oversight

Children's Health Insurance Program: State Implementation Approaches Are Evolving

Published by the Government Accountability Office on 1999-05-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




May 1999
                 CHILDREN’S HEALTH
                 INSURANCE PROGRAM
                 State Implementation
                 Approaches Are Evolving




GAO/HEHS-99-65
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-280578

      May 14, 1999

      The Honorable Edward M. Kennedy
      Ranking Minority Member
      Committee on Health, Education, Labor, and Pensions
      United States Senate

      The Honorable Thomas J. Bliley
      Chairman, Committee on Commerce
      House of Representatives

      An estimated 9 million to 11.6 million children were uninsured at some
      time during 1997, increasing their risk of forgoing routine medical and
      dental care, immunizations, treatment for injuries and chronic illnesses,
      and the continuity of care implicit in having a primary care physician. In
      August 1997, the Congress created the State Children’s Health Insurance
      Program (SCHIP) with the goal of significantly reducing the number of
      low-income, uninsured children.1 Under SCHIP, a state has the choice of
      (1) expanding Medicaid and thus building upon an existing program,
      (2) establishing a separate, stand-alone program that can include cost
      sharing and allows the states to adopt a benefit package that meets one of
      several employer-based benchmarks, or (3) combining these two
      approaches.2 SCHIP appropriates about $40 billion over 10 years—enough
      money to potentially cut the number of uninsured children by half. Prior to
      SCHIP, approximately 19 million Medicaid beneficiaries—more than
      half—were children, and combined federal and state expenditures on their
      behalf totaled $32 billion.

      You asked us to report on the first year of SCHIP’s implementation and, in
      particular, to examine the states’ (1) initial SCHIP design choices, including
      the use of the statutory flexibility to design their programs; (2) pursuit of
      statutory options, particularly extending coverage to adults in families
      with children; (3) development of innovative outreach strategies to enroll
      eligible children; and (4) tailoring of strategies to avoid the “crowd out” of
      both private insurance and Medicaid coverage by SCHIP. To conduct this
      review, we analyzed available data from research and advocacy groups,
      state agencies charged with implementing SCHIP, and the Department of
      Health and Human Services (HHS), the federal agency responsible for


      1
       Established as title XXI of the Social Security Act by Public Law 105-33; SCHIP is codified as 42 USCS
      § 1397aa et seq. (1998).
      2
       The terminology used in the forthcoming federal regulation governing the SCHIP program refers to
      stand-alone plans as “S-CHIP”—that is, separate child health programs.



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                       approving SCHIP plans.3 We focused on a sample of 15 states that used the
                       three available options: California, Colorado, Connecticut, Florida,
                       Massachusetts, Michigan, Missouri, New York, Oregon, Pennsylvania,
                       Rhode Island, South Carolina, Texas, Vermont, and Wisconsin. Overall, the
                       sample reflects geographic diversity as well as a cross section of SCHIP
                       approaches—stand-alone programs, Medicaid expansions, and efforts that
                       combine these two alternatives. Four of our sample states—California,
                       Florida, New York, and Texas—accounted for almost half of all funds
                       allocated for SCHIP in fiscal year 1998. Five states in our sample—
                       Massachusetts, New York, Oregon, Rhode Island, and Vermont—had
                       operated their Medicaid programs under a section 1115 waiver for a
                       number of years. We conducted our study between May 1998 and
                       April 1999 in accordance with generally accepted government auditing
                       standards.


                       Despite the short implementation period and the related challenges of
Results in Brief       establishing a stand-alone program distinct from Medicaid, the states and
                       the federal government have made considerable progress in getting SCHIP
                       up and running—including the enrollment of about 982,000 children.
                       However, the current distribution of design approaches will continue to
                       evolve as states finalize their SCHIP plans.

                   •   SCHIP design choices are currently almost evenly divided between
                       expansions of state Medicaid programs and programs with a stand-alone
                       component. As of April 1, 1999, 51 SCHIP plans had been approved, 2 were
                       under review, and 3 had not been submitted.4 SCHIP design is ongoing, and
                       more states will ultimately embrace a stand-alone component that, unlike
                       Medicaid, provides them with greater budgetary control over program
                       costs, permits them to vary benefits, and allows cost sharing. For most
                       children, the SCHIP stand-alone benefit packages in our sample offer
                       coverage comparable to Medicaid; however, some states have imposed
                       limits on service use similar to those applied to adults in Medicaid. With
                       regard to cost sharing, our analysis suggests that the states’ use of cost
                       sharing under SCHIP is generally closer to 1 to 2 percent of income than to
                       the 5-percent maximum allowed by the statute.
                   •   A growing number of states are exploring statutory options under SCHIP,
                       including family coverage and subsidizing insurance coverage through


                       3
                        The Health Care Financing Administration (HCFA) within HHS has the primary responsibility for plan
                       review and oversight.
                       4
                        The 50 states, the District of Columbia, and 5 territories are all eligible to develop and implement
                       SCHIP programs.



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                 employers. However, meeting the statutory requirements associated with
                 these options has proven challenging, and some question whether their
                 use at such an early point in program implementation would be consistent
                 with the statute’s focus on children’s insurance coverage. As of April 1,
                 1999, only Massachusetts and Wisconsin had received approval to use
                 SCHIP funds to cover adults in families with children. Massachusetts’
                 approval relied on an employer buy-in that has additional prerequisites to
                 meet the family coverage cost-effectiveness test. That of Wisconsin relied
                 primarily on a Medicaid section 1115 waiver to cover parents at the regular
                 Medicaid matching rate; for coverage of certain families, Wisconsin will be
                 able to claim an enhanced SCHIP match by using an employer buy-in that
                 meets title XXI’s cost-effectiveness test.
             •   Many states, including the 15 states in our sample, are developing
                 innovative outreach strategies to widely publicize SCHIP and to provide
                 families with applications and program information. In general, outreach
                 strategies have worked to minimize the burden on both the beneficiary
                 and the state by (1) developing new ways for families to submit
                 applications such as by mail, facsimile, or the Internet; (2) increasing the
                 number and operating hours of enrollment sites; and (3) reducing
                 application processing times. While it is too early to judge the success of
                 outreach efforts, some states are reporting that the publicity is attracting
                 not only children eligible for SCHIP but also significant numbers of children
                 who are eligible for Medicaid but not enrolled.
             •   The states’ strategies to avoid crowd-out—the substitution of SCHIP for
                 either private insurance or Medicaid—reflect the lack of consensus among
                 states and researchers regarding the significance of crowd-out and
                 uncertainty about the effectiveness of tools to deter the phenomenon. To
                 prevent SCHIP from substituting for Medicaid, states with a stand-alone
                 component must first screen for Medicaid and enroll any eligible children
                 in that program. In addition, most of these states are facilitating screening
                 by using joint applications, thereby helping to ensure that children are
                 enrolled in the appropriate program. State tools to deter the crowding out
                 of private insurance include instituting waiting periods of 1 to 12 months
                 for children with previous private coverage, requiring families to
                 participate in the cost of coverage by paying premiums and copayments,
                 and studying and attempting to measure the extent of crowd-out.


                 Medicaid is the starting point for the states’ design and implementation of
Background       SCHIP. Created in 1965 as title XIX of the Social Security Act, Medicaid
                 provides health coverage for poor Americans, primarily women and
                 children, but also for individuals who are aged, blind, or disabled. In fiscal



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year 1998, combined federal and state Medicaid expenditures totaled
$177.1 billion. Subject to title XIX requirements as well as HHS guidance
and review, each participating state designs and administers its own
program by (1) setting certain income and asset eligibility requirements,
(2) selecting which optional groups and services to cover, and
(3) determining the scope of mandatory and optional services. Financing
for Medicaid is provided jointly by states and the federal government
under a formula in which poorer states contribute less and wealthier
states contribute more to the cost of the program.

Title XXI of the Social Security Act, which established SCHIP, gives the
states the choice of operating a children’s health insurance program as an
extension of Medicaid, as a stand-alone program with more flexible rules
that also increase financial control over expenditures, or as a combination
of the two.5 SCHIP makes available annual allocations that range from a low
of $3.2 billion to a high of $5 billion (see appendix I, figure I.1). Initially,
the states had until October 1998 to select a design approach, draft their
SCHIP plans, and obtain HHS approval.6 With an approved plan, a state could
begin to enroll children and draw down its fiscal year 1998 SCHIP
allocation, which is based on an estimate of the number of low-income,
uninsured children in the state. Allocations are available for a 3-year
period, after which any unexpended funds will be redistributed among
states that have used their full allocations. SCHIP offers a strong incentive
for states to participate by providing an enhanced federal matching
rate—for example, the federal government will reimburse at a 65-percent
match under SCHIP for a state receiving a 50-percent match under Medicaid.
The statute appropriated funding at this enhanced rate for 10 years.

The design approach a state chooses has important programmatic and
financial consequences. A SCHIP Medicaid expansion must follow Medicaid
rules, including eligibility determination, benefits, and cost sharing.
Normally, Medicaid allows no cost sharing for children. A Medicaid
expansion also creates an entitlement by requiring the states to continue
providing services to eligible children even when their SCHIP allotment is
exhausted. At that point, such states will revert to their regular Medicaid
match. States choosing to expand Medicaid can take advantage of existing

5
 Unlike a Medicaid expansion, title XXI does not create an entitlement for beneficiaries when a state
elects a stand-alone approach. See 42 USCS § 1397(b)(4). In addition, the states have greater control
over expenditures under a stand-alone approach since they may set explicit enrollment caps, establish
residency requirements, or institute time limits for program participation. See 42 USCS § 1397(1)(A).
6
 In May 1998, the deadline for securing fiscal year 1998 funding was extended to September 1999.
Thus, a state that receives approval for its SCHIP program on September 30, 1999, will have until
September 30, 2002, to exhaust its fiscal year 1998 allocation.



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program administrative staff and procedures. In contrast, a state that
chooses a stand-alone approach may introduce limited cost sharing and
base its benefit package on one of several benchmarks specified in the
statute, such as the Federal Employees Health Benefit Program (FEHBP) or
state employee coverage. In addition, a state may limit its own annual
contribution, create waiting lists, or stop enrollment once the funds it
budgeted for SCHIP are exhausted.

In general, title XXI targets SCHIP funds at uninsured children in families
whose income is too high to qualify for Medicaid but is at or below
200 percent of the federal poverty level ($32,900 for a family of four). The
law prohibits coverage of children who already have health insurance,
even if it is inadequate (for limited benefits such as primary care only) or
expensive. Because of the concern that SCHIP not displace existing public
or private health insurance, the states must implement strategies to
address such crowd-out. Regarding the substitution of SCHIP for Medicaid,
the states must establish a system that identifies children who qualify for
Medicaid and enrolls them in that program. Since children in
higher-income families with access to private employer-sponsored
coverage may also be eligible for SCHIP, the states are required to develop a
strategy to discourage the displacement of existing private coverage.

Finally, the statute allows the coverage of adults in families with children
eligible for SCHIP if a state can show that it is cost effective to do so and
demonstrates that such coverage does not crowd out other insurance. The
cost-effectiveness test requires the states to demonstrate that covering
both adults and children in a family under SCHIP is no more expensive than
covering only the children. The states may also elect to cover children
whose parents have access to employer-sponsored coverage by
subsidizing the family’s share of the cost of covering the child—an option
referred to as an “employer buy-in.” SCHIP, like Medicaid, allows the states
to pursue the flexibility offered by section 1115 waivers; using this waiver
authority, HCFA can exempt states from many title XIX or title XXI
requirements, thus allowing demonstration projects likely to assist in
promoting program objectives. Since the early 1990s, 17 states have used
section 1115 Medicaid waivers to move their Medicaid programs closer to
an employer-based insurance model by implementing managed care for
targeted populations, deviating from the Medicaid benefit package,
imposing cost sharing on beneficiaries, and covering individuals not
traditionally eligible for Medicaid such as low-income single adults.7

7
 Medicaid Section 1115 Waivers: Flexible Approach to Approving Demonstrations Could Increase
Federal Costs (GAO/HEHS-96-44, Nov. 8, 1995).



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                          Initial SCHIP design choices are likely to evolve as the states continue their
The SCHIP Design          efforts to incorporate the flexibility offered by the SCHIP statute. Figure 1
Phase Is Still Evolving   shows the status of the 53 SCHIP plans submitted by the states and
                          territories: As of April 1, 1999, 51 had been approved, 2 were under review,
                          and 3 had not yet been submitted.8 The submissions were almost evenly
                          divided between expansions of state Medicaid programs on the one hand
                          and stand-alone or combination programs on the other. However, this
                          current landscape should not be used to draw conclusions about whether
                          the program will eventually mirror Medicaid or look more like some
                          employer-based coverage. As many as 14 initial Medicaid expansions were
                          simply “placeholder plans” designed to secure access to a state’s initial
                          SCHIP allocation, and most of these states plan amendments to expand their
                          initial designs. Two factors have contributed to a longer SCHIP design phase
                          in which many state plans are still incomplete: (1) the short
                          implementation lead times and (2) the challenges of taking advantage of
                          the statute’s flexibility to establish a stand-alone program.




                          8
                          HHS was still reviewing the plans of American Samoa and Tennessee; Washington, Wyoming, and the
                          Northern Mariana Islands had not yet submitted proposals.



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Figure 1: State SCHIP Design Choices as of April 1, 1999




                                           Source: HCFA.




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The statutory time periods associated with SCHIP created design and
implementation pressures for both HHS and the states. Less than 2 months
separated the enactment of title XXI (August 5, 1997) and the beginning of
fiscal year 1998, when the initial $4.3 billion appropriation became
available. Moreover, until a May 1998 technical amendment, the states
were required to have an approved SCHIP plan before October 1 of that year
in order to secure their initial SCHIP allocations.9 Given the 90-day review
period allowed by the statute, the states had only until July 1998 to draft
and submit their SCHIP plans to HHS. As a result, the states’ focus in the 12
months following the enactment of SCHIP was primarily on understanding
the statutory requirements and securing their fiscal year 1998 allocations.

The diversity of approaches makes it difficult to generalize about a state’s
SCHIP program from the descriptive labels attached—stand-alone, Medicaid
expansion, or a combination of the two. A stand-alone program and a
Medicaid expansion can be quite similar if the expansion is by a state
already operating its Medicaid program under a section 1115 waiver that
allows the state to impose cost sharing and to offer a different benefit
package. Of the 27 states implementing a SCHIP Medicaid expansion, 8 are
doing so in conjunction with a Medicaid section 1115 waiver.10
Additionally, states such as Nevada and Vermont that elected a
stand-alone program are actually offering Medicaid benefits, a feature
usually associated with a Medicaid expansion. The number of states with
combination programs does not necessarily suggest a commitment to a
Medicaid SCHIP approach. The Medicaid expansion portion of a
combination program often has a very limited goal in comparison with its
stand-alone component. For example, some states have accelerated
coverage for children aged 14 to 18 whose families’ incomes are up to
100 percent of the poverty level—a group that is already being phased into
Medicaid under current federal law.

Finally, even the income eligibility criterion selected by a state does not
necessarily indicate the program’s scope. A state that extends SCHIP
coverage to children in families at income levels approaching 200 percent
of the federal poverty level may cover relatively few uninsured children,
while a state with an increase in eligibility to 100 percent may have the
potential to enroll hundreds of thousands of uninsured children. For
example, Vermont’s stand-alone program covering from 225 percent to
300 percent of the poverty level is estimated to reach just over 1,000

9
 The amendment gave the states an additional year, until October 1, 1999, to secure their fiscal year
1998 allocations.
10
    Such states must still meet title XXI statutory requirements.



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children; in contrast, Texas’ more modest expansion of children aged 15 to
18 whose families’ incomes range from 17 percent to 100 percent of the
poverty level could provide coverage to more than 160,000 children.

The states’ initial SCHIP designs grew out of the variety of eligibility levels
and benefit choices that previously existed in their Medicaid programs.
Reflecting earlier Medicaid expansions, more than half of the states in our
sample made children eligible for SCHIP in families with incomes as high as
200 to 300 percent of the poverty level.11 States with stand-alone
components—either separately or in combination with a Medicaid
expansion—used their title XXI flexibility to distinguish their programs
from Medicaid by introducing benefit packages and cost sharing that more
closely resembled employer-sponsored coverage available in the state. In
general, the eight states in our sample with SCHIP stand-alone components
covered services for five optional benefit categories—prescription drugs,
mental health, vision, hearing, and dental. However, with the exception of
prescription drugs, most of the eight states placed limits on the duration of
treatment allowed or on the amount of services covered. For the majority
of children, such benefit limitations are not likely to result in inadequate
diagnosis and treatment. Children with special needs, however, may not
receive the full range of services that their conditions might warrant. A
few states have developed screening mechanisms to identify children with
special needs, offering supplemental benefits to ensure that they receive
the full range of necessary treatment.

Cost sharing was an important component of the states’ stand-alone
programs. Most states in our sample used premiums, copayments, or both
as a means of incorporating utilization control, invoking personal
responsibility, and responding to the potential for crowding out private
insurance. In general, most states with a stand-alone approach in our
sample imposed cost sharing that was closer to 1 to 2 percent than to the
maximum 5 percent of family income allowed under SCHIP. Many of these
states told us that they found the administrative burden of monitoring cost
sharing out of proportion to the small amounts of cost sharing actually
imposed. In particular, ensuring that families did not exceed the statutory
5-percent cap caused considerable concern during the review process as
the states attempted to limit the administrative burden—on themselves,
beneficiaries, and health plans—imposed by tracking a family’s health
expenditures. Finally, three states—Florida, New York, and
Pennsylvania—had benefit packages from previously state-funded

11
 Poverty levels of 200 percent and 300 percent equate to $32,900 and $49,350, respectively, for a family
of four. States’ use of income disregards and provisions of title XIX to expand poverty level eligibility
criteria are discussed more fully in appendix II.



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                      children’s insurance programs “grandfathered” into SCHIP. However, since
                      the statute did not treat cost sharing as part of the benefit package,
                      ultimately all three states altered their cost-sharing practices to comply
                      with the law. For states operating less traditional Medicaid programs
                      under a section 1115 waiver, HCFA has already allowed cost sharing, and
                      thus these states had the option of imposing cost sharing under a Medicaid
                      expansion. However, the levels must be consistent with those set forth in
                      title XXI. Only one state in our sample with a Medicaid section 1115 waiver
                      elected not to impose cost sharing. For additional information on initial
                      state SCHIP design choices, see appendix II.


                      A growing number of states are continuing to explore options that address
Family Coverage and   broader goals, are consistent with title XXI, and fully use their available
Employer Subsidy      SCHIP funding. In particular, two options permitted by the statute have

Options Prove to Be   generated interest among the 15 states in our sample: (1) family coverage
                      that includes the adults in families as well as the children if it proves “cost
Difficult Issues      effective” to do so and addresses crowd-out and (2) an employer buy-in
                      that helps families gain access to insurance available through their job by
                      using SCHIP funds to pay a family’s share of the cost of the child. An
                      employer buy-in stretches SCHIP funds because many employers subsidize
                      a large share of the cost of providing coverage to workers. As of April 1,
                      1999, efforts to apply these options have been largely unsuccessful. Only
                      Massachusetts and, to a lesser degree, Wisconsin have been able to use
                      SCHIP funds to achieve family coverage. Along with other states, Wisconsin
                      primarily achieved family coverage by combining regular Medicaid for
                      adults and SCHIP funds for children.

                      The cost-effectiveness standard outlined in title XXI has proven
                      challenging to implement, because it specifies that the expense of covering
                      both the adults and children in a family must not exceed the cost of
                      covering only the children. Under these circumstances, cost effectiveness
                      appears possible only when the cost to SCHIP of covering a family is
                      subsidized—either by an employer or through some other means.
                      Massachusetts and Wisconsin received approval of their title XXI family
                      coverage proposals by relying on an employer buy-in—a distinct and
                      challenging SCHIP option. Under an employer buy-in, benefits must be
                      equivalent to one of the SCHIP benchmark packages, cost sharing for the
                      child cannot exceed the statute’s limit of 5 percent of family income, and
                      copayments may not be imposed for preventive services. Massachusetts
                      officials believe that HCFA’s 1995 approval of a Medicaid section 1115
                      waiver permitting an employer buy-in for their traditional Medicaid



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program greatly facilitated its use as their family coverage
cost-effectiveness test.12 By building upon the employer subsidy inherent
in most coverage provided through the workplace, these states minimized
the state subsidy of the cost of parental coverage.

For a few states, the goal of covering low-income working families has
been facilitated by combining Medicaid and SCHIP funding. For example,
Missouri is using SCHIP funds under a Medicaid expansion to cover children
and regular Medicaid dollars for their parents. Connecticut is also in the
process of developing a family coverage approach. Combining SCHIP and
Medicaid funding streams, however, has proven problematic for other
states such as Wisconsin and Vermont. Under an earlier proposal,
Wisconsin tried to cover parents under regular Medicaid and children
under a SCHIP stand-alone program, an effort that afforded parents an
entitlement and their children a capped benefit. HCFA would not approve
this arrangement because of rules associated with section 1115 waivers
relating to budget neutrality and eligibility, so the state switched its
program design to a Medicaid expansion similar to that of Missouri. In
Vermont, previous expansions for children in its Medicaid program led to
difficulties in adding parents to achieve family coverage. The state is now
pursuing family coverage options through the use of title XIX funds.

Although title XXI provides the opportunity for section 1115 waivers of
title XXI requirements, HCFA will not consider such waivers unless a state’s
SCHIP program has (1) been operational for at least 1 year and
(2) completed an evaluation. HCFA’s position reflects its belief that it is
reasonable for the states to have experience in operating their new title
XXI programs before designing and submitting demonstration proposals.
Some states and state advocacy groups would like HCFA to begin allowing
the states to tailor their SCHIP programs through the use of section 1115
waivers. Ultimately, the use and approval of section 1115 waivers under
SCHIP will require a judgment regarding the consistency between state
goals to broaden insurance coverage for families and children and the
intent of title XXI. For additional information on state pursuit of the SCHIP
family coverage and employer buy-in options, see appendix III.




