out the program.
  • Ten states estimated that they would exhaust their FY 2017 CHIP allotment by the end of 2017. Thirty-two states projected they will exhaust their federal funding at the end of March of 2018.
  • The majority of states have not developed plans for actions they would take if Congress does not extend funding but some plan to close or cap enrollment and/or discontinue coverage for children in separate CHIP programs. A few states have state statutes that require them to close CHIP and discontinue coverage if federal funds for CHIP decrease. In a few states, CHIP-funded coverage for other groups such as pregnant women and children in buy-in programs would be at risk for cutbacks.

Impact of loss of CHIP coverage

If states close enrollment or discontinue coverage for children in separate CHIP programs, some children would be uninsured but others could shift to parents’ employer-sponsored plans or Marketplaces plans. Previous enrollment caps and freezes that were a result of state budget pressures, led to coverage losses, left eligible individuals without access to coverage and had negative effects on children’s health and family finances, according to KFF. When enrollment was frozen in Arizona, some children were moved to Medicaid, but six in ten likely were uninsured and the uninsured rate grew following the freeze. In North Carolina, the number of children placed on a waiting list rose to over 34,000. Parents with children affected by the freeze reported that the children needed care during the period they were uninsured. They reported delaying or difficulty in obtaining care for the children, difficulties in obtaining prescription medications for their children, and significant financial hardships.

Actions to prepare for lack of federal funding

States need sufficient time to notify families and other stakeholders of the changes in coverage, make changes to eligibility systems, and train eligibility workers. They must also update contracts with managed care plans and third party administrators and submit necessary state plan amendments. States also must be aware that the steps they take to prepare and costs that they incur may be wasted if they begin to implement the change and Congress takes action after the deadline to extend funding.

House Committee urged to extend funding for federal safety net programs

Extend funding for the Children’s Health Insurance Program (CHIP) to ensure continuity of coverage for children, particularly in light of the current uncertainty surrounding other sources of health coverage in the U.S., witnesses urged at a House Committee on Energy and Commerce hearing titled “Examining the Extension of Safety Net Health Programs.” The purpose of the hearing was to examine the extension of funding for two federal safety net health programs that provide health care and coverage for low-income adults and children, CHIP and the Community Health Center Fund (CHCF).

CHIP

CHIP is a program that provides health coverage to targeted low-income children and pregnant women in families that have annual income above Medicaid eligibility levels but have no health insurance. It is jointly financed by the federal government and states, and the states are responsible for administering the program. A memo from the committee majority staff states that in fiscal year (FY) 2015, 8.4 million children received CHIP-funded coverage.

Section 2101 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) increased the CHIP enhanced federal medical assistance percentage (E-FMAP), which varies by state, by 23 percent from October 1, 2013 through September 30, 2019. Since the ACA did not include additional or extended funding for CHIP, MACRA extended funding through September 30, 2017. The Medicaid and CHIP Express Lane Option, Child Enrollment Contingency Fund, CHIP Qualifying State Option, and CHIP Outreach and Enrollment Grants also expire September 30, 2017.

At the hearing, Cindy Mann, partner at Manatt, Phelps & Phillips, touted the success of CHIP, which covers 8.9 million children nationwide. She stated that Congress must consider the overall level of funding for CHIP, in addition to the E-FMAP funds, which “are now fully integrated into states’ budgets and a key source of funding for sustaining CHIP.” She said that Congressional action is needed as soon as possible to ensure program continuity, budget certainty for states, and stable coverage for children, particularly those with special health care needs. She urged a five-year extension instead of two to provide needed stability (see Extend CHIP, protect DSH payments, MACPAC tells Congress, March 16, 2017).

Jami Snyder, Director of the Medicaid and CHIP programs for the state of Texas, noted that a decision to not reauthorize the CHIP program would result in a loss of over $1 billion in annual funding to the state of Texas and a loss of coverage for more than 380,000 Texas children.

Health Center Program

The Health Resources and Services Administration’s (HRSA) Health Center Program, authorized under Section 330 of the Public Health Service Act, awards grants to federally qualified health centers (FQHCs). The program is supported by discretionary appropriations and the CHCF, a mandatory multibillion-dollar fund established by Section 10503 of the ACA. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (P.L. 114-10) extended funding through fiscal year 2017. According to the staff memo, the CHCF represents over 70 percent of the Health Center Program’s FY 2016 funding.

Michael Holmes, the chief executive officer of Cook Area Health Services, an FQHC in Minnesota, testified that as a result of CHCF investments new FQHC were added in more than 1,100 communities. With the extension nearing its expiration date, he “strongly urged” Congress to renew funding for at least five years to allow FQHCs to provide a stable and reliable source of access to patients and recruit and retain a comprehensive health care workforce.