CHIP UPDATE: Funding Restored as Government Reopens

February 16, 2018

Paul Nicolaus

Several days into a shutdown, Congress arrived at a deal to reopen the government and fund the Children’s Health Insurance Program (CHIP) through federal fiscal year 2023. On January 22, the Senate passed a short-term spending bill to keep the government running through February 8 and give Congress additional time to address the issue of immigration. Both the House and President Trump followed suit, signing off on the measure later that day.

CHIP provides health coverage to roughly 9 million children and pregnant women from lower-income households that make too much to qualify for Medicaid. The Centers for Medicare and Medicaid Services (CMS) runs the program, and it is jointly managed by the federal government and the states. While each state has its own version, most CHIP programs contract with managed care organizations to provide services.

Created in 1997, the program has generally garnered bipartisan support, but unlike Medicaid, lawmakers have to regularly re-approve the program’s funding. And this time around, there have been a swirl of questions surrounding its financial future. The program’s funding officially expired September 30, 2017 at which point states were forced to get creative and use unspent monies to make due while waiting on the House and Senate to reach an agreement.

Some states were on the verge of shutting the program down due to lack of funds when Congress approved temporary funding back in late December. The allocation of nearly $3 billion at that time was meant to maintain CHIP through the end of March while working on a long-term solution, but it turned out that the math used in that continuing resolution did not add up.

CMS pointed out that some states were at risk of running dry much sooner than that.

“The funding included in the continuing resolution should carry all the states through January 19 based upon best estimates of state expenditures to date,” Johnathan Monroe, CMS spokesperson told First Report Managed Care in an email.

In a letter sent out January 10, six doctor groups collectively representing over half a million physicians and medical students urged Congress to take action needed to renew CHIP’s funding. By then, several states had begun to use funds meant to operate the program to start shutting it down, the letter indicated. The short-term funding, which was not enough to prevent states from continuing those actions, “only causes more chaos and confusion on the ground.”

“A continued delay in passing legislation to fund these programs for the long term is unacceptable—the negative consequences of Congressional inaction already are being felt and will be compounded in the coming weeks,” the letter continued.

CHIP Saves Government Money

Although partisan disagreement over how to pay for CHIP dragged on for months, the issue at the root of that battle appeared to have been all but resolved. A letter sent by Congressional Budget Office (CBO) Director Keith Hall to Senate Finance Committee Chairman Orrin Hatch (R-Utah) on January 5 noted the cost of renewing funding for another five years would be significantly lower than assumed just a few months prior.

Rather than the originally anticipated $8.2 billion net cost, the agency noted the deficit would increase by $800 million—a reduction in cost of $7.5 billion. The reason for that difference has to do, at least in part, with the recent repeal of the ACA’s individual mandate, which is expected to lead to increased marketplace premiums. If CHIP were not continued, some children would be enrolled in these more expensive plans.

In a more recent letter dated January 11, the CBO indicated that extending CHIP funding for 10 years would actually result in net savings to the federal government because of the higher costs of alternative options, such as Medicaid, subsidized coverage in the marketplaces, and employment-based insurance.

But at the time, this news was not enough to immediately resolve CHIP’s funding as it remained wrapped up in a larger game of tug-of-war.

“CHIP has always been bipartisan, which makes it a little bit vulnerable to being used as a bargaining chip,” that can be used to accomplish other things, Kelly Whitener, JD, research professor with Georgetown University’s Center for Children and Families told First Report Managed Care.

In other words, because it is such a popular program traditionally viewed by many as “a must-pass, popular bill” it turned into an attractive negotiating tool in the midst of contentious debate surrounding a number of other issues. As a potential shutdown loomed, Republican leadership worked to advance a bill that would fund the government for the short term and extend CHIP for six years. Including this extension in a short-term funding bill may have had more to do with immigration than health care, though.

In a recent New England Journal of Medicine perspective, Lisa C Dubay, PhD, and Genevieve M. Kenney, PhD, of the Urban Institute, said that the CBO’s report makes funding CHIP a “no brainer.”

“The cost to the federal government of reauthorizing CHIP is now much lower (less than $1 billion over 10 years for a 5-year reauthorization, with actual savings possible for the federal government from a longer-term reauthorization) because of the elimination of the Affordable Care Act’s individual mandate, the question of how to pay for it should be moot, and reauthorizing CHIP for 5 years or even longer
should be a no-brainer,” he said.

Still unable to come up with a budget deal by the January 19 deadline, the federal government shut down as the blame game continued. Republicans looked to pin any failure to extend CHIP on Democrats while Democrats pointed the finger at Republicans for playing politics with a program that helps ensure the health of children. According to the Georgetown University Center for Children and Families, 10 states—Arizona, Connecticut, Florida, Hawaii, Louisiana, Minnesota, Nevada, New York, Ohio, and Washington—as well as Washington, DC, were likely to run out of funds by the end of January if a deal did not pan out.

Impact of Uncertainty

Two days later an agreement was ultimately reached.

“The money came through,” Sara Rosenbaum, JD, professor of health law and policy at George Washington University told First Report Managed Care. “Nobody’s coverage will be interrupted.”

Even though the funds did come through in the end, the uncertainty surrounding the program for several months did lead to some financial fallout and emotional turmoil. Families had already started to receive letters in the mail warning them that their coverage could be interrupted, she explained, and states had already started preparing for the prospect of terminating the program. This led to an administrative waste of time for states and unnecessary stress for parents.

These are, by definition, lower income parents who do not necessarily have the means to pay for care for their children if that coverage is cut off, she explained, and these families were put through a terrible time for no good reason. Like Ms Rosenbaum, Ms Whitener pointed out the expense of states’ meeting and planning time in addition to the expense of sending notice to families or making complicated changes to an eligibility system. But it’s the longer-term effects, she said, that are “more subtle” and create “more of a chilling effect.”

Throughout much of 2017, the public discourse focused on repealing the ACA and taking coverage away.

“I think that for a lot of families it’s hard to separate that from CHIP or from Medicaid,” Ms Whitener explained, which can lead to wonderings about whether health care coverage is still available for them. “And I think that was really just sharpened and made worse for families that rely on CHIP because of this gap in funding that we’ve seen.”

This type of ambiguity is hard to bounce back from and can have a lasting effect for the families impacted. “I think there may be long-term effects on enrollment,” Ms Whitener added, both from people choosing not to enroll and from people thinking that they cannot.

Is the Deal Done?

According to the most recent projections, extending CHIP funding for 10 years would save the federal government an estimated $6 billion, so even though a long-term funding extension was recently passed, Ms Whitener said it will be interesting to see if Congress chooses to return to this program in the weeks ahead and prolong that funding for an additional 4 years in an effort to capture those anticipated savings. 

There are other health care provisions that were not included in the continuing resolution, she pointed out, such as Medicare extenders, community health centers, or the Maternal, Infant, and Early Childhood Home Visiting program.

Funding for community health centers was not extended along with the CHIP reauthorization, but was instead part of a next round of Congressional reconciliation that once again shut down the government. Community health centers get about 20% of their funding from the government—and provide care to a significant amount of Medicaid and CHIP recipients—meaning any delays in that funding would have detrimentally impacted these programs.

 “I’m curious to see if CHIP ends up as an offset for another health care package,” Ms Whitener said. “And if not a health care package, does it end up as an offset for something else?”

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