12
 Massachusetts had the advantage of having spent much of 1994 and 1995 gaining approval for a
section 1115 Medicaid waiver that allowed the state to subsidize family coverage provided by an
employer. Thus, according to Massachusetts officials, in reviewing the Massachusetts SCHIP plan
HCFA was not approving a new concept.



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                      The states have developed a variety of innovative outreach approaches to
Facilitating          overcome enrollment barriers and increase SCHIP participation. The
Enrollment Is a Key   Congress recognized the importance of encouraging outreach activities
Component of State    designed to educate families about the availability of coverage for their
                      children and assist in program enrollment. At the same time, the Congress
Outreach Efforts      also placed limits on the amount of federal funding available for
                      administration, including outreach spending, to preserve most of the funds
                      for actual insurance. State outreach efforts encompass marketing
                      approaches that range from sophisticated media campaigns and toll free
                      hotlines to more informal, community-based enrollment efforts. While it is
                      too early to judge the success of outreach efforts, some states are
                      reporting that the publicity is attracting not only children eligible for SCHIP
                      but also far greater numbers of children who were eligible for Medicaid
                      but not enrolled.

                      The states have a significant opportunity under title XXI to provide health
                      coverage to millions of uninsured children. Nevertheless, state experience
                      with Medicaid demonstrates that eligibility does not necessarily guarantee
                      enrollment. In 1996, about 23 percent, or 3.4 million, of the 15 million
                      children eligible for Medicaid were not participating in the program.
                      Factors that may prevent families from enrolling in Medicaid include
                      (1) confusion over eligibility, especially in the wake of welfare reform;
                      (2) lack of knowledge about the program; (3) complex eligibility rules and
                      burdensome documentation requirements that complicate the enrollment
                      process; (4) a belief that participation in the program is unnecessary when
                      the children are relatively healthy; (5) a perceived stigma from the
                      program’s past link with welfare; and (6) language and cultural barriers or
                      concerns about jeopardizing immigration status. Without attention, many
                      of these barriers could also affect SCHIP, undermining the states’ ability to
                      find and enroll targeted children.

                      To receive the enhanced SCHIP federal match, expenditures for outreach,
                      along with administration, other child health assistance, and other health
                      initiatives may be no more than 10 percent of total SCHIP-related
                      expenditures.13 Tying outreach to program expenditures has been
                      problematic for some states as they develop and implement SCHIP
                      stand-alone plans. Because the 10-percent cap is based on a state’s actual
                      expenditures—and not a state’s allotment—outreach spending can be
                      completely matched with federal funds only if the state has also claimed a



                      13
                        Other child health assistance includes health care delivered by community health centers.



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significant amount of funds for actual service delivery.14 For example,
California believes that the limit is particularly difficult during the start-up
phase of its SCHIP stand-alone program when enrollment is low and
relatively few services are being provided. California officials believe,
however, that the limit based on expenditures is a short-term problem and
that the 10-percent limit may be reasonable once its program matures and
expenditures increase. In the meantime, the state has established a
$21 million outreach budget consisting of Medicaid, SCHIP, and a significant
amount of state-only funds. In contrast, states like Massachusetts and New
York that “rolled over” enrollment from existing programs already have
significant health services expenditures that provide a larger base against
which to claim costs associated with outreach efforts. For these states, the
link between program expenditures and outreach limits is not a concern.
The President’s fiscal year 2000 budget includes a provision to establish an
additional 3-percent allowance for outreach, which would continue to be
tied to expenditures.

The states are making efforts to publicize SCHIP through multimedia
campaigns, direct mailings and widespread distribution of applications,
community involvement, and corporate participation. Strategies to market
SCHIP as a “product” have inspired sophisticated media campaigns in some
states. Some states have opted to mail SCHIP information directly, using
various methods to identify and target families likely to have eligible
children. Blanketing school-aged children and their families with program
information through local school districts is another outreach technique
that some states are finding particularly effective. Other outreach efforts
intended to overcome barriers and minimize the burden on beneficiaries
include the simplification of eligibility determination and enrollment
procedures. All but one state in our sample are streamlining their
eligibility processes to some extent by easing eligibility requirements,
providing up to 12 months of continuous eligibility rather than conducting
monthly or semi-annual redeterminations, or creating shorter or joint
Medicaid and SCHIP application forms. Strategies to simplify enrollment
include allowing families to submit applications by mail, telephone,
facsimile, or Internet. Other efforts to facilitate enrollment involve
increasing the number, location, and operating hours of enrollment sites,
reducing application processing time, and implementing other measures
such as follow-up systems to ensure that families do not get “lost” in the
process. Further efforts are also being made by some states to focus

14
  HCFA officials acknowledged that this places some states in the position of either deferring outreach
expenditures or committing a significant amount of state-only dollars during program start-up. HCFA
has indicated that it is willing to work with the Congress and states on a legislative proposal to ensure
that administrative funds are available “up front” to put stand-alone programs into place.



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outreach on the needs of immigrant populations through the use of
multilingual application materials and eligibility workers.

Assessing the effect of state outreach efforts and measuring the progress
that they make in reducing the number of uninsured children poses
challenges. HCFA has worked with the states and other interested groups to
develop reporting requirements for key program indicators such as
expenditures and enrollment. Despite efforts to standardize the way in
which the states collect and report data, comparisons across states will be
difficult because of differences in eligibility standards, the definition and
categorization of income, and the lack of statistical reliability in estimates
of the number of uninsured children, particularly for smaller states.
Although states are working hard to get their reporting systems
up-and-running, some were unable to meet the first reporting deadline set
for January 30, 1999. In addition to year 2000 computer problems, the time
that the states committed to program start-up contributed to reporting
delays.

In April 1999, HCFA reported estimated SCHIP enrollment of 982,000
children. The data generally reflect enrollment as of December 31, 1998,
for 42 states and territories with operational SCHIP programs.15 For a
number of reasons, initial enrollment data must be used cautiously in
measuring the states’ progress in reducing the number of uninsured
children. First, enrollment data may appear to be low because some states
had not yet begun enrollment or had only recently begun to enroll
children. Second, some states had not yet made their SCHIP designs final
and were implementing placeholder plans. Finally, states that had
previously funded their own children’s health insurance programs had a
ready source of program applicants, resulting in significant early SCHIP
enrollment. However, this SCHIP enrollment will not decrease the number
of uninsured children because previous estimates are likely to have
considered these children insured. Overall, efforts to determine the
effectiveness of SCHIP in reducing the number of uninsured children are
likely to be limited for the early years of the program’s operation. For
additional information on state outreach initiatives, see appendix IV.




15
 The Virgin Islands had an operational program but did not submit enrollment data. Estimates from
Georgia, Kentucky, and North Carolina include enrollment from January and February 1999.



Page 14                                           GAO/HEHS-99-65 Children’s Health Insurance
                       B-280578




                       In an effort to reduce or control “crowd out”—that is, the substitution of
States Use Divergent   SCHIP for other public or private health insurance—title XXI mandates
Approaches to          close coordination among SCHIP, private health insurance, and Medicaid.16
Address Crowd-Out      Estimating the extent and effect of crowd-out under SCHIP is difficult and
                       has led to diverging viewpoints on whether and how the states should
Under SCHIP            develop prevention measures. The states held various views on the
                       importance of crowd-out—differences reflected during the review of SCHIP
                       plans. While some states originally included crowd-out prevention
                       measures in their SCHIP plans, others added measures only after extensive
                       discussion with HHS.

                       A review of studies examining previous public health insurance
                       expansions found that they focused on populations quite different from
                       those eligible for SCHIP and were conducted while states were not subject
                       to required preventive safeguards. Studies that were national in scope
                       generally found more crowd-out than state-focused studies. Nationally,
                       estimates of new public insurance participants who gave up their private
                       insurance ranged from 15 percent to 17 percent, compared with
                       5-to-7-percent displacement for state-focused studies. Several study results
                       also indicated that substitution rates were higher for children, and
                       especially women, at higher income levels. Researchers have found that,
                       complicating these estimates, it is difficult to identify how much
                       crowd-out is attributable to a public health insurance expansion and how
                       much is caused by other insurance trends occurring simultaneously. For
                       example, during the period from 1987 to 1996, access to employer-based
                       health coverage for lower income families decreased, as did their ability to
                       pay the cost of premiums.17

                       Not surprisingly, estimates of expected crowd-out under SCHIP also vary.
                       One survey of small, medium, and large businesses that was regionally
                       stratified found that most companies reporting were unlikely to reduce the
                       health coverage offered to employees or dependents as a result of SCHIP.18
                       However, other estimates of crowd-out ranged from a low of 22 percent up


                       16
                         If a state could elect to provide services to an individual eligible for Medicaid under SCHIP, it would
                       receive an enhanced federal matching rate. Thus, the federal government would pay more money to
                       cover an individual under SCHIP than under Medicaid. Consequently, title XXI prohibits SCHIP from
                       crowding out Medicaid coverage.
                       17
                        See Ellen O’Brien and Judith Feder, How Well Does the Employment-Based Health Insurance System
                       Work for Low-Income Families? (Washington, D.C.: The Kaiser Commission on Medicaid and the
                       Uninsured, Sept. 1998).
                       18
                         See Harriette B. Fox and Margaret A. McManus, The Potential for Crowd Out Due to CHIP: Results
                       from a Survey of 450 Employers, The Child Health Insurance Project, Fact Sheet 3 (Washington, D.C.:
                       Maternal and Child Health Policy Research Center, Mar. 1998).



                       Page 15                                               GAO/HEHS-99-65 Children’s Health Insurance
B-280578




to 40-percent displacement. The latter estimate by the Congressional
Budget Office (CBO) is a long-term qualitative assessment that assumes an
eventual adjustment in labor markets to the availability of federal
subsidies. CBO projected that over time low-income workers would receive
more compensation in the form of wages and less in the form of health
insurance. In fact, CBO analysts suggest that some amount of displacement
of private insurance signals a trade-off between the SCHIP goals of stable
insurance coverage for children and crowd-out prevention. If children who
move in and out of private insurance because of their families’ changing
jobs and incomes were to qualify for consistent coverage under SCHIP, their
previous private insurance is crowded out. However, these children would
theoretically have more reliable access to health coverage and a greater
likelihood of receiving both preventive and primary health care, leading to
improved health status.

The states covering children at higher income levels tended to have more
aggressive crowd-out strategies. These strategies included waiting periods
without insurance and requiring cost sharing similar to private insurance.
The SCHIP plans of 13 of the 15 states in our sample included strategies that
were intended, either directly or indirectly, to help prevent crowd-out. The
most popular strategy was to impose a waiting period of between 1 and 12
months before allowing children to enroll in SCHIP. Three states with
previous health insurance expansions that resisted incorporating
prevention measures agreed to study crowd-out and institute waiting
periods if they find problems. Some states disagreed with HHS’ concern
that subsidizing employer-based health insurance has significant potential
for crowd-out. Massachusetts, which successfully included subsidies for
employer-based insurance in its SCHIP plan, considered the subsidies as
incentives for employees to retain coverage but conceded that employers
may choose to reduce premium contributions.

To prevent the substitution of SCHIP for Medicaid, HHS’ review of state plans
led many states to upgrade their Medicaid screening and enrollment
strategies and to create closer links between stand-alone programs and
Medicaid. Medicaid expansion states are using the same administrative
and application systems for both SCHIP and Medicaid. Most states with
stand-alone components met the screening and enrollment mandate by
determining eligibility first for Medicaid and enrolling applicants in that
program if they were eligible. Most are also using a joint application form
for both programs. Other Medicaid crowd-out prevention tactics that the
states adopted include using a single agency or entity to screen and enroll
for both programs, developing a coordination plan if two offices were



Page 16                                GAO/HEHS-99-65 Children’s Health Insurance
              B-280578




              involved, or comparing SCHIP participant lists against Medicaid enrollment
              files to ensure that children were not already covered. As a result of these
              screens, several states found a significant number of children who were
              eligible for Medicaid as initial applicants for their SCHIP programs. For
              example, Massachusetts’ SCHIP application process found two children
              eligible for Medicaid for every successful SCHIP application. Michigan state
              officials cited an early enrollment rate as high as 10 to 1. Now that the
              program is more mature, the state is enrolling two children eligible for
              Medicaid for every SCHIP enrollee. As SCHIP programs evolve, coordination
              plans may be complicated by periodic reviews of SCHIP eligibility under
              which the states would be required to shift any children found to be
              eligible for Medicaid into Medicaid. Some states have tried to address this
              situation by allowing continuous eligibility for up to 12 months for
              participants of both Medicaid and SCHIP. Eight of our 15 sample states used
              12 months of continuous eligibility for SCHIP, while 3 chose 6 months. For
              additional information on crowd-out, see appendix V.


              In retrospect, it seems clear that the SCHIP implementation schedule was
Conclusions   ambitious, particularly for states interested in establishing SCHIP programs
              that are separate from Medicaid. The approximately 12 months initially
              authorized to claim the first-year allotment proved to be challenging for
              many states, given the need (1) to develop a benefit package and
              administrative structure essential for the operation of a SCHIP stand-alone
              program and (2) to secure the requisite state legislative approval. In view
              of the tight time periods, many states opted for placeholder Medicaid
              expansion plans that secured their initial SCHIP allocations; the large
              number of states initially choosing Medicaid expansions reflects the
              complexity of pursuing a stand-alone option. Although nearly all states
              have received approval for their SCHIP designs, many will need more time
              to develop a stand-alone component to their initial plans. Since SCHIP is not
              yet fully operational, any evaluation of its success based on early
              enrollment data alone is clearly premature.

              Moreover, in fleshing out their SCHIP designs, the states are exploring
              family coverage and employer buy-in options. By including these options
              in title XXI, the Congress created the possibility that SCHIP could be used to
              achieve broader state goals. However, it has been difficult for some states
              to meet the statutory requirements. During the initial plan approval phase,
              HCFA worked with the states to help them achieve their goals within the
              limits of the statute. However, title XXI not only gives the states flexibility
              in designing their SCHIP programs but also grants HCFA considerable



              Page 17                                 GAO/HEHS-99-65 Children’s Health Insurance
                       B-280578




                       discretion over state plan approval by permitting section 1115 waivers of
                       title XXI provisions. Although HCFA has thus far declined to use this waiver
                       authority, the agency’s position was not a problem for most states because
                       their initial focus was on submitting a SCHIP design to secure their first-year
                       allocations. In general, most states were interested in but unprepared to
                       submit plans that encompassed family coverage or an employer subsidy.

                       As the states continue to develop plans to fully use their SCHIP allocations,
                       the issue of section 1115 waivers is likely to resurface. As a result, HCFA
                       will have to determine the appropriate balance between state flexibility
                       and the fundamental goal of title XXI—to reduce the number of uninsured
                       children across the nation. This situation raises a number of issues:

                   •   To what extent should SCHIP be used as a vehicle to achieve broader health
                       policy goals such as (1) offering seamless coverage to families as a way to
                       reach children, (2) subsidizing employer coverage that varies from
                       generous benefits and minimal cost sharing to its antithesis, and
                       (3) improving the affordability and coverage for low-income families who
                       are underinsured?
                   •   For states that have covered virtually all their uninsured children or that
                       want to provide family coverage as a way to reach children, to what extent
                       should they be allowed to use their SCHIP allocations for these broader
                       coverage goals rather than reallocating funds to states that still have
                       uninsured children?

                       HCFA’sability to respond to these issues, as well as monitoring the
                       reduction in the number of uninsured through both Medicaid and SCHIP
                       enrollment, will be key to ensuring the successful implementation of title
                       XXI.


                       We provided HHS and officials from the 15 states in our sample an
Agency and State       opportunity to review a draft of this report. HHS and the states generally
Comments               agreed with our findings and conclusions. HHS also identified several areas
                       where the report could be updated and clarified. As a result, we
                       (1) updated statistics on the number, type, and status of state SCHIP plan
                       submissions and amendments and (2) clarified language to underscore the
                       fact that family coverage and the employer buy-in are separate program
                       options. Both HHS and the states provided other technical suggestions that
                       we incorporated as appropriate. HHS’ comments are included as appendix
                       VII.




                       Page 18                                 GAO/HEHS-99-65 Children’s Health Insurance
B-280578




As agreed to with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days after its
issue date. We will then send copies to the Secretary of Health and Human
Services, the Administrator of HCFA, appropriate congressional
committees, and others upon request.

If you or your staff have any questions, please call me at (202) 512-7118 or
Walter Ochinko, Assistant Director of Health Financing and Public Health
Issues, at (202) 512-7157. Other major contributors to this report were
Carolyn Yocom, Karen Doran, JoAnn Martinez, and Behn Miller.




Kathryn G. Allen
Associate Director, Health Financing and
  Public Health Issues




Page 19                                 GAO/HEHS-99-65 Children’s Health Insurance
Contents



Letter                                                                                                1


Appendix I                                                                                           24
                         States Have Flexibility in How to Expand Children’s Health                  26
SCHIP Requirements         Insurance Coverage
                         Overview of the SCHIP Review and Approval Process                           33

Appendix II                                                                                          35
                         SCHIP Design Choices: Snapshot of an Evolving Program                       35
Initial SCHIP Designs    Variations in SCHIP Income and Categories of Eligibility                    39
Are Evolving as the      The Comparability of Medicaid and SCHIP Stand-Alone Benefit                 45
                           Packages Is Difficult to Ascertain
States Seek to Use       Cost Sharing: Opportunities and Challenges                                  52
Statutory Flexibility
Appendix III                                                                                         61
                         Family Coverage Under SCHIP Requires External Subsidy                       61
Early State Efforts to   Some States Cover Families by Using Title XIX Funds for Adults              63
Use SCHIP Family         Vermont and Wisconsin Sought Relief From Title XXI                          64
                           Requirements
Coverage and
Employer Subsidy
Options
Appendix IV                                                                                          68
                         SCHIP Emphasizes Outreach Within Prescribed Limits                          68
Innovative State         Outreach Strategies Focus on Publicity, Simplification, and                 71
Outreach Strategies         Targeting
                         It Would Be Premature to Draw Conclusions From Preliminary                  83
Are Critical to the         Enrollment Data
Success of SCHIP
Appendix V                                                                                           87
                         Targeted Families’ Access to Other Insurance Underlies Concern              87
Despite Divergent          About Crowd-Out
Views, the States Are    HCFA Focuses Crowd-Out Scrutiny on High-Risk SCHIP Designs                  91
                         Crowd-Out Strategies Reflect State Design Choices and                       92
Taking Steps to Avoid      Experience
Crowd-Out                Coordination Requirements Seek to Limit SCHIP’s Crowding Out                97
                           of Medicaid




                         Page 20                              GAO/HEHS-99-65 Children’s Health Insurance
                        Contents




Appendix VI                                                                                        102

Key SCHIP Design
Characteristics in 15
States as of February
1999
Appendix VII                                                                                       105

Comments From the
Department of Health
and Human Services
Tables                  Table I.1: State SCHIP Allocations and Federal Matching Rates               28
                          for 15 States, Fiscal Years 1998-99
                        Table I.2: Key Features of Medicaid Expansions and Stand-Alone              32
                          SCHIP Programs That Flow From Title XXI Requirements
                        Table II.1: The States’ Approved and Pending SCHIP Design                   36
                          Choices as of April 1, 1999
                        Table II.2: Changes in Poverty Level From Medicaid to SCHIP in              41
                          15 States
                        Table II.3: SCHIP Benefit Package Standards for Stand-Alone                 46
                          Programs
                        Table II.4: Basis for Required Scope of Health Insurance                    46
                          Coverage for Ten States With Stand-Alone Programs
                        Table II.5: Yearly SCHIP Benefits for Stand-Alone Components in             49
                          Eight States
                        Table II.6: Cost Sharing Under SCHIP in 13 States                           54
                        Table II.7: Estimated Cost Sharing as a Percentage of Family                57
                          Income in 11 States
                        Table IV.1: Eligibility and Enrollment Initiatives in 15 States             78
                        Table IV.2: Preliminary Enrollment Estimates for States and                 84
                          Territories as of December 31, 1998
                        Table V.1: Crowd-Out Strategies in 15 States                                95

Figures                 Figure 1: State SCHIP Design Choices as of April 1, 1999                     7
                        Figure I.1: Annual SCHIP Appropriations, Fiscal Years 1998-2007             25
                        Figure I.2: Key Characteristics of Low-Income Families With                 26
                          Uninsured Children




                        Page 21                              GAO/HEHS-99-65 Children’s Health Insurance
Contents




Figure II.1: Medicaid EPSDT Requirements                                    47
Figure III.1: Massachusetts’ SCHIP                                          62
Figure IV.1: Materials From Michigan’s SCHIP Application                    73
Figure V.1: Children With Employer-Sponsored or Other Private               89
  Insurance by Federal Poverty Level, 1996




Abbreviations

BBA        Balanced Budget Act of 1997
BLS        Bureau of Labor Statistics
CBO        Congressional Budget Office
CPS        Current Population Survey
DSS        Department of Social Services
EPSDT      Early Periodic Screening, Diagnosis, and Treatment
FEHBP      Federal Employees Health Benefit Program
HCFA       Health Care Financing Administration
HHS        Department of Health and Human Services
HIPAA      Health Insurance Portability and Accountability Act of 1996
HMO        health maintenance organization
HRSA       Health Resources and Services Administration
IHS        Indian Health Services
INS        Immigration and Naturalization Service
SCHIP      State Children’s Health Insurance Program
WIC        Special Nutritional Program for Women, Infants, and
                Children


Page 22                              GAO/HEHS-99-65 Children’s Health Insurance
Page 23   GAO/HEHS-99-65 Children’s Health Insurance
Appendix I

SCHIP Requirements


             The August 1997 enactment of the State Children’s Health Insurance
             Program (SCHIP) launched a major new initiative that allows the states to
             implement innovative approaches to providing health insurance to eligible,
             low-income, uninsured children.19 In addition to giving states flexibility to
             design their own programs, SCHIP appropriates $40 billion over 10 years
             (see figure I.1).20 Funds became available to the states on October 1, 1997,
             less than 2 months after the passage of SCHIP. The goal of SCHIP is to
             significantly reduce the number of uninsured children, an estimated
             9 million to 11.6 million of whom lacked health insurance at some time
             during 1997.21 Figure I.2 provides a snapshot of the key demographic
             characteristics of low-income, uninsured families with children, a group
             less likely to have access to affordable coverage. Children without health
             insurance are less likely to obtain routine medical or dental care, establish
             a relationship with a primary care physician, and receive immunizations or
             treatment for injuries and chronic illnesses.




