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.

Democratic governors oppose plans shifting Medicaid expenditures toward states

Democratic governors have expressed their concerns about turning Medicaid into a block grant program, fearing that such a shift would cut access to care for enrollees. Issuing block grants would reduce federal support by providing a capped lump sum, requiring states to bear program costs that exceed the amount received.

Governors’ stance

Eleven governors have made statements opposing the reduction of federal commitment to their programs. A recurring theme appears: concern that this change will reverse the successes the programs have achieved in recent years. Virginia Governor Terry McAuliffe (D) rebuffed the idea that a block grant will allow programs to weed out inefficiencies, stating that the program runs efficiently as-is and that the block grant will result in a strained state budget, reduction of benefits, and limited choices. Louisiana Governor John Bel Edwards (D) noted that Medicaid provides most of the long-term care in the country, and that the aging population will require significant care in the future.

Some governors also mentioned their opposition to the idea of per-capita caps, which limits how much the federal government will reimburse a state per enrollee. Pennsylvania Governor Tom Wolf (D) also spoke about broad concerns surrounding replacing the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and the potential impact on vulnerable residents who rely heavily on government-sponsored care.