Federal restrictions on children’s health insurance program worry state officials

New federal restrictions on the State Children’s Health Insurance Program (SCHIP) have created widespread anxiety at the state level, where officials are uncertain about not only their expansion plans but also the future of their existing initiatives.

SCHIP has become the focal point of an ideological battle over the future of the American healthcare system, pitting President Bush against the Democratically controlled Congress.

{mosads}The current debate on reauthorizing the program, set to expire at the end of the month, also serves as a preview of the dueling visions of healthcare reform that will emerge from the parties leading up to next year’s presidential election.

But while federal policymakers fight over SCHIP’s mission and the scope of its expansion, state officials must continue to manage their programs.

The Bush administration’s announcement in August that it would apply rigorous new standards to states’ applications for expansions added another element of insecurity for the states, which had been expanding SCHIP with the administration’s blessing since 2001.

“They’re basically backtracking with us and with others,” said Lesley Cummings, the director of California’s SCHIP, known as Healthy Families.

Governors from both parties have entered the fray. New York Gov. Eliot Spitzer (D) and New Jersey Gov. Jon Corzine (D) threatened legal action if the new rules are not lifted. Spitzer and California Gov. Arnold Schwarzenegger (R) led a group of 30 governors — including five Republicans — who sent a letter to Bush Monday calling on him to withdraw the guidelines.

Last week, Sens. Edward Kennedy (D-Mass.), Gordon Smith (R-Ore.), Jay Rockefeller (D-W.Va.) and Olympia Snowe (R-Maine) introduced a bill to rescind the rules, legislation that could find its way into the SCHIP reauthorization bill Democratic leaders hope to send to the president by the end of the month. The president has vowed to veto the measure.

Administration officials all year have said that SCHIP should focus on its “core” beneficiaries: low-income children. Over the last six years, states have expanded the program to cover children from higher-income families, pregnant women, parents and even some childless adults.

Under new guidelines issued Aug. 17, the Centers for Medicare and Medicaid Services (CMS) will not approve any state’s SCHIP expansion to children in families with incomes up to 250 percent of the federal poverty level — $51,625 for a family of four — unless 95 percent of children in families below 200 percent of the poverty threshold already are enrolled in SCHIP or Medicaid.

State officials have said that the 95 percent standard has never been met by any state, a claim disputed by the administration.

The CMS guidelines also say that states must prove that no more than 2 percent of the kids targeted by an expansion had been “crowded out” of the private insurance market and into public coverage during the previous five-year period, and that cost-sharing under SCHIP is comparable to cost-sharing in private insurance plans.

Eight states have enacted laws authorizing SCHIP expansions above 200 percent of poverty that must win approval to receive federal funding. CMS already has rejected New York’s application to expand coverage from 250 percent of poverty to 400 percent, which precipitated Spitzer’s lawsuit threat.

California got a preview of the new CMS rules a week before they went public, according to the state SCHIP agency. Santa Cruz County sought to join three other California counties by expanding SCHIP benefits to 300 percent of poverty but was rebuffed, Cummings said.

Other states that were planning to move above 200 percent of poverty have scaled back their plans or are considering doing so, including Louisiana, North Carolina, Ohio, Oklahoma, Washington and West Virginia.

Louisiana was poised to submit an application to raise eligibility to 300 percent of poverty when CMS announced the new policy. The state pulled back, according to the New Orleans Times-Picayune.

Oklahoma had been planning to go from 185 percent of poverty to 300 percent but instead submitted an application to expand to 250 percent, in line with the administration’s guidelines, said Jo Kilgore, a spokeswoman for the Oklahoma Health Care Authority.

Some states would be unable simply to request a smaller eligibility expansion and would have to enact new legislation, said Joy Johnson Wilson, director of health policy at the National Conference of State Legislatures. “It depends on how it’s drafted.”

CMS could try to rescind past approvals above 250 percent of poverty, which would affect SCHIP in 11 states and the District of Columbia.

States that do not have expansion plans on the books nevertheless have cause for concern, Cummings said.

California officials are unsure whether existing programs could come under CMS scrutiny, she said: “We are worried about it.”

Cummings specifically pointed to a program that provides SCHIP benefits to pregnant women and infants younger than 1 year old, up to 250 percent of poverty. Because that program deducts expenses such as childcare from its income calculations, it could be in jeopardy. CMS has indicated it will measure gross income without any deductions to determine eligibility.

“That program could be called into question,” Cummings said.

Other states above 250 percent of poverty that allow income deductions when establishing eligibility include Hawaii, Missouri, Ohio and the District of Columbia.

Not every affected state opposes the new federal SCHIP policy, however. Although Indiana enacted a law permitting an expansion from 200 percent of poverty to 300 percent, the state will stand pat, officials say.

Indiana sought additional federal dollars for children’s coverage when the state saw more states using SCHIP dollars to cover higher-income children and adults, explained Marcus Barlow, a spokesman for the Indiana Family and Social Services Administration. Now that CMS will take a harder look at all expansions, Indiana no longer feels compelled to seek a greater share of federal SCHIP money, he said.

“If it’s going to be equal for everyone … we’re OK with that,” he said. Indiana Gov. Mitch Daniels (R) was Bush’s first White House budget director.

The Indiana delegation to the U.S. House overwhelmingly opposed the $50 billion House SCHIP bill. Democratic Reps. Joe Donnelly, Brad Ellsworth and Baron Hill joined four GOP colleagues to oppose the measure. Indiana Democratic Reps. Julia Carson and Pete Visclosky voted for it. Indiana Sens. Richard Lugar (R) and Evan Bayh (D) voted for the $35 billion Senate bill.

Colorado and South Carolina also recently enacted SCHIP expansions that must be approved by CMS. However, because these states kept eligibility below 250 percent of poverty, the new rules should not affect their applications.