             19
              SCHIP was authorized by the Balanced Budget Act of 1997 (BBA), which amended the Social
             Security Act, as Public Law 105-33.
             20
               In addition to the federal SCHIP appropriation, BBA contained funds for several other provisions that
             affect children’s coverage: (1) presumptive Medicaid eligibility that allows temporary benefits before
             an official eligibility determination, (2) restoration of Medicaid benefits for children who lost their
             disability status as a result of the Personal Responsibility and Work Opportunity Reconciliation Act of
             1996, and (3) initiatives to enroll more children eligible for Medicaid. The $3.6 billion in funding for
             these provisions is often included in budgetary discussions in the $20.3 billion total for the initial 5
             years of the SCHIP program (1998-2002).
             21
              The estimate of 9 million children was derived from the 1997 National Survey of America’s Families,
             conducted by the Urban Institute, while the 11.6 million total is derived from the Current Population
             Survey (CPS) by the Congressional Research Service. The Urban Institute suggests that a significant
             difference between the National Survey and the CPS is that the CPS does not directly ask respondents
             whether they are uninsured. Instead, the CPS asks respondents whether they or their family members
             have various types of insurance (such as private insurance, Medicaid, and CHAMPUS). Those who do
             not respond in the affirmative to any type of insurance coverage are counted as uninsured. The
             National Survey also asks the questions regarding type of insurance, but it goes on to ask directly
             whether respondents (or their children) are uninsured. The Urban Institute found that a significant
             number of respondents do report that they have insurance when they have been asked directly if they
             are uninsured.



             Page 24                                             GAO/HEHS-99-65 Children’s Health Insurance
                                         Appendix I
                                         SCHIP Requirements




Figure I.1: Annual SCHIP
Appropriations, Fiscal Years 1998-2007




                                         Source: 42 USCS § 1397aa et seq. (1998).




                                         Page 25                                    GAO/HEHS-99-65 Children’s Health Insurance
                                          Appendix I
                                          SCHIP Requirements




Figure I.2: Key Characteristics of Low-Income Families With Uninsured Children




                                          SCHIP  is an overlay on the already complex federal-state Medicaid program.
States Have Flexibility                   In the effort to provide health insurance coverage to children, SCHIP
in How to Expand                          attempts to balance state flexibility against minimum federal protections
Children’s Health                         for low-income children. Recognizing these conflicting goals, SCHIP
                                          provides the states with the choice of establishing a new program distinct
Insurance Coverage                        from Medicaid, expanding Medicaid, or combining these two approaches.
                                          Offering three general approaches affords the states the opportunity to
                                          focus on their specific priorities. For example, expansions of Medicaid
                                          offer title XIX’s comprehensive benefits and administrative
                                          structures—but the entitlement status of Medicaid increases the financial
                                          uncertainty for states. In contrast, a SCHIP stand-alone component offers a
                                          “block grant” approach to covering children; as long as the states meet
                                          title XXI requirements, they have greater flexibility to structure coverage
                                          on an employer-based model and can better control their program costs.

                                          Each state’s SCHIP plan must operate within the parameters of title XXI, the
                                          new section of the Social Security Act that authorizes the program and
                                          spells out the rules for receiving federal matching funds. The following
                                          description of title XXI requirements focuses on features of the program



                                          Page 26                                GAO/HEHS-99-65 Children’s Health Insurance
                          Appendix I
                          SCHIP Requirements




                          that are independent of the design approach selected by a state. A
                          subsequent section then highlights the financial and programmatic
                          consequences that flow from a state’s decision to pursue either a Medicaid
                          expansion or a stand-alone program.


Some SCHIP Requirements   In general, SCHIP offers a strong inducement for states to participate by
Apply to All State        increasing the federal financial contribution beyond that available for
Programs                  Medicaid. At the same time, the publicity associated with SCHIP could
                          increase states’ Medicaid expenditures by attracting low-income families
                          who were not aware that their children are eligible for Medicaid. SCHIP
                          seeks to avoid undermining the employer-based system through which
                          most Americans receive their health insurance by focusing on low-income,
                          uninsured children—those who are the least likely to have access to
                          coverage through a family member’s job.

State Allotments          Total federal payments to the states for SCHIP are specified by statute and
                          are allocated to them according to a statutory formula. Initially, the SCHIP
                          allocation formula is based on (1) an estimate of the number of
                          low-income, uninsured children in each state and (2) a factor representing
                          state variation in health care costs.22 Beginning in fiscal year 2001, the
                          formula will change, gradually shifting funds from states with large
                          numbers of uninsured low-income children toward states with high
                          numbers of low-income children regardless of insurance status. The states
                          have 3 years to use each year’s allocation, after which any remaining funds
                          will be redistributed among the states that have used all of that year’s
                          allocation, based on a procedure to be developed by HCFA. Table I.1
                          summarizes fiscal year 1998-99 SCHIP allocations for our 15-state sample.




                          22
                            Estimates of the number of low-income uninsured children are derived from the annual health
                          insurance supplement to CPS, the only nationwide source of information on uninsured children by
                          state. The CPS data have a number of well-recognized shortcomings. The Congressional Budget Office
                          (CBO) notes that state-level estimates are generally unreliable and exhibit volatility from year to year
                          because of an inadequate sample size, particularly in small states. For example, given 1994-96 data, the
                          number of uninsured children in Delaware ranges from 12,000 up to 32,000. The CPS also tends to
                          overestimate the number of those lacking insurance because it underreports the number of people
                          covered by Medicaid. To address the yearly volatility in CPS estimates, state allocations are based on a
                          3-year average; however, continued concern led the Congress to mandate essentially the same
                          allotments (less additional funds for diabetes) for both fiscal year 1998 and fiscal year 1999.



                          Page 27                                             GAO/HEHS-99-65 Children’s Health Insurance
                                         Appendix I
                                         SCHIP Requirements




Table I.1: State SCHIP Allocations and
Federal Matching Rates for 15 States,                             CPS estimate
Fiscal Years 1998-99                                             of low-income
                                                                      uninsured            Allocation             Matching rate (percent)
                                                                        children          ($ millions)a                1999              1999
                                         State                     (thousands)            1988            1999     enhanced           Medicaid
                                         Medicaid expansions
                                         Missouri                              97         $51.7         $51.4            72.17%            60.24%
                                         Rhode Island                          19          10.7           10.6           67.83             54.05
                                         South Carolina                       110          63.6           63.3           78.89             69.85
                                         Texas                              1,031         561.3         558.7            73.72             62.45
                                         Wisconsin                             75          40.6           40.4           71.20             58.85
                                         Stand-alone programs
                                         Colorado                              72          41.8           41.6           65.42             50.59
                                         New York                             399         255.6         254.4            65.00             50.00
                                         Oregon                                67          39.1           38.9           72.38             60.55
                                         Pennsylvania                         200         117.5         116.9            67.64             53.77
                                                    b
                                         Vermont                                 7           3.5           3.5           73.38             61.97
                                         Combination programs
                                         California                         1,281         854.6         850.6              66.9            51.55
                                         Connecticut                           53          34.9           34.8           65.00             50.00
                                         Florida                              444         270.2         268.9            69.07             55.82
                                         Massachusetts                         69          42.8           42.6           65.00             50.00
                                         Michigan                             156          91.6           91.2           66.91             52.72

                                         a
                                          State fiscal year 1998 SCHIP allotments were initially published by the Health Care Financing
                                         Administration (HCFA) in the Federal Register on September 12, 1997. These original allotments
                                         did not include an additional $20 million appropriation available nationally for fiscal year 1998. In
                                         allocation calculations, as published in the September 12, 1997, Federal Register, Native
                                         American children with access to Indian Health Services (IHS) programs were counted as
                                         insured. As a result of a change in how the insured status of children with access to IHS
                                         programs is treated under the CPS, such children are now considered uninsured, and the
                                         allocations were recalculated. As a result, states with Native American populations saw an
                                         increase in their SCHIP allocations. The revised state reserved allotments for fiscal years 1998
                                         and 1999 that HCFA published in the Federal Register on February 8, 1999, reflect this
                                         recalculation. In addition, state SCHIP allocations were originally to be recalculated annually
                                         using an average of CPS and Bureau of Labor Statistics (BLS) data from the past 3 years. The
                                         Omnibus Appropriation Bill of 1998 required that HCFA use the 1998 allocation data for 1999 to
                                         avoid further volatility. Although the allocation formula is the same for both 1998 and 1999, it is
                                         applied against a smaller total appropriation in 1999 ($4.295 billion for 1998 and $4.275 billion for
                                         1999). Without further legislation, the CPS and BLS data averaged over the most recent 3 years
                                         will be used to calculate the state allotments for fiscal year 2000 and beyond.
                                         b
                                          Vermont originally submitted a Medicaid expansion plan, which it withdrew in August 1998. A
                                         new, stand-alone state plan was approved in December 1998.

                                         Source: HCFA.




                                         Page 28                                             GAO/HEHS-99-65 Children’s Health Insurance
                                   Appendix I
                                   SCHIP Requirements




Enhanced Federal Match             State SCHIP expenditures draw down federal funds against a state’s
                                   allotment at a rate that exceeds its current Medicaid matching rate. This
                                   enhanced rate results in a national average federal match of 70.22 percent
                                   compared with about 57 percent under Medicaid.23 Thus, a state with the
                                   minimum 50-percent Medicaid match receives a 65-percent SCHIP match.
                                   Similarly, a state with a 70-percent Medicaid match receives a 79-percent
                                   SCHIP match. Assuming that the states match and draw down all available
                                   funds, total federal and state SCHIP expenditures would total about
                                   $56 billion.

Eligibility Income Limit           In general, title XXI targets children in families with incomes at or below
                                   200 percent of the poverty level—$32,900 for a family of four in 1998.24
                                   Recognizing the variability in state Medicaid programs, the statute allows a
                                   state to expand eligibility up to 50 percentage points above its existing
                                   Medicaid eligibility standard.25 However, Medicaid also allows states to
                                   establish their own criteria for measuring income for purposes of
                                   determining eligibility, making the $32,900 limit subject to variation,
                                   depending upon state determinations.

Uninsured Children’s Eligibility   To be enrolled in SCHIP, a child must be uninsured. One exception is for
                                   children who were covered by a state program that did not receive a
                                   federal financial contribution. Underinsured children with poor benefits or
                                   expensive health insurance are not eligible for SCHIP. However, a child with
                                   only vision or dental coverage is considered to be uninsured. Children
                                   eligible for Medicaid are ineligible for SCHIP.

SCHIP Coordination With            Title XXI requirements for coordination with Medicaid and private
Medicaid and Other Private         insurance reflect a twofold concern that (1) children be appropriately
Insurance                          enrolled in Medicaid if they are eligible and (2) any coverage provided
                                   under SCHIP not displace or crowd out other existing health insurance. To
                                   ensure coordination with Medicaid, the states must have a process to
                                   ensure that children identified as eligible for Medicaid will be referred to
                                   and enrolled in that program. The states must also submit to HHS their


                                   23
                                    Each state’s SCHIP enhanced match is equal to 70 percent of its Medicaid matching rate plus 30
                                   percentage points. However, the enhanced match may not exceed 85 percent. All states receive a
                                   minimum allocation of $2 million.
                                   24
                                    “Poverty level” refers to the federal poverty guidelines, which are used to establish eligibility for
                                   certain federal assistance programs. The guidelines are updated annually to reflect changes in the cost
                                   of living and vary according to family size. Guidelines are uniform across the continental United States
                                   and slightly higher for Alaska and Hawaii.
                                   25
                                    For example, Alabama covered children aged 15 to 18 up to 15 percent of the poverty level while
                                   Washington covered this same group up to 200 percent of the poverty level.



                                   Page 29                                              GAO/HEHS-99-65 Children’s Health Insurance
                               Appendix I
                               SCHIP Requirements




                               strategy for preventing SCHIP from becoming a substitute for either
                               employer-sponsored coverage or individually purchased insurance.

Family Coverage and Employer   Title XXI gives the states the option of covering adults in families with
Subsidy Options                children eligible for SCHIP if they can show that it is cost effective to do so
                               and demonstrate that such coverage does not crowd out other insurance.
                               The cost-effectiveness test spelled out in the statute requires a state to
                               demonstrate that covering both the adults and children in a family under
                               SCHIP is no more expensive than covering only the children. A separate
                               option allows a state to cover children whose parents have access to
                               employer-sponsored coverage by paying the parents’ share of the cost of
                               covering the children.

Maintenance-of-Effort          Title XXI specifies two maintenance-of-effort requirements—one for
Requirements                   eligibility and another for financing. To ensure that SCHIP funds are used
                               only to provide coverage to children who were not previously eligible for
                               Medicaid, title XXI specifies that state eligibility requirements in effect on
                               March 31, 1997, for Medicaid expansions and June 1, 1997, for stand-alone
                               plans may not be reduced in order to qualify children for the enhanced
                               federal matching rate. Moreover, the states are not eligible for the
                               enhanced matching rate if they reduce their Medicaid financial standards
                               and methodologies below those in effect on June 1, 1997. In addition,
                               Florida, New York, and Pennsylvania were allowed to claim the enhanced
                               federal match for children insured under state-funded programs that
                               formerly received no federal funds; however, they must continue to
                               provide state funds at least equal to their expenditures in 1996.

Waivers and Variances          The statute allows the states to request an exception to title XXI
                               provisions under waiver authority provided to the Secretary of the
                               Department of Health and Human Services (HHS) by section 1115 of the
                               Social Security Act. Section 1115 allows the Secretary to waive certain
                               Medicaid—and now SCHIP—eligibility and funding requirements for
                               demonstrations likely to assist in promoting program objectives.26 In
                               addition to this general waiver authority, title XXI permits the states to
                               apply for “variances” from two statutory provisions: (1) cost-effective




                               26
                                Past section 1115 demonstrations have made significant contributions to the development of
                               Medicaid policy, such as school-based services for young children. In 1982, Arizona initiated a
                               Medicaid program under a section 1115 waiver that allowed the first statewide Medicaid managed care
                               program. About 17 states now operate some portion of their Medicaid programs under a section 1115
                               waiver.



                               Page 30                                           GAO/HEHS-99-65 Children’s Health Insurance
                            Appendix I
                            SCHIP Requirements




                            family coverage and (2) the inclusion of community-based delivery
                            systems by lifting the 10-percent cap on certain program expenditures.27

Reporting Requirements      Title XXI requires various assessments from states that participate in
                            SCHIP. First, each state must report on the operation of its SCHIP program in
                            January of each year for the preceding federal fiscal year, including
                            progress made in reducing the number of uncovered low-income children.
                            By March 31, 2000, the states must submit an assessment of the
                            effectiveness of their SCHIP programs in increasing the number of children
                            with coverage. In addition, by December 31, 2001, HHS must submit to the
                            Congress a report based on evaluations submitted by the states, including
                            any conclusions and recommendations that the Secretary of HHS considers
                            appropriate.


SCHIP Design Choice Has     Important consequences, both financial and programmatic, flow from a
Financial and               state’s design choice. In general, a state implementing a stand-alone
Programmatic Implications   program has more control over expenditures, enrollment, benefits, and
                            beneficiary cost sharing while Medicaid rules apply to a Medicaid
                            expansion. States expanding Medicaid, however, also gain flexibility under
                            SCHIP. First, they may continue to claim federal contributions at regular
                            federal matching rates for administrative or outreach costs after reaching
                            the statutory cap on such expenditures at the enhanced match. Second,
                            they may be reimbursed for service expenditures at their regular matching
                            rate if they exhaust their allotment. The key features of Medicaid
                            expansions and stand-alone SCHIP programs that flow from title XXI
                            requirements as interpreted by HHS are summarized in table I.2.




                            27
                             HHS uses the term “variances” to distinguish them from exceptions sought under the Secretary’s
                            authority to waive title XXI provisions using section 1115.



                            Page 31                                           GAO/HEHS-99-65 Children’s Health Insurance
                                      Appendix I
                                      SCHIP Requirements




Table I.2: Key Features of Medicaid
Expansions and Stand-Alone SCHIP      Feature                Medicaid expansion                 Stand-alone
Programs That Flow From Title XXI     Financial
Requirements
                                      Entitlement            Entitlement—federal funds        No entitlement—federal
                                                             continue at the regular Medicaid matching funds cease after a
                                                             matching rate after states       state spends its allotment
                                                             exceed their allotment
                                      Nonbenefit-related     When a state reaches the           Expenditures on administration,
                                      expenses               10-percent expenditure cap on      direct services, and outreach
                                                             administration, direct services,   are limited to 10 percent of
                                                             and enrollment activities, the     claims for services delivered to
                                                             state’s costs can be matched at    beneficiaries
                                                             its lower Medicaid rate
                                      Programmatic
                                      Benefits               A Medicaid benefits package,       Benchmark benefits packages
                                                             including EPSDT, is designed to    use specified private insurance
                                                             ensure that children receive all   plans as modelsb that may have
                                                             medically necessary servicesa      a different standard of coverage
                                                                                                more limited than the EPSDT
                                                                                                concept
                                      Cost sharing           Generally, no cost sharing is      Cost sharing is permitted for
                                                             allowed for children               children in families about 150
                                                                                                percent of the poverty level, up
                                                                                                to 5 percent of family income.
                                                                                                Similar to Medicaid for those
                                                                                                below 150 percent
                                      Eligibility rules      Medicaid eligibility rules apply   A state is free to establish its
                                                             (i.e., income, residency, and      own eligibility rules, taking into
                                                             disability status)                 account age, geography,
                                                                                                residency, disability status, and
                                                                                                access to other coverage
                                      Eligibility            State agency must determine        Eligibility determination and
                                      determination          eligibility                        other administrative functions
                                                                                                can be privatized
                                      Eligibility for children Children of low-income state     Children of low-income state
                                      of state employeesc employees are eligible                employees are eligible only if a
                                                                                                state makes no contribution to
                                                                                                the cost of employee dependent
                                                                                                coverage
                                      Delivery systems       Uses existing Medicaid delivery Allows states to develop new
                                                             systems, health plans, and      contracts with plans and
                                                             providers                       provider networks that may not
                                                                                             have previously served
                                                                                             Medicaid beneficiaries
                                      Other standards        Medicaid consumer protection       Allows states to establish
                                                             and health plan enrollment         separate consumer protection
                                                             standards apply                    and health plan enrollment
                                                                                                standards

                                                                                                         (Table notes on next page)




                                      Page 32                                        GAO/HEHS-99-65 Children’s Health Insurance
                   Appendix I
                   SCHIP Requirements




                   a
                    Early Periodic Screening, Diagnosis, and Treatment (EPSDT), a required component of the
                   Medicaid benefits package, requires the states to cover treatment for all medically necessary
                   services diagnosed during routine screening. See figure II.1 for a more detailed description of
                   Medicaid EPSDT requirements.
                   b
                    In addition, the packages of state-funded children’s health programs in Florida, New York, and
                   Pennsylvania were grandfathered.
                   c
                    Title XXI prohibits the coverage of children “eligible for state employee health benefit plans.” This
                   table reflects HCFA’s interpretation of SCHIP as it applies to Medicaid expansions and
                   stand-alone programs.




                   To qualify for title XXI funds, a state must develop and seek approval for
Overview of the    its SCHIP plans from HHS. Subsequent amendments to SCHIP plans also
SCHIP Review and   require HHS approval. SCHIP plans must detail how the state intends to use
Approval Process   the funds, addressing eligibility, cost-sharing requirements, health benefits,
                   coordination with Medicaid and private insurance, outreach, and other
                   factors. States electing to expand Medicaid were not required to elaborate
                   on program characteristics that were addressed in their existing Medicaid
                   state plans already on file with HHS. In contrast, the development of a state
                   plan for a stand-alone approach understandably requires more
                   documentation. In September 1997, HHS devised a SCHIP template that
                   identified the key information required to review a state plan. As HCFA
                   gained experience with the SCHIP statute, it provided frequent guidance to
                   the states in the form of letters to state Medicaid directors and, on an
                   ongoing basis, shared answers to questions (Q&As) frequently raised by
                   the states. Letters, guidance, and the Q&As were all posted on the
                   Internet.28 HCFA plans to issue a proposed regulation on the SCHIP statute in
                   1999.

                   The statute calls for a prompt federal review of a state’s SCHIP plan
                   submission to “determine if the plan substantially complies with the
                   requirements of Title XXI.” A plan is approved after 90 days unless HHS
                   specifically disapproves it. However, if additional information is required
                   to complete its review, HHS can stop the clock until a state response is
                   received. The goal of approving SCHIP plans within 90 days differs from the
                   lack of similar statutory standards with respect to section 1115 waivers.
                   Furthermore, HCFA officials told us that title XXI does not allow it to place
                   any conditions on the approval of SCHIP plans—another difference from
                   the broader discretion given to the agency in considering section 1115
                   waivers. Rather, HHS must either approve or disapprove a state SCHIP plan
                   in total.


                   28
                       These documents are available on the HCFA Web site at www.hcfa.gov.



                   Page 33                                              GAO/HEHS-99-65 Children’s Health Insurance
Appendix I
SCHIP Requirements




To expedite the resolution of any policy issues raised during the review
process, a steering committee jointly chaired by HCFA and the Health
Resources and Services Administration (HRSA) was established within HHS.
HCFA is the agency within HHS responsible for managing and monitoring
Medicaid as well as the new SCHIP program. Each state is assigned a HCFA
project officer who serves as a key focal point during the SCHIP review
process.29 HRSA brings expertise on provider access issues and on
outreach. The Office of Management and Budget, the Treasury
Department, and the White House have also been involved in developing
policy or reviewing SCHIP plans.




29
  The review team within HHS is diverse and includes the Assistant Secretary for Legislation, the
Assistant Secretary for Management and Budgeting, the Assistant Secretary for Planning and
Evaluation, Intergovernmental Affairs, the Office of Public Health and Science, and the Administration
for Children Youth and Families, Agency for Health Care Policy and Research, Centers for Disease
Control and Prevention, Indian Health Service, and Substance Abuse and Mental Health Services
Administration.



Page 34                                             GAO/HEHS-99-65 Children’s Health Insurance
Appendix II

Initial SCHIP Designs Are Evolving as the
States Seek to Use Statutory Flexibility

                       SCHIP design is far from complete. By the end of the first year, nearly all
                       states had submitted SCHIP plans and most had received approval for a
                       Medicaid expansion, a stand-alone program, or a combination of both
                       approaches. For some states, title XXI came at an opportune time—they
                       either had a children’s health program in place or had plans under way.
                       For these states, their initial design choices were likely to be either a
                       stand-alone or a combination program. Other states used Medicaid
                       expansions as “placeholders”—minimal expansions of Medicaid to
                       guarantee access to their first year’s SCHIP allocation. Placeholder states
                       generally plan additional SCHIP amendments, and HCFA believes that most
                       are likely to incorporate a stand-alone component. A state’s design choice
                       had a significant effect on its benefit package and its ability to introduce
                       cost sharing into SCHIP. For Medicaid expansion states, benefits and cost
                       sharing were consistent with those outlined in their state Medicaid plans.
                       States with stand-alone components told us that they were primarily
                       interested in imitating private-sector insurance practices. In general, the
                       benefit packages of such states in our sample will prove adequate for the
                       majority of children but may not address the conditions of those with
                       special needs. States in our sample with a stand-alone component used
                       cost sharing with the goal of achieving utilization control, invoking
                       “personal responsibility,” and helping to avoid the displacement of private
                       insurance. Review and approval of cost sharing was particularly complex
                       as states and HCFA attempted to ensure that the appropriate statutory
                       provisions of either Medicaid or SCHIP were properly applied.


                       As of April 1, 1999, only 2 states and 1 territory had not yet submitted SCHIP
SCHIP Design           plans to HCFA, and all but 2 of the 53 plans submitted had been approved.30
Choices: Snapshot of   HCFA expects that all states will eventually submit a SCHIP plan. The initial

an Evolving Program    design process for the states was driven by the statutorily defined deadline
                       for accessing federal funds and by the more complicated task of
                       developing a stand-alone program. As a result, the initial large number of
                       SCHIP Medicaid expansions does not reflect the ultimate shape of the
                       overall program, and HCFA estimates that a number of states submitted
                       placeholder Medicaid expansions to secure their initial year allotments.
                       The SCHIP programs approved to date reflect the diversity of state
                       approaches and to some extent defy categorization. Thus, some
                       stand-alone programs use Medicaid benefits while most combination
                       programs are largely defined by their stand-alone component rather than
                       their minimal Medicaid expansions. The majority of states in our sample
                       are exploring or have already submitted a plan amendment.

                       30
                         Washington, Wyoming, and the Northern Mariana Islands have not yet submitted plans.



                       Page 35                                           GAO/HEHS-99-65 Children’s Health Insurance
                                       Appendix II
                                       Initial SCHIP Designs Are Evolving as the
                                       States Seek to Use Statutory Flexibility




Medicaid Expansions                    Of the 53 SCHIP plans submitted, 27 were expansions of state Medicaid
Appear to Dominate Initial             programs, 14 were stand-alone programs separate from Medicaid, and 12
SCHIP Plans                            combined a Medicaid expansion with a stand-alone component. SCHIP
                                       design choices are outlined in table II.1. As of April 1, 1999, 51 of these
                                       plans were approved; American Samoa and Tennessee were still under
                                       review.

Table II.1: The States’ Approved and
Pending SCHIP Design Choices as of     Design choice          States and territories                                             Total
April 1, 1999                          Medicaid expansion Alaska, Ark., D.C., Guam, Hawaii, Idaho, Ill., Ind., Iowa,
                                                          La., Md., Minn., Mo., Nebr., N.Mex., N.Dak., Ohio,
                                                          Okla., P.R., R.I., Samoa, S.C., S.Dak., Tenn., Tex., V.I.,
                                                          Wisc.                                                                    27
                                                                                                                a
                                       Stand-alone program Ariz., Colo., Del., Ga., Kans., Mont., Nev., N.Y., N.C.,
                                                           Oreg., Pa., Utah, Va., Vt.                                              14
                                       Combination            Ala., Calif., Conn., Fla., Ky., Mass., Mich., Maine, Miss.,
                                       program                N.H., N.J., W.Va.                                                    12
                                       a
                                        On March 26, 1999, New York submitted a SCHIP plan amendment that includes a Medicaid
                                       expansion component. When approved, the state’s design will be considered a combination
                                       program.



                                       While there currently appears to be a majority of Medicaid expansions, the
                                       number of combination programs that have a stand-alone component is
                                       expected to increase as state program designs continue to evolve. Thus, as
                                       many as 14 SCHIP Medicaid expansions are “placeholders”—that is, minimal
                                       expansions in Medicaid eligibility, as small as a 5-percent increase in the
                                       income standard—used to guarantee the first year’s allocation while
                                       allowing time to plan for a stand-alone component. For example,
                                       Wisconsin submitted a minimal placeholder Medicaid expansion after
                                       prolonged negotiations with HCFA over a more complex and extensive
                                       combination program.

                                       Moreover, the number of combination programs with both a Medicaid and
                                       stand-alone component should not necessarily be viewed as evidence that
                                       the states are embracing a Medicaid approach to SCHIP. Similar to a
                                       placeholder plan, the Medicaid component of a combination program
                                       often serves a very limited population. For example, Michigan used a
                                       Medicaid expansion to standardize its Medicaid income criterion for
                                       children of all ages. This allowed the state to establish clear lines of
                                       eligibility between its Medicaid and SCHIP stand-alone program; moreover,
                                       it serves to reduce confusion over program eligibility for families with
                                       more than one child. Indeed, some Medicaid expansions—whether
                                       placeholders or part of a combination program—accelerated the



                                       Page 36                                         GAO/HEHS-99-65 Children’s Health Insurance
                       Appendix II
                       Initial SCHIP Designs Are Evolving as the
                       States Seek to Use Statutory Flexibility




                       expansion of coverage for children aged 14 to 18 up to 100 percent of the
                       poverty level, an action that federal law already required states to phase in
                       by 2002. For states that used SCHIP to expand Medicaid eligibility in this
                       manner, the combination portion of their SCHIP program disappears in
                       2002.31

                       In contrast to states that implemented minimal or placeholder plans, a few
                       states—such as Florida, Massachusetts, New York, and Pennsylvania—
                       were well positioned to implement a more robust SCHIP plan in a relatively
                       short period of time. Massachusetts had just received approval for a
                       Medicaid section 1115 waiver program that allowed it to subsidize
                       employer-sponsored insurance. From the state’s perspective, title XXI was
                       an opportunity to build on this approach by incorporating an additional
                       funding stream and expanding eligibility even further. Similarly, Florida,
                       New York, and Pennsylvania already had state-funded child health
                       programs—and the Congress recognized their efforts by grandfathering
                       their benefit packages in title XXI. These states were able to establish their
                       SCHIP programs relatively quickly, by basing eligibility on their existing
                       state-funded program enrollment.


SCHIP Basic Design     The three basic designs permitted by title XXI—Medicaid expansion,
Choices Mask Diverse   stand-alone, or a combination of both—mask a diversity of approaches. As
Approaches             a result, drawing any conclusion about a state’s SCHIP program from these
                       descriptive labels, as summarized in table II.1, can be misleading. Thus, a
                       stand-alone program and a Medicaid expansion can be quite similar if the
                       latter approach is selected by a state already operating its Medicaid
                       program under a section 1115 waiver; such a waiver allows a state to
                       depart from many Medicaid requirements. One state in our sample that
                       elected a stand-alone approach even offers Medicaid benefits, a feature
                       usually associated with Medicaid expansions. Even a comparison of
                       eligibility levels across states can be misleading. Thus, a state that extends
                       coverage to children in families at higher income levels may cover
                       relatively few uninsured children compared with a more modest level of
                       eligibility that may have the potential to enroll hundreds of thousands of
                       uninsured children. In short, the diversity of state Medicaid programs and
                       SCHIP approaches the states have taken make it difficult to generalize
                       across the three designs permitted by title XXI. For example:


                       31
                        Under the Omnibus Budget Reconciliation Act of 1990, the Congress mandated that all children born
                       after September 30, 1983, in families up to 100 percent of the poverty level are eligible for Medicaid.
                       Some states hastened this eligibility by covering children aged 14 to 18 under SCHIP born before this
                       date. By September 2002, these children will age into adulthood and the SCHIP Medicaid expansion
                       component will no longer exist.



                       Page 37                                             GAO/HEHS-99-65 Children’s Health Insurance
    Appendix II
    Initial SCHIP Designs Are Evolving as the
    States Seek to Use Statutory Flexibility




•   Medicaid expansions encompass very different approaches and levels of
    eligibility. For example, Rhode Island’s Medicaid expansion is based on its
    existing section 1115 waiver demonstration, which before SCHIP covered
    children up to age 7 at 250 percent of the federal poverty level and those
    aged 8 to 12 at 100 percent of the federal poverty level in a mandatory
    Medicaid managed care program. Under its SCHIP expansion, eligible
    beneficiaries up to age 18 at 300 percent of the poverty level are given a
    choice between paying premiums or having copayments attached to
    applicable services.32 In contrast, Texas, whose legislature was not in
    session, submitted a placeholder Medicaid expansion that provides
    insurance to children aged 15 to 18 in families with incomes from 17 to
    100 percent of the poverty level. In addition to this modest expansion and
    evening out of Medicaid eligibility levels for teens, Texas officials are
    currently working on a stand-alone amendment to their initial SCHIP plan.
    State officials told us that they expect to submit the amendment to the
    state legislature for approval in 1999.
•   Stand-alone or combination approaches generally provided the states with
    increased flexibility in designing a SCHIP program. Stand-alone programs
    are SCHIP designs that, if a state desires, can be completely separate from
    the eligibility, benefits, and other regulations that apply under Medicaid.33
    For example, Colorado’s stand-alone program is based on a state-funded
    program that originally provided outpatient but not inpatient benefits to
    children. Under SCHIP, Colorado’s program has been expanded to cover
    children up to age 17 up to 185 percent of the poverty level, with 1 year of
    continuous eligibility if the family applies before a child’s 18th birthday.
    California’s SCHIP combination plan expanded Medicaid for children aged
    14 to 19 from 85 to 100 percent of the poverty level and established (1) an
    insurance purchasing pool for children with family incomes up to
    200 percent of the poverty level and (2) coverage for children under 1 year
    of age up to 250 percent of the poverty level. California’s design of its SCHIP
    component was intentionally different from Medicaid; officials indicated
    that by providing coverage through a program resembling an
    employer-based model, they hoped to acquaint individuals with private
    insurance and avoid any perceived stigma associated with the state’s
    Medicaid program.


    32
      Rhode Island had already begun implementing a coverage expansion up to 250 percent of the poverty
    level after the maintenance-of-effort date in the statute, allowing the children in the expansion group
    to qualify for SCHIP. On January 5, 1999, HCFA approved an amendment to Rhode Island’s SCHIP
    plan, expanding coverage up to 300 percent of the poverty level. In keeping with title XXI, no
    copayments for prenatal, well-baby, or preventive services are required.
    33
     Generally speaking, Medicaid expansions under SCHIP must conform to title XIX statutory
    provisions, whereas stand-alone components of SCHIP programs must conform to title XXI provisions.



    Page 38                                             GAO/HEHS-99-65 Children’s Health Insurance
                           Appendix II
                           Initial SCHIP Designs Are Evolving as the
                           States Seek to Use Statutory Flexibility




                       •   For states that had taken advantage of Medicaid section 1115 waivers to
                           introduce flexibility, stand-alone and combination plans served as a means
                           of building on existing programs, expanding eligibility, and preserving
                           budgetary control. For example, Oregon’s stand-alone SCHIP plan operates
                           as an extension of the state’s section 1115 waiver program for Medicaid,
                           expanding eligibility to 170 percent of the poverty level. Termed a
                           “Medicaid look-alike,” Oregon’s program uses a single application and
                           eligibility determination process, provider network, and claims payment
                           system for both SCHIP and Medicaid. Both programs provide the same
                           benefits based upon Oregon’s prioritized list of health condition and
                           treatments; however, the stand-alone nature of its SCHIP program allows
                           the state to limit spending by the state by stopping enrollment.
                           Massachusetts’ combination approach was designed to provide seamless
                           coverage between the state’s Medicaid program, which also operates
                           under a section 1115 waiver, and its new SCHIP combination program for
                           eligible families. The coordination of services and funding streams in
                           Massachusetts is summarized in appendix III, figure III.1.


Many States Have           SCHIP design choices to date can be considered a snapshot of a rapidly
Submitted or Are           evolving program, for even as states receive approval for plans, some are
Exploring SCHIP Plan       already designing what might best be characterized as a second phase.
                           Nationwide, 26 plan amendments have been submitted to HCFA, and 15 of
Amendments                 these are already approved as of April 1, 1999. Nine of the 15 states in our
                           sample are exploring or have already submitted one or more plan
                           amendments. Examining the potential for family coverage, possibly
                           through employer-sponsored insurance, and developing stand-alone
                           components to SCHIP are key areas of interest for our sample of states.


                           Just as Medicaid eligibility is tied to income and population categories
Variations in SCHIP        (that is, aged, blind, disabled, families with children), title XXI also
Income and                 contains statutory guidelines regarding income and identifies certain
Categories of              categories of children who are ineligible for SCHIP. With regard to income,
                           SCHIP allows the states to cover children up to 200 percent of the poverty
Eligibility                level or 50 percentage points above a state’s current Medicaid applicable
                           income level; thus, a state’s starting point is highly dependent upon the
                           poverty level previously established in its Medicaid program. Similarly,
                           title XXI bars participation in SCHIP if a child (1) resides in or is an inmate
                           of a public institution, (2) is in a family that is eligible for state employee
                           health insurance, or (3) has existing health insurance coverage. Although
                           the requirements appear to be clear and binding in their exclusions, title



                           Page 39                                     GAO/HEHS-99-65 Children’s Health Insurance
                             Appendix II
                             Initial SCHIP Designs Are Evolving as the
                             States Seek to Use Statutory Flexibility




                             XXI gives the states considerable flexibility in setting income eligibility
                             standards—and some latitude in the treatment of categories of eligibility.
                             For example, neither Medicaid nor SCHIP defines how a state counts
                             income; thus, by excluding certain income (referred to as income
                             disregards), state SCHIP plans encompass an eligibility range of 100 to
                             300 percent of the poverty level.34 Furthermore, title XXI’s exclusions of
                             categories of children do not apply to Medicaid expansions, which must
                             use Medicaid rules and conditions of eligibility. The states’ use of Medicaid
                             section 1115 waivers often fashioned an eligibility system that was more
                             expansive than that of traditional Medicaid, permitting these states to
                             extend eligibility to even higher levels under SCHIP. For states in our
                             sample with Medicaid section 1115 waivers, SCHIP plans tended to be
                             extensions of their Medicaid programs, requiring relatively minor
                             adjustments to incorporate SCHIP into current operations.35


States Have Flexibility to   By relying on the flexibility under existing statutes, some states have
Set Income and Resource      expanded SCHIP eligibility to an effective rate of up to 300 percent of the
Standards Under SCHIP        poverty level. Connecticut officials originally believed that in order to
                             expand SCHIP eligibility above 235 percent of the poverty level (from their
                             Medicaid level of 185 percent), the state would need to apply for a section
                             1115 waiver. However, discussions with HCFA resulted in a strategy of
                             using title XXI income disregards to effectively raise the state’s eligibility
                             level to 300 percent of the poverty level. Similarly, New York used income
                             disregards as a means of increasing the effective income level to
                             222 percent of the federal poverty level. Table II.2 shows the SCHIP
                             eligibility by federal poverty level for the states in our sample.




                             34
                               Income disregards are also common in the Medicaid program; title XIX also does not dictate how a
                             state defines income for purposes of eligibility determination. Examples of income disregards include
                             a flat percentage of income and income from sources such as child support.
                             35
                               While states with Medicaid section 1115 waivers expanded their Medicaid operations, many did so
                             through a stand-alone or combination program design. For example, Massachusetts, Oregon, and
                             Vermont all have section 1115 waivers under Medicaid but chose stand-alone or combination SCHIP
                             designs.


                             Page 40                                            GAO/HEHS-99-65 Children’s Health Insurance
                                              Appendix II
                                              Initial SCHIP Designs Are Evolving as the
                                              States Seek to Use Statutory Flexibility




Table II.2: Changes in Poverty Level From Medicaid to SCHIP in 15 States
Poverty level and                                                                                  Poverty level by age
incomea                 State                  Program                                    <1              1-5          6-14           15-18
High (201%-300%),       Connecticutb           SCHIP stand-alone                          300%            300%          300%            300%
                                                                                            c                c              c
$32,900-$49,350                                SCHIP Medicaid expansion                                                                 185
                                                                                                                                            c
                                               Medicaid                                   185             185           185
                        Missouri               SCHIP Medicaid expansion                   300             300           300             300
                                               Medicaid                                   185             133           100             100
                        New Yorkd              SCHIP stand-alone                          222             222           222             222
                                               Medicaid                                   185             133           100              61
                        Rhode Islande          SCHIP Medicaid expansion                     c                c
                                                                                                                        300             300
                                                                                                                                            f
                                               Medicaid                                   2-0             2-0           100
                        Vermontg               SCHIP stand-alone                          300             300           300             300
                                               Medicaid                                   225             225           225             225
Medium (151%-200%),     Californiah            SCHIP stand-alone                            c
                                                                                                          200           200             200
                                                                                                             c              c
$24,675-$32,899                                SCHIP Medicaid expansion                   250                                           100
                                               Medicaid                                   200             133           100              82
                        Colorado               SCHIP stand-alone                          185             185           185             185
                                               Medicaid                                   133             133           100              39
                        Florida                SCHIP stand-alone                          200             200           200             200
                                                                                            c                c              c
                                               SCHIP Medicaid expansion                                                                 100
                                               Medicaid                                   185             133           100              28
                                          i                                                 c
                        Massachusetts          SCHIP stand-alone                                          200           200             200
                                               SCHIP Medicaid expansion                   200             150           150             150
                                               Medicaid                                   185             133           133             133
                        Michiganj              SCHIP stand-alone                          200             200           200             200
                                                                                            c                c              c
                                               SCHIP Medicaid expansion                                                                 150
                                                                                                                                            f
                                               Medicaid                                   185             150           150
                        Oregon                 SCHIP stand-alone                          170             170           170             170
                                               Medicaid                                   133             133           100             100
                        Pennsylvania           SCHIP stand-alone                          200             200           200             200
                                               Medicaid                                   185             133           100              39
                        Wisconsink             SCHIP Medicaid expansion                     c                c
                                                                                                                        185             185
                                               Medicaid                                   185             185           100              62
Low (100%-150%),        South Carolinal        SCHIP Medicaid expansion                     c
                                                                                                          150           150             150
$16,450-$24,674                                Medicaid                                   185             133           100              48
                                                                                            c                c              c
                        Texas                  SCHIP Medicaid expansion                                                                 100
                                               Medicaid                                   185             133           100              17

                                                                                                                   (Table notes on next page)




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a
    Percentages of federal poverty level for family of four.
b
    Connecticut covers children up to age 16 under Medicaid at 185 percent of the poverty level.
c
    Not affected by SCHIP.
d
 New York has submitted an amendment to increase the maximum poverty level for its
stand-alone program to 230 percent and to add a SCHIP Medicaid expansion for
15-to-18-year-olds up to 100 percent of the poverty level.
e
 Under its section 1115 Medicaid waiver, Rhode Island covered children up to age 7 at
250 percent of the poverty level and those aged 8 to 13 up to 100 percent of the poverty level.
Effective May 1, 1997, the state expanded coverage to include children aged 8 to 18 up to
250 percent of the poverty level. Because this expansion was implemented after March 15, 1997,
it qualifies as an eligible Medicaid expansion under SCHIP.
f
    Not available.
g
 Vermont’s Medicaid program covers uninsured children up to 225 percent of the poverty level.
The state received approval in November 1998 to cover underinsured children up to 300 percent
of the poverty level through its Medicaid section 1115 waiver. Also, the state’s eligibility is for
children under age 18 (infant to age 17).
h
 California’s SCHIP Medicaid expansion covers children aged 14 to 19 up to 100 percent of the
poverty level. The state covers infants only from 200 to 250 percent of the poverty level whose
mothers are enrolled in the Access for Infants and Mothers program, which serves families who
have no maternity insurance, who have insurance with a high maternity-only deductible, and who
do not qualify for no-cost Medicaid.
i
Massachusetts’ SCHIP Medicaid expansion includes children aged 18, an age group of children
who were previously not covered under Medicaid.
j
Michigan’s SCHIP Medicaid expansion includes children aged 16 to 18 up to 150 percent of the
poverty level. Previously, these children were covered at the poverty level effective for those
eligible for Medicaid as medically needy (approximately 60 to 70 percent of poverty). Children
aged 15 are covered under Medicaid up to 150 percent of the poverty level.
k
 Initial eligibility in Wisconsin is up to 185 percent of the poverty level. Once an individual is
enrolled, eligibility is retained until family income reaches 200 percent of the poverty level.
l
 The nominal poverty level for SCHIP eligibility in South Carolina is 150 percent of the poverty
level. Depending on family size and composition, the use of income disregards brings the
effective poverty level to between 175 and 200 percent.



The difference in earlier poverty levels of eligibility across state Medicaid
programs affected the degree to which the states were able to plan and use
their SCHIP allotments. For example, Vermont estimated that its Medicaid
program had already reached 89 percent of all children with household
income less than the proposed 300-percent income level. A SCHIP program
aimed solely at the uninsured would cover only 1,000 additional children.
As a result, the state proposed a SCHIP plan that also targeted adults and
underinsured children with atypical health care needs. Vermont withdrew
its initial application, however, when it became clear that HCFA would not
approve these components of its plan for SCHIP funds because they did not




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                          meet statutory requirements. In December 1998, HCFA approved a SCHIP
                          stand-alone program to cover Vermont’s remaining uninsured children.
                          SCHIP benefits, however, will be the same as those available to the state’s
                          Medicaid beneficiaries. Vermont will use Medicaid rather than SCHIP funds
                          to cover underinsured children up to 300 percent of the poverty level and
                          recently received approval to provide coverage to adults with incomes
                          between 150 and 185 percent of the poverty level under its existing
                          Medicaid section 1115 demonstration waiver.

                          In contrast, Texas’ expansion providing coverage to children aged 15 to 18
                          from 17 to 100 percent of the poverty level appears, on the surface, to be
                          more modest than Vermont’s. However, Texas officials estimate that the
                          state’s initial placeholder plan could provide coverage to close to 163,000
                          children, and they hope to enroll 57,000 during fiscal year 1999. Like
                          Texas, South Carolina had a modest Medicaid expansion, increasing
                          eligibility from 100 to 150 percent. The state began enrolling children
                          before the official start date of SCHIP; the state had enrolled 52,000 children
                          as of September 1998.36 This enrollment constitutes more than half of the
                          estimated number of low-income uninsured children in South Carolina;
                          furthermore, state officials indicated that this figure does not include an
                          extensive backlog of mail-in applications.


Poor Insurance Coverage   As the states refine their initial SCHIP designs, concerns about equity have
Poses Concerns for Some   been raised. Of particular concern are low-income individuals who already
States                    have insurance of lesser quality or higher cost than that offered by SCHIP
                          and thus are not eligible for coverage under title XXI. State approaches to
                          SCHIP, as well as variability in the quality of insurance coverage, have posed
                          equity concerns, especially regarding children who have inadequate
                          insurance and state employees who may be ineligible for SCHIP.37 Title XXI
                          expressly prohibits coverage to individuals who are covered under a group
                          health plan or under health insurance coverage as defined by the Health
                          Insurance Portability and Accountability Act of 1996 (HIPAA). HCFA officials
                          noted that HIPAA has a very broad definition of insurance coverage,
                          meaning that individuals with minimal insurance coverage are not eligible
                          for SCHIP.


                          36
                           South Carolina began implementing its SCHIP Medicaid expansion before fiscal year 1998, the first
                          year in which SCHIP funds were available. However, because the expansion was approved after the
                          dates cited in title XXI, the program now operates as a SCHIP Medicaid expansion.
                          37
                           The American Public Human Services Association adopted a resolution in December 1998 urging the
                          Congress to amend SCHIP to enable dependents of low-income state employees to participate in the
                          program.



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The HIPAA designation of coverage has posed varying levels of concern for
the states. Massachusetts officials told us that insurance reform in their
state has helped eliminate “bad” policies—that is, those that provide only
minimal coverage. However, other states have expressed concern that the
statute does not discriminate between good and poor coverage and thus
unfairly penalizes a family who purchases an inadequate insurance policy.
Some states would deny immediate SCHIP coverage to such a low-income
family, while a family at a similar poverty level who did not purchase
insurance would qualify for SCHIP without any restrictions or waiting
period. A few states have defined access—that is, whether an individual
can obtain insurance through an employer—as the point of eligibility for
SCHIP. In this case, while there is no disparity of treatment between insured
and uninsured individuals, there is also a smaller pool of individuals
eligible for SCHIP. Rhode Island employs a hybrid approach that provides
eligibility workers with guidelines regarding affordability of coverage—a
policy less than $150 per month for a child or $300 for a family. However,
eligibility workers can use their own discretion in deciding if the cost of
available coverage is prohibitive for a child or family; in these cases, a
worker can deem the individual eligible for SCHIP.

Although title XXI appears to expressly prohibit the states from enrolling
children of state employees eligible for its health benefits plan, states’
SCHIP design choices have led to some exceptions. A state that selects a
Medicaid expansion is subject to Medicaid rules of eligibility, while the
SCHIP statute governs any stand-alone approach. Under Medicaid,
individuals qualifying for participation in certain eligibility groups (that is,
children born before October 1, 1983) cannot be excluded on the basis of
their insurance status; hence, Medicaid expansions can include uninsured
children of state employees. Thus, for the 27 states with Medicaid
expansions, there is no prohibition on uninsured children of state
employees who meet the state poverty guidelines for title XXI.38 In the
case of stand-alone or combination programs, however, the statutory
restrictions are tighter. If a state contributes nothing to the cost of
dependent coverage, then state employees can enroll in SCHIP; nationwide,
two states, Mississippi and North Carolina, do not contribute to health
benefits for their employees’ dependents. Thus, SCHIP eligibility for state
employees and their dependents has resulted in different outcomes,
depending upon each state’s design choice under SCHIP and other special
circumstances regarding state employee insurance. Some states and state
associations have raised concerns about the state employee prohibition in

38
 Wisconsin officials told us that even though Wisconsin’s program is a Medicaid expansion, state
employees covered by state employee health insurance are excluded.



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                            SCHIP stand-alone components, pointing out the disparity in treatment
                            across the states and the fact that the prohibition does not apply to federal
                            or other government employees.


                            In contrast to SCHIP programs that are modeled after Medicaid, title XXI
The Comparability of        allows states with stand-alone programs to impose additional conditions
Medicaid and SCHIP          and limits on benefits by authorizing a benchmark benefit package that
Stand-Alone Benefit         more closely resembles some employer-based coverage for those
                            implementing a stand-alone approach. For the majority of eligible children,
Packages Is Difficult       such limits and conditions are not likely to interfere with ensuring
to Ascertain                adequate diagnosis and treatment. Children with special needs, however,
                            may not receive the full range of services that their conditions might
                            warrant. To guard against this possibility, some states have developed
                            screening tools similar to EPSDT as a means of identifying children with
                            special needs and ensuring that they receive the full range of necessary
                            treatment. Other states have not confronted the problem of these children
                            and, like the Medicaid program, have instituted prior authorization
                            requirements or service limits for certain treatments or services. Finally,
                            the states with stand-alone programs or combination programs with a
                            stand-alone program component in our sample generally included benefits
                            similar to Medicaid but did impose differences in the duration of treatment
                            allowed or the number and amount of services covered.


Stand-Alone Programs        Table II.3 describes the four benefit package standards available to states
Reflect the Full Range of   implementing a stand-alone SCHIP program or component—benchmark
Title XXI Options           coverage, benchmark-equivalent coverage, existing comprehensive state
                            coverage, and Secretary-approved coverage. As shown by table II.4, the
                            states in our sample with a stand-alone program used the full variety of
                            options offered under SCHIP. Two states used benchmark coverage—one
                            based on its state employee benefits program and one based on the
                            Federal Employees Health Benefit Program (FEHBP) benchmark option.
                            One state adopted a benchmark equivalent, incorporating the basic and
                            additional benefits cited in title XXI. Finally, three states in our sample had
                            benefit packages that were grandfathered into title XXI, and four states
                            received approval by the Secretary for an alternative benefit package.




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Table II.3: SCHIP Benefit Package
Standards for Stand-Alone Programs        Coverage standard         Description
                                          Benchmark                 FEHBP Blue Cross Blue Shield standard option or coverage
                                                                    generally available to state employees or coverage under the
                                                                    state’s health maintenance organization with the largest insured
                                                                    commercial non-Medicaid enrollment
                                          Benchmark equivalent Basic coverage for inpatient and outpatient hospital, physicians’
                                                               surgical and medical, laboratory and x-ray, and well-baby and
                                                               well-child care, including age-appropriate immunizations

                                                                    Aggregate actuarial value equivalent to a benchmark package

                                                                    Substantial (75%) actuarial value for optional prescription drugs
                                                                    and mental, vision, and hearing services
                                          Existing                  Coverage equivalent to state-funded child health programs in
                                          comprehensive state       Florida, New York, or Pennsylvania
                                          (grandfathered)
                                          Secretary-approved        Coverage appropriate for targeted low-income children

Table II.4: Basis for Required Scope of
Health Insurance Coverage for Ten         Basisa                                             State
States With Stand-Alone Programs          Benchmark coverage                                 Mass., Mich.
                                          Benchmark-equivalent coverage                      Colo.
                                          Existing comprehensive state coverage              Fla., N.Y., Pa.
                                                                           b
                                          Secretary-approved coverage                        Calif., Conn., Oreg., Vt.
                                          a
                                           Excludes the Medicaid expansion portions of combination programs, which by definition offer
                                          benefits identical to a state’s Medicaid plan.
                                          b
                                           Although California and Connecticut use their state employee plans as the basis for coverage,
                                          HCFA did not consider this benchmark coverage because both states included additional
                                          benefits.




Coverage Requirements for                 Benefit comparisons between Medicaid expansions and SCHIP stand-alone
SCHIP Stand-Alone                         programs are complex because of the numerous services involved, the
Programs Are Based on                     ability of the states to place limits on covered services, and the availability
                                          of EPSDT under Medicaid (see figure II.1). Both Medicaid and the
Private Sector Standards                  benchmark approaches available to states with stand-alone components
                                          include (1) mandatory coverage for a series of basic services for children,
                                          such as physician visits, inpatient hospitalization, laboratory and x-ray
                                          services, and well-baby and well-child care, and (2) optional coverage for
                                          prescription drugs and dental, mental health, vision, and other services. In
                                          addition, the states may impose conditions and limits on the benefits
                                          offered under a Medicaid expansion or a SCHIP stand-alone program. For
                                          example, dental benefits might exclude routine preventive care and cover




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                              only any restoration necessary because of an accident. Or inpatient mental
                              health services may be limited to a dollar amount or a number of days of
                              services.


Figure II.1: Medicaid EPSDT
Requirements




                              However, Medicaid—and therefore Medicaid expansions—use a special
                              standard to determine the appropriate level of services available to
                              children that is based upon a broad definition of medical necessity. In
                              general, Medicaid, through its EPSDT component, requires the states to
                              cover any treatment to cure or stabilize a condition diagnosed during
                              routine screening—regardless of whether the benefit is actually covered
                              under the state’s Medicaid program and regardless of any limits placed on
                              the benefit. In contrast, not all private insurance defines covered services
                              this broadly. While the implementation of EPSDT is difficult to measure,
                              federal studies have generally found state efforts to be inadequate.
                              Nonetheless, the EPSDT requirement provides an avenue for legal review
                              and appeal to ensure that children receive necessary services and thus, in
                              theory, guarantees a coverage level beyond that of a state’s Medicaid
                              benefit package.




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Some SCHIP Stand-Alone     Some SCHIP stand-alone programs included screening and diagnostic
Programs Include           procedures similar to EPSDT, in part as a means to identify children with
Screening and Diagnostic   special health care needs. Connecticut’s SCHIP plan contains a screening
                           and referral service intended to provide children with special behavioral
Procedures Similar to      or medical needs any extra services they might require. Connecticut
EPSDT                      officials indicated that the state was interested in a SCHIP benefit package
                           that looked like a commercial insurance model with defined limits on
                           services. However, the officials indicated that experience with Medicaid
                           managed care showed that there were problems in applying a commercial
                           model when serving individuals with extreme health needs. As a result, the
                           state devised an enhanced benefit package for children found to have
                           particular physical or behavioral health needs. For example, a child
                           eligible for SCHIP with behavioral health needs that are not covered under
                           its commercial health maintenance organization (HMO) would receive
                           services through a program developed by the Yale Child Study Center,
                           which provides in-home mental health services.

                           Florida and Massachusetts also employ screening mechanisms to identify
                           children with special needs. Florida recently received approval for a SCHIP
                           plan amendment that provides approximately 300 children with special
                           needs the opportunity to receive Medicaid benefits. These children have
                           chronic or potentially chronic physical or developmental conditions, and a
                           number of them have serious emotional disturbances or substance
                           dependency. Similar to Medicaid enrollees with similar conditions,
                           children eligible for SCHIP will receive covered services through a capitated
                           managed care arrangement that will be administered by title V.39 In
                           Massachusetts, children with physical, mental, or developmental
                           disabilities are enrolled in Medicaid, regardless of whether they would
                           otherwise qualify for SCHIP. These children participate in the state’s section
                           1115 waiver for persons with disabilities, receiving treatment and services
                           from fee-for-service providers.

                           Although providing less extensive coverage than EPSDT, some states have
                           employed other screening mechanisms to attempt to ensure that children
                           receive basic services. For example, Michigan officials told us that their
                           SCHIP stand-alone package includes well-child recommendations by the
                           American Academy of Pediatrics. With the exception of cost-sharing
                           provisions, officials noted that there is little difference between the state’s

                           39
                             Title V, the Maternal and Child Health Services Block Grant, offers formula grants that require a state
                           match of $3 in funds or resources for every $4 in federal funds received; a minimum of 30 percent of
                           funds must be used to support programs for children with special health needs. Title V also supports
                           activities under Special Projects of Regional and National Significance and Community Integrated
                           Service Systems.



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                                        Medicaid and SCHIP benefit packages. However, Michigan did attempt to
                                        improve access to services by increasing physician and dental provider
                                        payments in its SCHIP stand-alone component in the hopes of enticing
                                        additional provider participation. Although the state’s Medicaid program
                                        covers dental services, the state recognizes that it has a serious problem
                                        regarding access to such services. Michigan officials view the SCHIP
                                        payment increases as a test to see if access to covered services actually
                                        improves.


Most Stand-Alone                        The states in our sample with a stand-alone component generally offer the
Programs Cover Optional                 same five optional benefits under their SCHIP programs—namely,
Benefits but Vary in the                prescription drugs and mental health, vision, hearing, and dental services.
                                        As shown in more detail in table II.5, states with stand-alone benefit
Limits They Impose                      packages covered these benefits but usually with certain exclusions or
                                        limits on services. SCHIP limitations on benefits for children represent a
                                        departure from the Medicaid program, primarily because EPSDT in
                                        Medicaid requires that children with medical needs be afforded services.
                                        In general, however, most non-Medicaid SCHIP programs include routine
                                        services such as physician services, prescription drugs, and laboratory and
                                        radiological services without stated limits. Mental health, substance abuse,
                                        ancillary therapies, and other specialized services are generally provided
                                        on a more limited basis.

Table II.5: Yearly SCHIP Benefits for
Stand-Alone Components in Eight         Optional service      State                 Limits on services
States                                  Prescription drugs    California            Covered
                                                              Colorado              Covered
                                                              Connecticut           Covered
                                                                      a
                                                              Florida               Covered; generics only unless physician
                                                                                    specifies
                                                              Massachusetts         Covered
                                                              Michigan              Covered; generics only unless physician
                                                                                    specifies
                                                              New Yorkb             Covered; generics only if acceptable to health
                                                                                    plan
                                                              Pennsylvaniac         Covered
                                                                          d
                                        Mental health         California            Inpatient 30-day limit; outpatient 20 visits
                                                              Coloradoe             Inpatient 45-day limit; outpatient 20 visits
                                                                              f
                                                              Connecticut           Inpatient 60-day limit; outpatient 30 visits
                                                              Florida               Inpatient 15-day limit; outpatient 20 visits
                                                              Massachusetts         Limits based on medical necessity
                                                                                                                         (continued)



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Optional service      State                 Limits on services
                      Michigan              Inpatient 365-day limit; outpatient covered
                      New York              Inpatient 30-day limit; outpatient 60 visits
                      Pennsylvania          Inpatient 90-day limit; outpatient no limits
Vision                California            Covered; one set of glasses or contacts per
                                            year
                      Colorado              $50 annual maximum for glasses
                      Connecticut           Covered; one set of glasses every 2 years
                      Florida               Covered; one set of glasses every 2 years
                      Massachusetts         Covered; one set of glasses or contacts per
                                            year
                      Michigan              Covered; one set of glasses every 2 years
                      New York              Covered
                      Pennsylvania          Covered
Hearing               California            Exams and hearing aids
                      Colorado              $800 annual maximum; hearing aids
                      Connecticut           Exams; hearing aids covered in supplemental
                                            program
                      Florida               Routine hearing screening and hearing aids
                      Massachusetts         Services for speech, hearing, and language
                                            disorders; hearing aids
                      Michigan              Exams and hearing aids covered every 36
                                            months
                      New York              Covered
                      Pennsylvania          Exams and hearing aids
Dental                California            Covered
                      Colorado              Treatment of injuries only
                      Connecticut           Covered
                      Florida               Treatment of injuries only
                      Massachusetts         Covered
                      Michigan              $600 annual limit
                      New York              Covered
                      Pennsylvania          Covered

                                                                    (Table notes on next page)




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    a
     Benefits for Florida’s Healthy Kids program are reflected in the table. The state’s Medikids
    program and the Children’s Medical Services Network for children with special health care needs
    use Medicaid benefits.
    b
     New York’s benefits reflect expanded coverage of dental, vision care, and other services
    approved by state legislation after its original SCHIP plan was approved. The state has requested
    an amendment to the SCHIP plan regarding these benefit changes.
    c
     Pennsylvania now requires no limits on optional benefits, and the state will consider this change
    when renegotiating provider contracts.
    d
     California offers additional specialized mental health services for seriously emotionally disturbed
    children.
    e
      Colorado’s mental health parity law requires unlimited treatment for ten biologically based
    illnesses.
    f
     Connecticut allows some inpatient days to be converted to outpatient days. Also, children with
    intensive behavioral health needs are referred to a supplemental behavioral health program for
    additional services.



    The Medicaid and SCHIP benefits of New York and Oregon demonstrate the
    different approaches the states have taken as well as the specific state
    circumstances that contributed to their benefit decisions.

•   The benefit package from New York’s existing state-financed program for
    uninsured children was grandfathered into the SCHIP program and initially
    contained limits on services and several exclusions that were generally
    more restrictive than its Medicaid program. State officials noted that the
    original goal of its state program was to cover as many children as
    possible within state budgetary limits. New York originally focused on
    primary and preventive care and provided very limited benefits for mental
    health, dental, and hearing services. The state recently passed legislation
    to amend its SCHIP plan to include dental care, eyeglasses and other vision
    care, speech and hearing, durable medical equipment, and inpatient
    mental health, alcohol, and substance abuse services beginning on
    January 1, 1999, thus narrowing the gap between Medicaid and SCHIP
    benefits.40
•   Coverage under Oregon’s stand-alone program expressly mirrored the
    benefits offered under its Medicaid section 1115 waiver.41 State officials
    determined through public hearings and testimony that citizens
    considered Oregon’s Medicaid benefit package to be richer than any


    40
        On March 26, 1999, New York submitted a SCHIP plan to HCFA regarding these benefit changes.
    41
      Through the use of a section 1115 waiver, Oregon redefined its Medicaid benefit package, creating a
    prioritized list of services and conditions that are eligible for Medicaid reimbursement. Oregon’s
    SCHIP stand-alone benefits package uses the same prioritized list of services and conditions as the
    state’s Medicaid program.



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                          possible benchmark plan, in part because it offers full mental health and
                          preventive dental care.42


                          Traditional Medicaid does not allow cost sharing for services provided to
Cost Sharing:             most children. Thus, the incorporation of cost sharing in both stand-alone
Opportunities and         SCHIP plans and the Medicaid expansions of several states operating their

Challenges                programs under section 1115 waivers represents a departure from the
                          norm. Most states in our sample with a stand-alone component told us that
                          they included cost-sharing provisions as a way to mirror private insurance.
                          These states generally viewed cost sharing as creating a sense of
                          ownership for beneficiaries. In general, the cost sharing imposed by 11
                          states in our sample appears to be closer to 1 to 2 percent of income for a
                          family of four with two children than to the 5 percent permitted by title
                          XXI.43 Indeed, about half of these states impose no cost sharing for
                          families at 150 percent of the poverty level ($24,675 for a family of four).
                          The review and approval of cost-sharing provisions was complex, as both
                          states and HCFA struggled with the application of the appropriate statutory
                          provisions of either Medicaid or title XXI. Compliance with title XXI’s
                          5 percent of family income limit was especially troublesome as the states
                          worked to devise ways to limit the administrative burden imposed in
                          tracking a family’s health expenditures. Finally, states with grandfathered
                          benefits learned that the statute did not treat cost sharing as part of their
                          benefit package; ultimately, all three states had to alter their cost-sharing
                          practices to reflect title XXI limits.


Cost-Sharing Provisions   With the exception of preventive services, which are exempt from cost
Differ for Medicaid and   sharing under SCHIP, a state’s design choice greatly affects the degree to
SCHIP                     which families can be asked to contribute to the cost of coverage for their
                          children. Generally, a state with a traditional Medicaid program that elects
                          a SCHIP Medicaid expansion is not allowed to impose premiums on most
                          children or any deductibles, copayments, or other similar charges for
                          children. States operating less traditional Medicaid programs under a
                          section 1115 waiver that had already introduced cost sharing have the
                          option of imposing cost sharing under a SCHIP Medicaid expansion if it is

                          42
                           Under Oregon’s section 1115 waiver, EPSDT requirements were waived; however, most
                          EPSDT-mandated services are covered under Oregon’s Medicaid program.
                          43
                            Texas commented that the jump from no cost sharing below 150 percent of the poverty level to
                          allowing up to 5 percent of income cost sharing between 150 and 200 percent was “too severe” for
                          such a small change in income (50 percentage points) and suggested that more states would have
                          developed graduated cost sharing at higher levels if the income range had been broader. For example,
                          Texas suggested that cost sharing that started at 0.05 or 1 percent for those under 150 percent of the
                          poverty level would have encouraged incremental cost sharing to higher levels.



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                           consistent with title XXI limits. For SCHIP stand-alone programs, cost
                           sharing at or below 150 percent of the poverty level follows Medicaid
                           limits on premiums, while copayments and other cost sharing must be
                           “nominal.” Children in families above 150 percent of the poverty level can
                           be charged premiums or other cost sharing of any amount—as long as the
                           total for all children does not exceed 5 percent of aggregate annual family
                           income.

                           The two major types of cost sharing—premiums and copayments—can
                           have different behavioral effects on participation in a health plan.
                           Generally, premiums are seen as restricting entry into a program, whereas
                           copayments affect the use of services within the program. Studies of
                           Medicaid programs operating under section 1115 waivers and of
                           state-funded health programs demonstrate that premiums can affect the
                           level of program participation. In particular, one study found that when
                           premiums reach 7 percent of a family’s income, participation drops to less
                           than 10 percent of eligible families.44 Copayments are generally seen as a
                           “brake” on the use of services because they reduce the frequency of
                           physician visits. However, significant cost sharing may cause individuals
                           to defer treatment, resulting in more severe conditions and potentially
                           higher expenses.


States Often Implemented   Thirteen of the 15 states in our sample can impose cost-sharing provisions
Cost Sharing to Mirror     under SCHIP that are different from Medicaid limits, either by virtue of
Private Sector Insurance   being a stand-alone component or because of a section 1115 Medicaid
                           waiver.45 Of those 13 states, all but 2 included cost sharing in their SCHIP
Practices                  plans, as shown in table II.6. Oregon, which asks beneficiaries to
                           contribute to the cost of coverage under its section 1115 waiver, chose not
                           to do so under SCHIP. During negotiations with HCFA, Pennsylvania dropped
                           a $5 copayment for prescriptions that had been part of its previous
                           state-funded children’s health insurance program. Eight states are
                           charging both copayments and premiums, while three states are requiring
                           only the latter. A majority of these 11 states have opted to charge a
                           per-child premium, but many have imposed a total limit on the amount of




                           44
                            Leighton Ku and Teresa A. Coughlin, The Use of Sliding Scale Premiums in Subsidized Insurance
                           Programs (Washington, D.C.: The Urban Institute, Mar. 1997).
                           45
                            States with Medicaid expansions whose Medicaid programs do not charge premiums or copayments
                           are barred from imposing cost sharing. Hence, South Carolina and Texas cannot charge copayments
                           under SCHIP.



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                                       States Seek to Use Statutory Flexibility




                                       premiums a family has to pay.46 For example, in New York, per-child
                                       premiums for a family at 160 percent of the poverty level or greater with
                                       four children would exceed the allowable maximum premium; thus, the
                                       family’s premium would be equivalent to three children. Generally, the
                                       states in our sample had a similar rationale for imposing cost sharing—to
                                       emulate employer-based insurance.

Table II.6: Cost Sharing Under SCHIP
in 13 States                           Cost-sharing effort                                State
                                       No cost sharing                                    Oreg., Pa.
                                       Premiums and copayments                            Calif., Colo., Conn., Fla., Mo., R.I.,a Vt.,
                                                                                          Wisc.
                                       Premiums only                                      Mass.,b Mich., N.Y.
                                       a
                                        Rhode Island allows individuals to choose between paying premiums or paying copayments.
                                       b
                                        Massachusetts may provide coverage by subsidizing employer-based insurance; in these
                                       circumstances, a family may be charged premiums and copayments.



                                       California officials told us that cost sharing was central to its efforts to
                                       create a system that parallels private health insurance. California charges
                                       different premiums depending on a family’s poverty level, and families
                                       who prepay their premiums for 3 months get a fourth month free.
                                       Copayments are established by the state’s insurance board and are set at
                                       $5. California officials told us that cost sharing was a magnet to
                                       participation in SCHIP, noting that of the individuals applying for SCHIP who
                                       were deemed eligible for Medicaid (and therefore ineligible for SCHIP), only
                                       25 percent gave permission for their applications to be sent to Medicaid.

                                       California was unable to obtain approval for varying levels of cost sharing
                                       across different plans because these amounts were higher than those
                                       permitted under title XXI. The state had proposed establishing a set
                                       premium assistance amount based on the insurance plans offering the
                                       lowest cost combination of health, dental, and vision plans for a particular
                                       geographic area. Eligible individuals could choose a higher-priced plan but
                                       only if they were willing to increase their contribution because the state
                                       subsidy would remain the same. Officials cited a twofold reason for this
                                       approach: (1) there is an amount above which the federal government and
                                       the state should not pay to support insurance costs and (2) SCHIP families
                                       deserve to have as many health plan choices as possible. State officials
                                       indicated that HCFA was very concerned about bias, believing that families

                                       46
                                        California, Colorado, Connecticut, Massachusetts, New York, and Rhode Island are charging
                                       per-child premiums. Florida, Michigan, Missouri, Vermont, and Wisconsin are charging per-family
                                       premiums.



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might press themselves to pay higher premiums on the assumption that
higher cost meant better coverage. HCFA, in contrast, indicated that the
issue was simply that the cost sharing for all but one plan was higher than
permitted under the statute. Ultimately, California withdrew this element
of its cost-sharing proposal, but state officials said that, as a result, some
health plans withdrew from SCHIP participation. California officials
characterized the loss of this segment of their SCHIP plan as putting a large
hole in their efforts to make SCHIP a path to private insurance. Officials
believed that allowing beneficiaries more choice of plans—even those that
had a higher cost—was an important educational effort that would afford
individuals the opportunity to make informed choices once they were
purchasing their own insurance.

Michigan ultimately balanced its interest in modeling its program after
employer-sponsored insurance with the desire to ensure that eligible
families enroll and use SCHIP. State officials indicated that Michigan
wanted its SCHIP to (1) appeal to working families by avoiding any
perceived welfare stigma, (2) preserve the ability to alter program design
to control costs and expenses, and (3) make it easier for people to make a
transition to employer-based insurance. Originally, Michigan required
premium and copayments for families above 150 percent of the poverty
level. Premiums ranged from $8 to $15 per month, depending upon the
number of children, and copayments were generally $5. However, the
Michigan state legislature decreased the premium to a flat rate of $5 per
family per month and eliminated three $5 copayments. Michigan officials
stated that the monthly premium is costly to collect, but it is part of the
state’s belief that the program should operate like private insurance.

While states with traditional Medicaid programs—such as South Carolina
and Texas—are generally not permitted to include cost-sharing provisions
in their SCHIP Medicaid expansions, most states with Medicaid section 1115
waivers did incorporate cost sharing consistent with title XXI. For
example, Rhode Island’s Medicaid section 1115 waiver allows individuals
to choose between paying premiums or copayments for eligible children.
Missouri and Wisconsin were able to use a Medicaid section 1115 waiver
as the basis for their SCHIP programs, and both planned to include cost
sharing. For Missouri, cost-sharing provisions were a matter of equity,
particularly at higher levels of poverty. Thus, the state has copayments
with exemptions for preventive care beginning at 185 percent of the
poverty level, and premium assistance amounts are based upon what state
employees in Missouri pay for their care. Wisconsin planned to charge




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                           Initial SCHIP Designs Are Evolving as the
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                           premiums beginning at 150 percent of the poverty level that would total
                           approximately 3 to 3.5 percent of a family’s income.


Cost Sharing Under SCHIP   None of the 11 states in our sample required cost sharing that is likely to
Appears to Be Minimal in   reach the maximum 5 percent of income permitted by title XXI, as shown
15 States                  in table II.7.47 To determine the amount of SCHIP cost sharing imposed by
                           states, we estimated copayments for a typical healthy family with two
                           children enrolled in SCHIP. For a family at 150 percent of the federal
                           poverty level, total estimated cost sharing ranged from a low of $60 per
                           year in Michigan (0.2 percent of income) to a high of $864 per year in
                           Wisconsin (3.5 percent of income). Five of the 11 states that imposed cost
                           sharing under SCHIP charged families at this income level nothing to enroll
                           their children. In general, copayments account for a small percentage of
                           the total out-of- pocket costs.




                           47
                             Table II.7 provides our estimate of SCHIP copayments for a family of four consisting of two healthy
                           children between the ages of 6 and 14 years old. Many health services have recommended schedules of
                           usage, but most are exempted for cost sharing under SCHIP. We imputed the type and number of visits
                           for eye, hearing, and dental care and derived estimates for outpatient physician visits and prescriptions
                           (except oral contraceptives) from the National Center for Health Statistics National Ambulatory
                           Medical Care Survey.



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Table II.7: Estimated Cost Sharing as a Percentage of Family Income in 11 States
                  $24,675 annual income (150% of       $30,433 annual income (185% of                   $41,125 annual income (250% of
                     poverty) 5% limit = $1,234           poverty) 5% limit = $1,522                       poverty) 5% limit = $2,056
                 Estimated cost         Percent of        Estimated cost              Percent of         Estimated cost          Percent of
State                   sharing           income                 sharing                income                  sharing            income
California                $212                   0.9%                  $260                     0.9%
Colorado                    318                  1.3                     398                    1.3
Connecticut                                                                                                            643                 1.6%
Florida                     213                  0.9                     213                    0.7
Massachusettsa              309                  1.3                     309                    1.0
Michigan                     60                  0.2                      60                   0.19
                               b                    b
Missouri                                                                  54                   0.18                    888                 2.2
                               b                    b
New York                                                                 216                    0.7
                               b                    b
Rhode Island                                                              68                    0.2                      68               0.17
Vermont                                                                                                                228                 0.6
Wisconsin c                 864                  3.5                   1065                     3.5
                                          Note: Blank cells indicate that there is no SCHIP eligibility at this income level.
                                          a
                                           Massachusetts’ SCHIP plan covers adults at some income levels, but adult cost sharing is not
                                          subject to the 5-percent-of-income cap and therefore is not included in this estimate.
                                          b
                                           No cost sharing is required at this income level.
                                          c
                                           This estimate is based on managed care enrollment where there are no copayments. Wisconsin
                                          applies Medicaid-allowable copayments to enrollees in fee-for-service arrangements, but they
                                          apply only to an estimated 15 percent of expected enrollees.



                                          Some disparity across income levels exists, depending on how states
                                          applied premiums and copayments. Several states in our sample used a
                                          single premium level and copayment schedule for all families that did not
                                          increase as income increased. This resulted in families with higher
                                          incomes paying a smaller percentage of their income for cost sharing in
                                          some states, such as Florida, Massachusetts, Michigan, and Rhode Island.
                                          In contrast, Colorado’s, Wisconsin’s, and California’s plans ensure that
                                          persons at higher income levels pay about the same percentage of family
                                          income in cost sharing as those at lower income levels.


Cost Sharing Creates                      SCHIPcost-sharing provisions gave the states additional flexibility
Tracking Requirements for                 compared with Medicaid but imposed a limit on the amount that they
the States                                could actually charge. Thus, any cost sharing that was not predictable,
                                          such as copayments, created the need for the family, the state, or the




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health insurance plans to track spending to ensure that once the maximum
level is reached, no further cost sharing is imposed. As noted earlier, 11
states in our sample elected to impose cost sharing, including 9 that
charged both premiums and the more-difficult-to-estimate copayments.
With respect to tracking copayments, the states worked out a number of
approaches, ranging from requiring individuals to keep receipts to
mandating that health plans monitor cost sharing.

HCFA’s review of Colorado’s plan raised the issue of how the state would
track family expenditures to ensure that the 5-percent aggregate limit was
not exceeded. Working with HCFA, state officials established a method to
identify for providers families who are exempt from further copayments.
Known as the “shoebox method,” the approach requires families to keep
track of receipts; when copayments reach the maximum 5 percent of
income allowed under title XXI, they notify the state, which places a
sticker on the health card to indicate their exemption from further
copayments.

Massachusetts also adopted the shoebox method to track family
expenditures but with the added complexity of incorporating this
methodology into its premium assistance program for employer-sponsored
insurance. The state originally set premium assistance levels at 1 to
2 percent of family income and believed that this would ensure that no
family exceeded the 5-percent cost-sharing limit. However, because levels
of cost sharing vary across different employer-sponsored plans, HCFA
raised concerns that families might exceed the limit. To resolve this issue,
Massachusetts adopted the shoebox method. The state now plans to
inform families of the 5-percent limit as they are determined eligible for
the program. Once a family submits proof of expenses totaling 5 percent of
family income, the state notifies the health plan and requests that further
copayments be billed to the Massachusetts SCHIP. State officials describe
this process as administratively difficult because of the number and
variety of health plans with which employers contract and for which the
state might have to generate copayments.

In contrast, Connecticut placed the burden of tracking family expenditures
on the health plans. Connecticut’s SCHIP plan included state legislation that
cites a maximum annual aggregate cost sharing of $650 for children in
families with income levels between 186 and 235 percent of the poverty
level and $1,250 for families from 236 to 300 percent of the poverty level.
These annual limits equate to around 2 to 4 percent of aggregate family




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                            income. Participating health plans are charged with tracking family
                            payments to ensure that spending does not exceed the required amount.


States With Grandfathered   States with grandfathered benefit packages—Florida, New York, and
Benefit Packages Had to     Pennsylvania—had to alter their cost-sharing provisions in order to
Change Cost-Sharing         conform to SCHIP statutory requirements. Florida was required to lower
                            several copayment amounts and its premiums for subsidy families in order
Provisions                  to meet limits included in the federal legislation. While title XXI does allow
                            the states to petition the Secretary to approve an alternative cost-sharing
                            schedule, Florida chose not to pursue this option. State officials indicated
                            that there was tremendous internal pressure to implement title XXI within
                            state-imposed deadlines; as a result, they were concerned that a waiver
                            process might draw out the review of their plan. Pennsylvania wanted to
                            continue to charge a $5 copayment for prescriptions, a provision that was
                            part of its state-funded children’s program. Like Florida, state officials
                            interpreted title XXI as including this copayment in the grandfathered
                            benefits package. Ultimately, the state removed this copayment from its
                            plan as a result of the review process.

                            Incorporating New York’s long-standing children’s health program into
                            SCHIP provisions was challenging for state officials. New York’s
                            state-funded program was started in 1990 and was based on a partnership
                            between government and private insurers to provide subsidized private
                            health insurance coverage to children. New York had cost-sharing
                            provisions that HCFA determined were not in compliance with title XXI
                            requirements, the most controversial being a $25 penalty for inappropriate
                            emergency room use that HCFA considered to be in excess of the nominal
                            charge permitted. New York officials stated that they had numerous
                            discussions with HCFA regarding the $25 charge; their approved plan
                            included a $10 copayment, but state officials told us that they plan to drop
                            all copayments in a subsequent plan amendment. As with Colorado and
                            several other states, HCFA raised the issue of how New York planned to
                            track annual aggregate expenditures. New York officials estimated that a
                            child at 150 percent of the poverty level would have to visit a physician
                            daily for a period of 1 year in order to exceed the 5-percent cap. Thus,
                            from the state’s perspective, a tracking system was unnecessary. HCFA
                            indicated that a way was needed to demonstrate that the statutory
                            requirement was being met. New York initially placed the administrative
                            burden of tracking expenditures on the health plans. However, the state
                            legislature removed all copayments, including inappropriate emergency
                            room use, effective January 1, 1999. State officials indicated that this was



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done at the request of insurers who believed that the administrative
burden of collecting $2 and $3 copayments would be far greater than the
revenue collected.




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Appendix III

Early State Efforts to Use SCHIP Family
Coverage and Employer Subsidy Options

                    Having secured approval for their fiscal year 1998 SCHIP allocations, a
                    growing number of states are exploring two options permitted by the
                    statute: (1) family coverage that includes the adults in families as well as
                    the children and (2) an employer buy-in that helps families gain access to
                    available employer-based insurance for their children by using SCHIP funds
                    to pay the employee share of the cost of dependent coverage. The
                    statutory requirement that the cost effectiveness of covering adults as well
                    as children in a family be demonstrated underscores the need for some
                    type of subsidy. Although the two options are distinct, family coverage
                    appears to be impossible to achieve without the subsidy inherent in most
                    employer-based coverage: Because some employers subsidize a share of
                    the cost of providing coverage to workers, an employer buy-in can help
                    meet the statute’s cost-effectiveness test by limiting SCHIP outlays. As of
                    April 1, 1999, only Massachusetts and, to a lesser degree, Wisconsin had
                    received approval for family coverage under SCHIP, demonstrating cost
                    effectiveness by relying on an employer buy-in option. However, achieving
                    family coverage through an employer buy-in can further complicate plan
                    approval and implementation because of the complex benefit and
                    cost-sharing requirements imposed by title XXI. HCFA has so far declined to
                    use its section 1115 authority to facilitate state family coverage goals by
                    waiving title XXI requirements. HCFA believes that it is inappropriate to use
                    this demonstration authority to waive title XXI requirements before a
                    state’s implementation of its SCHIP program. In part, this stance reflects a
                    concern about not undermining the statutory goal of covering uninsured
                    children.


                    Although the goal of SCHIP is to provide uninsured children with health
Family Coverage     insurance coverage, a state can elect to cover the entire family—both the
Under SCHIP         parents or custodians and their children—if it is cost effective to do so.
Requires External   The cost-effectiveness test for family coverage specifies that the expense
                    of covering both adults and children in a family must not exceed the cost
Subsidy             of covering only the children. Under these circumstances, cost
                    effectiveness appears possible only when the cost to SCHIP of covering a
                    family is subsidized, such as by employer contributions. Massachusetts
                    and Wisconsin received approval of their title XXI family coverage
                    proposals by relying on an employer buy-in—a distinct and challenging
                    SCHIP option. (See figure III.1.) Under an employer buy-in, benefits must be
                    equivalent to one of the SCHIP benchmark packages, and cost sharing for a
                    child cannot exceed the statute’s limit of 5 percent of family income.




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                                     Early State Efforts to Use SCHIP Family
                                     Coverage and Employer Subsidy Options




Figure III.1: Massachusetts’ SCHIP




                                     Massachusetts was the first of two states to receive approval for family
                                     coverage. State officials believe that HCFA’s 1995 approval of a section 1115
                                     waiver permitting an employer buy-in for their traditional Medicaid
                                     program greatly facilitated their family coverage cost-effectiveness test.
                                     Massachusetts’ as well as Wisconsin’s cost-effectiveness test for family
                                     coverage built upon the employer subsidy inherent in most coverage
                                     provided through the workplace, thus minimizing the state subsidy of the
                                     cost of parental coverage. Because HCFA conditions the employer buy-in on
                                     a firm’s payment of at least 60 percent of the cost of family coverage, the
                                     state’s subsidy of the remaining 40 percent of the premium is less than the
                                     full cost of covering children under its Medicaid program. Under title XXI,
                                     an employer’s coverage must be actuarially equivalent to a SCHIP
                                     benchmark package. For Massachusetts, HCFA agreed to a state
                                     certification of comparability based on a benefit-by-benefit comparison of
                                     coverage in lieu of a time-consuming and expensive actuarial test for each




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                      employer plan. Thus, the use of the employer buy-in option to cover
                      families was facilitated by HCFA’s flexibility on the comparability of
                      employer-offered benefits with those of SCHIP. HCFA said that this approach
                      was a commonsense way to implement the statutory requirement, given
                      the costly nature of actuarial assessments. Despite HCFA’s flexibility,
                      Massachusetts officials characterized the agency’s approval of family
                      coverage as a compromise. Uninsured families with access to
                      employer-sponsored coverage are eligible for SCHIP, but low-income
                      families who may be struggling to afford coverage through their employers
                      are eligible for a buy-in only with title XIX money.

                      HCFA  has found other cost-effectiveness tests proposed by the states to be
                      inconsistent with the title XXI statute. For example, HCFA rejected an
                      effort to establish cost effectiveness by comparing family coverage under
                      title XXI to the cost of a commercial rate for child-only coverage.48 In
                      preliminary discussions with HCFA, another state interested in family
                      coverage suggested comparing the costs of SCHIP managed care coverage
                      for an entire family to Medicaid fee-for-service costs to cover children. In
                      our discussions with HCFA, officials characterized this type of test as
                      hypothetical. A HCFA official told us that the agency has not yet issued any
                      guidance on family coverage in order to remain open to creative state
                      ideas for meeting the SCHIP cost-effectiveness test.


                      Some states wishing to cover the parents of children eligible for SCHIP have
Some States Cover     been able to do so by using title XIX funds. In general, adults do not qualify
Families by Using     for Medicaid coverage unless they are in families with children or are
Title XIX Funds for   aged, blind, or disabled. After the enactment of SCHIP, Missouri
                      simultaneously negotiated a Medicaid section 1115 waiver to cover parents
Adults                with title XIX funds and a SCHIP Medicaid expansion for the children of
                      such families using title XXI funds. State officials indicated that their goal
                      was to connect children and families into one seamless program with two
                      different funding streams. While noting that including adults in their title
                      XIX waiver greatly complicated the review process for SCHIP, state officials
                      indicated that family coverage was an important state goal. Missouri’s
                      Medicaid approach commits the state to spending beyond its SCHIP
                      allotment if necessary, a situation that other states may find less palatable.

                      Connecticut is working to implement family coverage using Medicaid
                      funding. The state intends to use section 1931 of the Social Security Act, a

                      48
                       These types of cost-effectiveness comparisons are difficult because very few health insurance plans
                      cover only children. See Health Insurance for Children: Private Individual Coverage Available, but
                      Choices Can Be Limited and Costs Vary (GAO/HEHS-98-201, Aug. 5, 1998).



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                            provision of the welfare reform law that creates a new eligibility category
                            for parents and allows states to apply income and resource disregards to
                            qualify higher-income adults.49 The state will receive its regular Medicaid
                            matching rate for these parents. Connecticut has not decided whether this
                            coverage will extend to families with income above 100 percent of the
                            poverty level.


                            HCFA  has worked with the states to find other ways to achieve their goal of
Vermont and                 covering adults in families with children. For states such as Missouri that
Wisconsin Sought            are not opposed to using both the title XIX and title XXI funding streams,
Relief From Title XXI       the goal of covering families is achievable. For other states, however,
                            ensuring that the goals of title XXI and their own goals were consistent
Requirements                with each other has proven more problematic. The initial plans that
                            Vermont and Wisconsin submitted demonstrate the difficulty of building
                            flexibility into a program that is an overlay of Medicaid. These two states
                            were interested in section 1115 waivers of SCHIP requirements to reconcile
                            the requirements of title XIX and title XXI. Thus far, HCFA has refused to
                            consider the use of section 1115 to waive SCHIP requirements.


Vermont’s and Wisconsin’s   Before SCHIP, Vermont covered uninsured adults up to 150 percent of the
Family Coverage Proposals   poverty level and children up to 225 percent. Vermont wanted to use a
                            SCHIP Medicaid expansion that would amend its Medicaid section 1115
                            waiver program to cover (1) uninsured and underinsured children with
                            family income up to 300 percent of the poverty level and (2) uninsured
                            adults with dependent children with family income up to 185 percent of
                            the poverty level. According to HCFA, family coverage under title XXI must
                            address the “family unit.” Thus, if a child is already receiving Medicaid
                            benefits, a parent can qualify only for Medicaid, not SCHIP. This situation
                            resulted in a coverage gap for parents with family income above
                            150 percent of the poverty level whose children were already being served
                            by Medicaid.50 Although this interpretation prevented Vermont from
                            covering lower-income parents, the state could have included
                            higher-income adults in families with children under SCHIP where
                            crowd-out is of greater concern.




                            49
                             Jocylen Guyer and Cindy Mann, “Taking the Next Step,” Center on Budget and Policy Priorities,
                            Washington, D.C., Aug. 20, 1998.
                            50
                              Concerns regarding the family unit were never resolved; thus, the validity of the cost-effectiveness
                            test submitted by Vermont was never fully tested.



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Vermont also wanted to include underinsured children whose coverage is
prohibited by title XXI. Because of earlier coverage expansions, the state
estimates that there are fewer than 2,500 remaining uninsured children. At
the same time, many children in the state have poor coverage.
Consequently, the state proposed using a portion of its title XXI allocation
on underinsured children to cover dental and vision care and other
benefits not available to them. Vermont withdrew its initial SCHIP plan and
has since received approval for a stand-alone program to cover uninsured
children up to 300 percent of the poverty level. The state will use Medicaid
funds to improve coverage for underinsured children and some parents.
Finally, the state has since covered the adults it originally sought to insure
under SCHIP through an amendment to its section 1115 waiver program
using regular Medicaid funds.

Wisconsin applied for a section 1115 waiver under Medicaid to cover
parents and proposed implementing a stand-alone SCHIP program for
children to limit expenditures to the amount of its allotment.51 The state
wanted to maintain budgetary control over SCHIP program expenditures
while rationalizing coverage for low-income, working families, most of
whom did not have access to health insurance. Conceptually, Wisconsin’s
proposal covered the same individuals as programs in Massachusetts and
Missouri. However, because Wisconsin’s approach had the effect of
splitting the family unit into two different funding streams (an enhanced
matching rate under title XXI and a regular matching rate under title XIX),
the proposal did not comply with the federal budget neutrality provisions
required of all section 1115 demonstrations. These provisions require that
unless the expansion is funded through program savings, the children
must be covered under Medicaid in order for the parents to be covered
under regular Medicaid.

Wisconsin ultimately received approval for a revised SCHIP plan by
switching from a stand-alone to a Medicaid expansion design. With regard
to family coverage, Wisconsin has two approaches, one that operates
under regular Medicaid and one under SCHIP. Under regular Medicaid, the
state uses a section 1115 waiver of title XIX to cover parents up to
185 percent of the poverty level. For a small number of parents who have
access to employer-sponsored insurance, Wisconsin believes that they will
be able to meet the title XXI cost-effectiveness test and use SCHIP funds to
provide coverage for both parents and their children. Wisconsin’s
cost-effectiveness test is similar to that of Massachusetts, comparing the

51
 Although Wisconsin did not want to create a new entitlement, the state planned to use its Medicaid
benefit package and allow family income for those in the program to increase up to 15 percent over the
original 185 percent of the poverty level without affecting their eligibility for coverage.



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                         cost of the premium assistance for a commercial plan against the cost of
                         covering children in its SCHIP Medicaid expansion. However, state officials
                         believe that SCHIP coverage of parents is likely to be minimal, since they
                         can look only at plans in which the employer subsidizes 60 to 80 percent of
                         the premium costs. Finally, Wisconsin plans to control overall
                         expenditures in both title XIX and title XXI programs by creating an
                         enrollment threshold. The state plans to continuously monitor enrollment
                         and, in the event it is close to exceeding its state budget, officials plan to
                         submit a waiver amendment to lower the income eligibility level for both
                         Medicaid and SCHIP. HCFA has committed to responding quickly on any
                         amendments submitted by Wisconsin, providing an informal response
                         within 60 days and a formal response within 90 days.52


HCFA Questions the       In September 1997, shortly after the enactment of SCHIP, HCFA informed the
Timing of Requests for   states that “it would be reasonable for states to have experience in
Section 1115 Waivers     operating their new Title XXI programs before designing and submitting
                         demonstration proposals. Without experience in implementing Title XXI, it
                         would be very difficult for HCFA to review and evaluate the merits of any
                         waiver proposal.”53 In elaborating on this statement, HCFA underscored that
                         the purpose of section 1115 waivers is to test innovative approaches
                         requiring research designs—not to waive statutory provisions that the
                         states find objectionable. HCFA intends to require that the states have 1
                         year of operational experience with their SCHIP programs and complete an
                         evaluation before requesting a section 1115 waiver. Without first
                         implementing a SCHIP program, a state lacks the requisite baseline from
                         which to measure change. Finally, HCFA takes seriously SCHIP’s goal of
                         providing insurance to uninsured, low-income children, a goal that it does
                         not want to see circumvented by the waiver process.

                         HCFA  believes that it is inappropriate to use section 1115 to waive title XXI
                         requirements before a state implements a SCHIP program—a policy that
                         reflects the demonstration nature of section 1115 waivers and a concern
                         about not undermining the statutory goal of covering uninsured children.
                         States and advocacy groups contend that there is no longer any merit in
                         postponing the use of such waivers now that most states have secured
                         their fiscal year 1998 SCHIP allocations.



                         52
                           In the event that the state decreases its income eligibility, children and adults already enrolled in
                         Wisconsin’s program will maintain their eligibility under Medicaid and SCHIP. Thus, the enrollment
                         threshold will apply only to new applicants.
                         53
                           HCFA, “Dear State Letter,” Sept. 12, 1997.



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Established to test program innovations, section 1115 allows the Secretary
of HHS to approve demonstrations likely to assist in promoting program
objectives. Past demonstrations have made significant contributions to the
development of Medicaid policy. Title XXI stipulates that the provisions of
section 1115 of the Social Security Act relating to demonstration authority
“shall apply in the same manner as they apply to a state under title XIX.”
According to HCFA, the section 1115 waiver authority applies equally to
Medicaid expansions and stand-alone programs and is broad. Thus, it
allows the Secretary to waive many of the numerous provisions related to
Medicaid state plan requirements and to provide matching funds for items
and services not normally covered under Medicaid. This authority has
been used to expand eligibility, mandate the enrollment of beneficiaries in
managed care, and modify benefits or cost sharing for certain
populations.54

States and some advocacy groups would like HCFA to begin allowing the
states to tailor their SCHIP programs through the use of section 1115
waivers. Citing a study that suggests that children are more likely to be
insured when their parents are also offered health benefits, they contend
that family coverage is consistent with SCHIP.55 Some states also view an
employer buy-in as consistent with efforts to prevent the substitution of
public programs for employer-provided health insurance. Ultimately, the
use and approval of section 1115 waivers under SCHIP will require a
judgment regarding the consistency between state goals and the intent of
title XXI.




54
 As of December 1998, 17 states operate their Medicaid programs under such a waiver. These
demonstrations must be budget neutral and must incorporate research hypotheses.
55
 Kenneth E. Thorpe and Curtis S. Florence, “Covering Uninsured Children and Their Parents:
Estimated Costs and Number of Newly Insured,” The Commonwealth Fund, New York, N.Y., July 1998.



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                    Many states, including the 15 in our sample, are developing innovative
                    outreach strategies to widely publicize SCHIP and to provide families with
                    applications and program information.56 Some states have adopted
                    sophisticated media campaigns to market SCHIP like a product, a
                    development attributed in part to the greater likelihood that targeted
                    children have working parents. Outreach strategies have worked to
                    minimize the burden on both the beneficiary and the state by eliminating
                    onerous documentation requirements, which in turn allows the
                    introduction of shorter application forms. States with a large number of
                    low-income immigrants are also implementing outreach efforts geared
                    toward these populations. Finally, some states are implementing measures
                    to help them evaluate which outreach strategies are the most
                    effective—for example, school-based initiatives, local community designed
                    efforts, or general media campaigns. While it is too early to judge the
                    success of their outreach efforts, some states are reporting that the
                    publicity is attracting not only children eligible for SCHIP but also far
                    greater numbers of those who are eligible for Medicaid but not enrolled.
                    Although title XXI recognizes the importance of outreach, it also limits the
                    amount of federal matching funds that are available. Including outreach
                    within the prescribed limit has been problematic for some stand-alone
                    programs with significant start-up costs.


                    As a new program, title XXI underscores the importance of identifying and
SCHIP Emphasizes    enrolling eligible children by requiring each state to include an outreach
Outreach Within     strategy in its SCHIP plan. Despite this emphasis on outreach, however, the
Prescribed Limits   statute also limits outreach spending and certain other spending to
                    10 percent of a state’s actual expenditures on benefits. Thus, the statute
                    ties outreach expenditures directly to enrollment. For states such as New
                    York, with state-funded children’s programs that predated SCHIP and thus
                    populations already receiving services, the spending limitation on
                    outreach has not been a particular problem. It has, however, been
                    problematic for other states with a stand-alone SCHIP component that are
                    incurring start-up costs and lack the enrollment necessary to fully claim
                    their outreach expenditures. A state that implements a Medicaid
                    expansion, however, may continue to claim a federal match for such


                    56
                      In their Medicaid outreach efforts, many states have been cognizant of barriers to enrollment that
                    include confusion over eligibility, lack of program knowledge, complex eligibility rules, belief that
                    participation is not necessary when children are healthy, potential stigma, and language and cultural
                    barriers to participation. To overcome these barriers, the states have applied strategies under Medicaid
                    that are also relevant to their SCHIP efforts. For more detailed information on the barriers to Medicaid
                    enrollment, see Medicaid: Demographics of Nonenrolled Children Suggest Outreach Strategies
                    (GAO/HEHS-98-93, Mar. 20, 1998).



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expenditures at the regular Medicaid matching rate after the 10-percent
cap is reached.

In addition to the title XXI requirement that each state include an outreach
strategy in its SCHIP plan, other BBA provisions gave the states additional
tools to facilitate the enrollment and coverage of children in both Medicaid
and SCHIP.57 One option known as “presumptive eligibility” allows the
states to extend immediate Medicaid or SCHIP coverage to children until a
formal determination of eligibility is made. Under this option, a “qualified
entity” may use preliminary information to presume that a child is eligible
for benefits if the family income does not surpass the state’s applicable
income eligibility levels.58 A second option allows the states to provide
beneficiaries with continuous eligibility in their Medicaid or SCHIP
programs for up to 12 months without an eligibility redetermination. The
continuous eligibility option may reduce the difficulties associated with
intermittent program eligibility and coverage stemming from changes in a
family’s financial circumstances.

Since the enactment of SCHIP, HCFA has also emphasized the importance of
effective outreach strategies. It issued guidance to the states in January
and September 1998 that reviewed the outreach options already available
to them under Medicaid as well as new strategies for reaching and
enrolling targeted children. Additionally, in February 1998, the President
signed an executive memorandum establishing a multiagency effort to
enroll uninsured children in SCHIP. In response, the Vice President
announced new approaches that federal agencies are taking to identify
and enroll targeted children. Finally, the President’s fiscal year 2000
budget is proposing to expand the use of a special $500 million Medicaid
outreach fund, originally earmarked for state costs associated with
outreach for children losing welfare. This proposal, if passed, will allow
the states to use the fund for outreach activities geared to all uninsured
children, not just those affected by the delinking of Medicaid from welfare.

While every state SCHIP plan contains a strategy to reach targeted children,
two states have expressed concern that SCHIP funding limitations on

57
  Although the BBA is silent on the application of these provisions to SCHIP, HCFA has permitted the
states to pursue these options.
58
  Under BBA, “qualified entities” are health care providers of items and services under the state’s
Medicaid plan (including the Indian Health Service and Tribal and Urban Indian health care providers)
as well as entities that make eligibility determinations for Head Start; the Special Nutritional Program
for Women, Infants, and Children (WIC); and child care subsidies under the Child Care and
Development Block Grant. After a child has been determined to be presumptively eligible by a
qualified entity, the child’s family is then required to apply for the program formally by the last day of
the month following the month in which the presumptive eligibility determination was made.



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outreach contradict these efforts. Under title XXI, a state may receive
federal matching funds for certain expenditures to the degree that they do
not exceed 10 percent of the state’s total expenditures for health benefits
under SCHIP. The capped expenditures include costs relating to the
administration of the program, outreach, and certain other health-related
activities. Essentially, the goal of the 10-percent cap is to preserve as much
SCHIP funding as possible to pay for health insurance for children.


Including program administration and outreach within this cap, however,
has been problematic for some states as they develop and implement their
SCHIP plans. In particular, some states with a stand-alone component have
found the 10-percent cap difficult to work with, given the magnitude of
start-up costs and low enrollment in the early stages of their programs. For
example, California officials noted that while the cap may be reasonable
once a program is under way, it is impossible to stay within the 10-percent
limit while conducting outreach and other activities that precede actual
service delivery. As a result, California has committed significant
unmatched state start-up funds. Colorado officials also indicated that the
10-percent limit is problematic because of the state’s smaller population
and low initial enrollment, but it may be more viable once the program is
established and service expenditures increase. Both states noted that the
legislation’s inclusion of outreach within the 10-percent cap is counter to
presidential efforts for increased outreach, as discussed above. HCFA has
tried to be flexible in addressing state concerns, suggesting for example
that a state withhold claims for administration and outreach until there is
sufficient program enrollment. Moreover, the President’s fiscal year 2000
budget includes a provision to establish an additional 3-percent allowance
for outreach that would continue to be tied to expenditures.

While the stand-alone components of California’s and Colorado’s
programs have experienced difficulties with the 10-percent limit, other
states with similar approaches have not. This may be, in part, because of
the individual states’ starting points or baselines. For example, New York
is rolling over enrollment from its state-funded program and expects to
spend between $15 million and $16 million on health care services each
month; thus, the state will have a significant basis from which to draw
down the federal match for outreach costs. States without similar,
significant SCHIP expenditures will have more difficulty recouping the cost
of their outreach efforts during the early phase of the program.




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                      The development of effective and appealing marketing has become a
Outreach Strategies   priority under SCHIP. In addition to implementing approaches suggested by
Focus on Publicity,   HCFA, some states have developed unique strategies to publicize SCHIP and

Simplification, and   to change community perceptions that had previously hindered Medicaid
                      enrollment. Outreach measures also encompass efforts to simplify state
Targeting             eligibility procedures, streamline program applications, and opt for the
                      presumptive and continuous eligibility provisions. Some states are also
                      focusing on the diverse and specialized needs of the populations they
                      intend to reach, such as immigrants. Lastly, while it may be too early in the
                      program to identify the most effective outreach strategies, some states are
                      implementing measures to help them identify the efforts that appear to be
                      the most successful.


Publicizing SCHIP     To overcome the informational barrier to enrollment, the states have
                      initiated a variety of methods to publicize SCHIP. Their approaches include
                      multimedia campaigns, direct mailings and widespread distribution of
                      applications, community involvement, and corporate participation. In
                      addition to disseminating information about available programs, some
                      states have taken steps, even before the enactment of SCHIP, to address the
                      Medicaid stigma issue in an attempt to improve perceptions of publicly
                      sponsored health insurance programs. As the Congress may have expected
                      and some states have already experienced, the publicity about SCHIP has
                      already resulted in the enrollment of additional children in Medicaid.

Media Campaign        To publicize SCHIP, the states are using media such as posters, newspapers,
                      billboards, radio, and television. In SCHIP advertisements, the states
                      typically provide toll free numbers and, in some instances, Web site
                      addresses to assist potential enrollees in receiving an application or other
                      information about the program. All the states, including those in our
                      sample, have some sort of media campaign in their SCHIP programs, but the
                      approaches vary significantly, depending on their budgets and community
                      needs.

                      For instance, California is advertising statewide in English and Spanish on
                      television and radio. Additionally, the state is using billboard and transit
                      advertisements, posters, pamphlets, and other promotional materials in
                      ten languages. California is spending $9 million on traditional media out of
                      its $21 million outreach budget. Michigan reported that it will spend
                      $750,000 on a professional media campaign that includes television, radio,
                      and print media. The state plans to have a base level of media coverage




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                               throughout the year that will increase at certain times, such as at the
                               beginning of a new school year.

Distribution of Program        Other efforts to inform the public about the states’ SCHIP programs involve
Information and Applications   the widespread distribution of SCHIP applications and materials through
                               schools, the mail, and other avenues. (See figure IV.1 for excerpts from
                               Michigan’s SCHIP application.) Fourteen of the 15 states in our sample
                               reported that they would be using the local school systems in their
                               outreach efforts. Although South Carolina mailed more than 500,000
                               copies of its bright yellow application, accompanied by a letter from the
                               governor, within the first few months of its program, a state official
                               reported that the distribution of applications throughout the state school
                               system proved to be the most effective so far. SCHIP program materials are
                               also being placed in other organizations such as child care centers, Head
                               Start programs, child support enforcement agencies, community action
                               programs, refugee resettlement programs, family preservation and support
                               programs, and Social Security offices.




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Figure IV.1: Materials From Michigan’s SCHIP Application




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                            Additionally, some states are identifying and targeting families who are
                            likely to have eligible children by coordinating with other programs. For
                            example, Florida plans to send information directly to families who
                            receive food stamps. Other distribution strategies include mailing
                            information to families who fall below a certain income threshold as
                            determined by the SCHIP program. Thus, Connecticut is planning a direct
                            mail campaign to all families with incomes below 300 percent of the
                            poverty level.

Community Involvement       The states are developing outreach approaches in concert with local
                            organizations such as churches and social service agencies that are
                            familiar with the community and understand its needs. Community-based
                            organizations are able to disseminate information on SCHIP by word of
                            mouth, often a more effective tool than government officials. The
                            following states in our sample are involving community-based
                            organizations for outreach in innovative ways:

                        •   California is enlisting the assistance of community-based groups such as
                            parent-teachers associations, YMCAs, and religious organizations and
                            other entities such as insurance agents and tax preparers. The state
                            approached tax preparers as a group that may be able to identify children
                            eligible for SCHIP because many low-income families do not prepare their
                            own tax returns. After state-provided training, these groups help inform
                            potential SCHIP and Medicaid enrollees about the program and assist
                            families in completing application forms. To compensate them for their
                            effort, the state pays a $50 “application assistance fee.”59 State officials
                            indicated that as of September 1998, approximately 40 percent of
                            California’s applications had been “assisted.”
                        •   Massachusetts is using social service agencies, religious and civic leaders,
                            and schools to conduct outreach activities. The state will provide
                            “minigrants” varying from $10,000 to $15,000 to community-based
                            organizations that facilitate the enrollment of hard-to-reach populations.
                        •   New York and South Carolina have found that grassroots efforts and
                            community organizations are also effective in publicizing the availability of
                            SCHIP. These organizations are distributing information and reaching
                            parents in nontraditional locations such as adult learning centers, tenant
                            organizations, and beauty salons (New York) and movie theaters and
                            laundromats (South Carolina). Both states are also using ministers and
                            local churches to pass out information to congregations.

                            59
                              Originally, the state proposed an application assistance fee of $50 but lowered the amount to $25
                            when the state began to implement SCHIP. In November 1998, the state restored the fee to $50 to
                            boost lower-than-expected enrollment in its SCHIP program. HCFA indicated that the increase to $50
                            is under review.



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Corporate Partnerships        The states are also finding other ways to use the private sector to spread
                              the word about SCHIP. Michigan’s stand-alone program is working with
                              Kmart stores throughout the state that have agreed to display SCHIP
                              applications at their “community issues” bulletin boards. Publicity will
                              also be strategically placed near displays of school clothes and in the
                              pharmacy section of the stores. Michigan is also working with the Meijers
                              supermarket chain in Grand Rapids. While the store does not allow
                              displays, it will include SCHIP information in a shopping guide that is mailed
                              to two million families. California has placed its toll free SCHIP telephone
                              number on grocery bags and coupons. Additionally, the state has obtained
                              corporate sponsorships with local supermarkets and drug stores.
                              California officials believe that corporate partnerships will complement
                              the state’s paid media advertising strategy. Other private sector initiatives
                              transcend state boundaries. For example, Bell Atlantic is establishing and
                              operating a toll free telephone number nationwide to assist families in
                              reaching enrollment centers. Additionally, Pampers, the diaper company,
                              will provide this toll free number and other information about health
                              insurance options to first-time mothers.

Addressing the Stigma Issue   SCHIP has refocused attention on the Medicaid-welfare stigma issue and
                              state efforts to overcome this potential barrier to participation in publicly
                              sponsored health insurance programs. Before the heightened outreach
                              efforts under title XXI, some states had already endeavored to project a
                              more positive image of their medical assistance programs. The most
                              visible effort was to re-invent a program with a new name. Oregon
                              Medicaid was rechristened the “Oregon Health Plan” when its section 1115
                              waiver was approved in 1993; the state’s SCHIP stand-alone program also
                              operates under that name. In contrast, California has not changed the
                              name of its Medicaid program; its SCHIP stand-alone program is called
                              “Healthy Families” while Medicaid continues as Medi-Cal. Other
                              stand-alone programs with names distinct from Medicaid include the
                              MIChild program in Michigan and the Florida Healthy Kids program.

                              Other approaches to destigmatizing Medicaid include advertising SCHIP as a
                              program intended for working families, using an alternative enrollment
                              site or mechanism that eliminates the need to submit an application at a
                              local welfare office, and issuing identification cards for program
                              participants that are free of any perceived “welfare stigma.” For example,
                              South Carolina, a Medicaid expansion state, is considering issuing an
                              identification card that closely resembles private health insurance




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                          identification cards.60 The state has also removed almost all mention of
                          Medicaid from its application form. State officials say that most applicants
                          do not realize that they are applying for Medicaid for their children. In
                          Oregon, there are no unique Medicaid or SCHIP identification cards.
                          Instead, each beneficiary receives a card from the health insurance plan he
                          or she chooses—one identical to the card issued to an individual with
                          employer-sponsored health insurance.

                          Some states are concerned about perceived stigma attached to their
                          Medicaid programs and believe that families will prefer to enroll their
                          children in their state’s stand-alone programs, which appear to be more
                          like private health insurance programs. For example, Florida has
                          suggested that some families might even falsify their incomes to avoid
                          enrolling in Medicaid. California reports that 75 percent of SCHIP applicants
                          who are found eligible for Medicaid refuse to allow the state to refer their
                          applications to Medicaid. In addition to the perceived stigma that the
                          states believe endures among recipients, a few states in our sample told us
                          that Medicaid has a negative image among some providers who are
                          unwilling to serve beneficiaries. Thus, Michigan Medicaid offers dental
                          benefits but has few participating dentists, although this may be in part the
                          result of low Medicaid reimbursement rates. To attract dentists to its SCHIP
                          stand-alone program, the state has raised the rates. While this potentially
                          creates a two-tiered system in terms of dental access, the state is waiting
                          to determine whether more dentists participate and the delivery of
                          services increases.


Simplifying Eligibility   In a September 1998 letter to the states, HCFA acknowledged the need for
Determination and         safeguarding program integrity in order to ensure that only those who are
Enrollment Procedures     eligible receive program benefits. Nevertheless, HCFA maintained that
                          burdensome application and enrollment processes are a substantial
                          impediment to successful enrollment in both SCHIP and Medicaid. In an
                          earlier report, we found that among three states, almost half of Medicaid
                          application denials were for procedural reasons, such as incomplete
                          documentation.61 While simplification measures are being taken under




                          60
                           Plans for an identification card have been postponed until after the state completes modifications to
                          solve the year 2000 computer problem.
                          61
                           See Health Care Reform: Potential Difficulties in Determining Eligibility for Low-Income People
                          (GAO/HEHS-94-176, July 11, 1994).



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                                   SCHIP, some states were already streamlining both their Medicaid eligibility
                                   rules and enrollment procedures.62

Streamlining the Eligibility and   To overcome the barrier of a long, complicated SCHIP eligibility
Application Process                determination process, the states are (1) eliminating burdensome
                                   eligibility tests, (2) shortening the length of applications, (3) using joint
                                   SCHIP-Medicaid applications, and (4) opting for a period of continuous
                                   eligibility.

                                   Eliminating Burdensome Eligibility Tests. Dropping an asset test reduces
                                   the complexity of the eligibility determination process for families and, in
                                   some cases, the documentation requirements. In our 15-state sample, 12
                                   states have eliminated the asset test from their SCHIP applications. (See
                                   table IV.1.) Some states are also allowing families to report their own
                                   incomes with verification by the state as follow-up. Additionally, some
                                   states are reducing verification and documentation requirements that
                                   exceed federal requirements. For example, Rhode Island has significantly
                                   reduced the number of documentation requirements that were in place
                                   when Medicaid and welfare eligibility were linked.




                                   62
                                     According to the Center on Budget and Policy Priorities, as of November 1998, 41 states had
                                   shortened their Medicaid applications, 36 states allowed individuals to apply by mail, and 40 had
                                   simplified their Medicaid eligibility process by eliminating an asset test. Center on Budget and Policy
                                   Priorities, Steps States Can Take to Facilitate Medicaid Enrollment of Children (Washington, D.C.:
                                   Nov. 1, 1998).



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Table IV.1: Eligibility and Enrollment
Initiatives in 15 States                                                            Combined
                                                                                    SCHIP-                                   Presumptive
                                                                   No asset         Medicaid             Continuous          eligibility
                                                                   test             application          eligibilitya        under SCHIPb
                                         California                X                X                    X
                                         Colorado                                   X                    X
                                         Connecticut               X                X                    X                   X
                                         Florida                   X                X                    X
                                         Massachusetts             X                X                                        X
                                         Mississippi               X                X                    X                   X
                                                                                    c
                                         Missouri                  X                                     X                   X
                                         New York                  X                X                    X                   X
                                         Oregon                                     X                    X
                                         Pennsylvania              X                                     X
                                                                                    c
                                         Rhode Island              X                                     X
                                                                                    c
                                         South Carolina            X                                     X
                                                                                    c
                                         Texas
                                         Vermont                   X                X
                                                                                    c
                                         Wisconsin                 X
                                         a
                                          Florida, Oregon, and Rhode Island have continuous eligibility for 6 months; all other states that
                                         have continuous eligibility extend it for 12 months.
                                         b
                                             May be applied to separate stand-alone programs or Medicaid expansions under SCHIP.
                                         c
                                         Medicaid expansion states that must use the same application for SCHIP and Medicaid.



                                         Shortening Applications. State efforts to simplify eligibility procedures
                                         gave them the opportunity to consider the use of shorter SCHIP
                                         applications. Florida, Missouri, and South Carolina reduced their
                                         applications to a single page, front and back. Missouri, in particular, was
                                         able to shorten its application by narrowing it to health coverage only,
                                         removing other social services from that particular form. Massachusetts’
                                         SCHIP application consists of four pages with four supplements that may
                                         apply to the applicant, depending on specific circumstances such as the
                                         presence of a disability, access to insurance, an absentee parent, and
                                         immigration status. In late 1998, California decided to shorten its
                                         application form after considerable criticism of its 28-page booklet, which
                                         includes a 12-page application with separate forms for the state’s
                                         stand-alone program, Medicaid, and a Medicaid program for pregnant
                                         women. California officials explained that the form, while lengthy, was
                                         designed to avoid the inappropriate enrollment of children and to




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                              minimize follow-up information. In response to adverse feedback about
                              the onerous nature of the application, the state developed a revised
                              four-page joint application for its Medicaid and stand-alone SCHIP
                              programs.

                              Combining SCHIP and Medicaid Applications. In addition to shortening the
                              form, nine states in our sample are using a single application for SCHIP and
                              Medicaid.63 This approach not only simplifies the application process for
                              families but also reduces paperwork for the states. Additionally, joint
                              SCHIP-Medicaid applications help the states accomplish seamless coverage
                              for children who may move between programs when their family
                              circumstances change. For instance, Connecticut is marketing its
                              stand-alone and Medicaid programs together under a new name and has
                              developed a four-page application for both programs. The state opted for a
                              joint application under one program name to create an application process
                              that masks for potential enrollees the fact that there are two separate
                              programs.

                              Providing Continuous Eligibility. Because Medicaid beneficiaries were
                              often subject to frequent eligibility redeterminations and interrupted
                              Medicaid benefits when their income fluctuated, some states are opting to
                              provide up to 12 months of continuous eligibility in an effort to prevent
                              coverage interruptions. As noted earlier, the BBA allowed the states to
                              guarantee a longer period of Medicaid coverage, regardless of changes in a
                              family’s financial status or size. HCFA indicated that since the BBA is silent
                              on the application of this provision to SCHIP, the agency allows it. Eleven of
                              the 15 states in our sample have implemented continuous eligibility
                              ranging from 6 to 12 months.

Streamlining the Enrollment   The states are simplifying the enrollment process for families with
Process                       children in several ways. These include using the mail, telephone, and
                              Internet for enrollment; offering additional enrollment sites; reducing the
                              time it takes to process applications; and introducing other innovative
                              enrollment initiatives.

                              Allowing Mail-in, Telephone, and Internet Enrollment. By introducing
                              mail-in applications, some states are eliminating the need for applicants to


                              63
                                Pennsylvania does not have a joint SCHIP-Medicaid application, but its referral procedure allows the
                              review of either form, without the applicant having to submit a new application. For example, if an
                              applicant to Medicaid is not eligible, the form is automatically referred to SCHIP. Because the SCHIP
                              application does not include all information needed for Medicaid, the state contacts applicants whose
                              SCHIP forms are referred to Medicaid to complete a review; an applicant does not have to fill out a
                              new form.



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take time off from work as well as any transportation costs and stigma
associated with visiting a social services office. Some states are also
extending the use of the mail-in option to eligibility redeterminations.
Some are also exploring other options to further simplify the submission
of Medicaid and SCHIP applications, such as accepting applications by
telephone or facsimile. In Colorado, applications are available over the
Internet for families to fill out and mail in.64 This approach may be
particularly effective for community-based organizations that assist
families with enrollment since many low-income families may not have
access to a computer at home.

Adding Enrollment Sites. To help applicants, some states are increasing
the number and type of sites where enrollment can take place. Locating
eligibility workers in places other than welfare offices to help families with
the initial processing of applications is commonly referred to as
outstationing. Outstationing sites may be located where workers
frequently come into contact with families such as schools, child care
centers, churches, Head Start centers, WIC sites, local tribal organizations,
and Social Security offices. Outstationing is an increasingly important
strategy, given that welfare offices no longer play the key role that they did
when welfare and Medicaid were more closely linked.

Expanding Enrollment Sites With Presumptive Eligibility. Some states are
using presumptive eligibility to increase the number of enrollment sites.
Presumptive eligibility allows a child to receive coverage under Medicaid
or SCHIP immediately, without the delays associated with the normal
application process. In addition to traditional Medicaid providers, other
entities such as WIC agencies, Head Start programs, and agencies that
determine eligibility under the Child Care and Development Block Grant
can “presume” eligibility for services until a formal application is
submitted and reviewed. Five states in our sample have chosen to use
presumptive eligibility in their SCHIP programs.

Reducing Enrollment Time. Some states are shortening the time it takes to
process an application once it reaches the appropriate SCHIP or Medicaid
office. For example, the goal of California’s stand-alone program is to
complete eligibility determinations 3 days after a completed application is
submitted. The state also plans to commence coverage 10 days after an
application is deemed complete. Before the enactment of SCHIP,
Massachusetts developed a computer program to determine Medicaid


64
 The actual submission of applications over the Internet is available only to community agencies that
have been trained to use the system.



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                        Critical to the Success of SCHIP




                        eligibility. The state’s data entry approach to determining eligibility
                        reduced the processing time from 3 weeks to 3 days. Massachusetts
                        characterized the development of computerized enrollment as time
                        consuming and expensive but worthwhile.

                        Making Other Innovative Enrollment Initiatives. Some states are
                        streamlining their enrollment processes by instituting a follow-up system
                        to contact families that do not complete the application process for
                        various reasons. For example, Massachusetts is attempting to initiate
                        follow-up with families and to take their applications over the telephone.
                        Other efforts to ensure that families do not “fall between the cracks”
                        include the development of an effective referral system between the SCHIP
                        office, the state Medicaid agency, and other federal and state entities that
                        frequently come in contact with low-income families. For example,
                        Connecticut’s enrollment vendor records daily the number of Medicaid
                        referrals made. Additionally, the state has developed a tracking system to
                        follow referrals once they reach the state’s Department of Social Services.
                        Other state efforts to simplify enrollment procedures for families include
                        offering telephone interviews or providing transportation vouchers to
                        assist them in reaching the eligibility office for a face-to-face interview.
                        Some states are extending their office hours so applicants are not required
                        to take time off from work to apply.


Targeting Outreach to   Research indicates that Hispanics, U.S.-born children of foreign parents,
Specific Populations    and immigrant children are more likely than others to be uninsured
                        despite being eligible for Medicaid. Given these statistics and the renewed
                        efforts under SCHIP to actively recruit the uninsured, states with large
                        Hispanic or foreign-born populations are implementing outreach strategies
                        geared toward reaching them.65 Some states are offering multilingual
                        applications and program materials and toll free telephone lines in
                        appropriate languages. California is providing applications and materials
                        in ten languages: English, Armenian, Cambodian, Cantonese, Farsi,
                        Hmong, Laotian, Russian, Spanish, and Vietnamese. Colorado and Rhode
                        Island are also providing SCHIP materials in both English and Spanish.
                        Additionally, some states are increasing the number of multilingual
                        eligibility workers and staff able to provide program information and
                        answer applicants’ questions.



                        65
                          The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires immigrants
                        who arrive on or after August 22, 1996, to be in the United States for 5 years before receiving any
                        federal means-tested benefits such as Medicaid and SCHIP.



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Innovative State Outreach Strategies Are
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The diversity of these targeted populations has also influenced the states’
efforts to market SCHIP. For example, Colorado officials noted that
different marketing approaches may be necessary to meet the needs of
Native American and Hispanic people living in rural areas. The state is also
working with the Colorado Migrant Health Program to develop specific
outreach activities for migrants statewide. Texas officials similarly noted
that its outreach efforts vary by region and by the ethnic population being
targeted. In Houston, there is a large southeast Asian immigrant
population, and outreach in this area must be culturally and linguistically
sensitive. Additionally, Texas officials noted that they must identify the
medium that is most effective within a particular group; for example,
individuals in areas of the state that border Mexico may be more
responsive to television advertisements than to print media.

Despite targeted outreach efforts, some states remain concerned that
hard-to-reach populations will continue to be underserved by both
Medicaid and SCHIP. Michigan officials noted that citizen children of
foreign-born parents may be particularly difficult to reach because of
family fears that information will be shared with the Immigration and
Naturalization Service (INS) or other federal agencies and may jeopardize
their ability to remain in the United States. California is concerned that INS
and State Department rules have caused its current enrollment figures to
suffer because of fear among immigrants that participation will adversely
affect not only their ability to legally stay in the country but also their
ability to sponsor other family members coming to the United States.
California officials have requested but not received an answer from INS
regarding whether the receipt of SCHIP or Medicaid benefits would result in
the beneficiary’s being considered a “public charge.” INS uses the term
“public charge” to describe immigrants who are or will be dependent on
public benefits.66 While HCFA sent a letter to state Medicaid directors on
December 17, 1997, stating that aliens legitimately receiving Medicaid
benefits were not indebted to the state, INS has not clarified this issue with
formal guidance.67 California officials believe that the state will continue
to experience difficulty reaching targeted immigrant children until INS

66
 An alien who is likely to become a public charge may be prevented from entering the United States.
For aliens already in the United States, deportation may result. Current statutes and regulations do not
specify whether the receipt of Medicaid benefits would result in someone’s being considered a public
charge.
67
  The HCFA letter from Sally Richardson also informed states that the “Medicaid program has no
authority to collect repayments of benefits from current or former beneficiaries except in cases where
those benefits were fraudulently received or an overpayment has occurred.” While the State
Department specifically identified WIC as a program that should not be considered when making
public charge determinations, neither the State Department nor INS has addressed the receipt of past,
present, and future Medicaid benefits.



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                         Innovative State Outreach Strategies Are
                         Critical to the Success of SCHIP




                         issues a clear written statement that the lawful receipt of Medicaid and
                         SCHIP benefits will not be considered in public charge determinations.



Mechanisms to Identify   Because only 19 states and territories have more than 6 months of
Effective Outreach       implementation experience, it is still too early to identify the most
Strategies               successful outreach strategies. Some states, however, are establishing
                         mechanisms to help them better target their outreach activities. For
                         example, Colorado’s SCHIP application contains a question that asks how
                         applicants heard about the program and where they received the
                         application. Those calling in for information are also asked similar
                         questions. In the early stages of South Carolina’s program, the state placed
                         different-colored applications at various locations such as schools,
                         providers, and churches in order to determine where each application
                         originated. A South Carolina official indicated that the majority of
                         applications came from schools, allowing the state to better focus its
                         outreach efforts.

                         Although a state may find that specific outreach approaches are more
                         effective than others, New York’s experience suggests that the level of
                         expenditure may also be an important factor. State officials told us that its
                         state-funded children’s health program allocated a small amount of money
                         for marketing and outreach—less than 10 percent of the appropriation.
                         After New York increased its funding of marketing and outreach under
                         SCHIP, new monthly enrollment jumped to 19,000 children in July 1998,
                         compared with 2,000 just 1 year earlier.


                         In April 1999, HCFA reported estimated SCHIP enrollment of 982,000
It Would Be              children. The data are based on a combination of state-written
Premature to Draw        submissions and oral reports and generally reflect enrollment as of
Conclusions From         December 31, 1998, for 42 states and territories with operational SCHIP
                         programs. The states estimate that enrollment will reach 2.5 million
Preliminary              children by September 2000. Although the states were required to report
Enrollment Data          SCHIP enrollment data to HCFA by January 31, 1999, some did not meet the
                         first reporting deadline. In addition to year 2000 computer problems, the
                         time that the states committed to program start-up contributed to
                         reporting delays. HCFA worked with the states on compiling and verifying
                         the data for accuracy before releasing it to the public. (See table IV.2.)




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                                          Appendix IV
                                          Innovative State Outreach Strategies Are
                                          Critical to the Success of SCHIP




Table IV.2: Preliminary Enrollment
Estimates for States and Territories as   States and territoriesa        Months in operation        Estimated enrollment
of December 31, 1998                      Medicaid expansion
                                          Alaska                         None                       None
                                          American Samoa                 None                       None
                                          Arkansas                       3                          3,000
                                          District of Columbia           3                          400
                                          Guam                           None                       None
                                          Hawaii                         None                       None
                                          Idaho                          15                         2,900
                                          Illinois                       11                         30,300
                                          Indiana                        15                         25,000
                                          Iowa                           6                          6,000
                                          Louisiana                      2                          3,500
                                          Maryland                       6                          9,400
                                          Minnesota                      3                          Less than 100
                                          Missouri                       4                          23,900
                                          Nebraska                       8                          5,500
                                          New Mexico                     None                       None
                                          North Dakota                   4                          600
                                          Ohio                           11                         85,300
                                          Oklahoma                       13                         17,500
                                          Puerto Rico                    11                         20,000
                                          Rhode Island                   8                          2,900
                                          South Carolina                 5                          44,500
                                          South Dakota                   6                          1,700
                                          Tennessee                      None                       None
                                          Texas                          6                          39,000
                                          Virgin Islands                 9                          None reported
                                          Wisconsin                      None                       None
                                          Stand-alone program
                                          Arizona                        2                          3,600
                                          Colorado                       8                          17,400
                                          Delaware                       None                       None
                                          Georgia                        2                          4,000
                                          Kansas                         None                       None
                                          Montana                        None                       None
                                          Nevada                         3                          2,700
                                          New York                       8                          270,700
                                          North Carolina                 3                          26,800
                                                                                                                    (continued)


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Innovative State Outreach Strategies Are
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States and territoriesa          Months in operation            Estimated enrollment
Oregon                           6                              10,400
Pennsylvania                     7                              68,400
Utah                             5                              5,000
Vermont                          3                              400
Virginia                         2                              2,100
Combination program
Alabama                          11                             20,600
California                       10                             63,100
Connecticut                      6                              6,900
Florida                          9                              60,500
Kentucky                         6                              5,500
Maine                            6                              5,200
Massachusetts                    15                             42,100
Michigan                         8                              11,600
Mississippi                      6                              3,500
New Hampshire                    8                              200
New Jersey                       10                             29,600
West Virginia                    6                              300
Total                                                           982,000

a
 The Northern Mariana Islands, Washington, and Wyoming had not submitted SCHIP plans as of
April 1, 1999.



Despite the availability of these estimates, it is still too early to assess the
effect of state outreach efforts from any enrollment figures. Differences in
implementation schedules, preparedness, and eligible populations
complicate any comparison across states. For example, California created
a new stand-alone program that began enrollment in July 1998. In contrast,
Florida, New York, and Pennsylvania rolled over enrollees from their
previously state-funded children’s programs. Many states in our sample
told us that a significant number of persons applying for SCHIP have been
determined to be eligible for Medicaid, approximately two eligible for
Medicaid for every one eligible for SCHIP in both Massachusetts and
Michigan. Thus, SCHIP enrollment figures do not reflect the simultaneous
progress made in enrolling uninsured children into Medicaid. Finally,
another important factor influencing the enrollment growth rate is that
many states’ program designs are still evolving and do not fully use their
SCHIP allotments. While SCHIP is likely to be judged by enrollment, this
factor should not be viewed as the sole indicator of the program’s success.




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Other considerations in determining SCHIP’s effectiveness include whether
enrolled children actually visit the doctor, receive the appropriate
preventive and treatment services, and improve their overall health.




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Appendix V

Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out

                          State and federal efforts to avoid crowd-out reflect some of the divergent
                          views regarding the significance of this phenomenon as well as differences
                          over whether effective tools exist that could dampen or deter crowd-out.
                          The concern over crowd-out—that is, the substitution of newly created
                          public coverage perceived to be less costly or more generous for already
                          existing health insurance—is underscored by title XXI’s statutory mandate
                          for close coordination between SCHIP, private health insurance, and
                          Medicaid. The concern is twofold:

                      •   for existing private health insurance, that individuals will drop their
                          employer-based or individually purchased coverage or that employers will
                          effectively reduce their health coverage for employees and,
                      •   for Medicaid, that children who are currently eligible but not enrolled may
                          be attracted to SCHIP by new state outreach efforts or that the states may
                          enroll children eligible for Medicaid in SCHIP to take advantage of the
                          enhanced federal matching rate.68

                          The states responded to the coordination mandate with a variety of
                          measures to address the potential crowd-out of both Medicaid and private
                          insurance. To ensure that SCHIP does not become a substitute for Medicaid,
                          most states with a stand-alone component are using joint applications and
                          must first screen for Medicaid and enroll any children found eligible for
                          that program. With regard to private insurance, state crowd-out mitigation
                          tools for SCHIP mirror strategies adopted in other state-funded health
                          insurance programs and suggested by researchers.


                          Quantifying the potential extent and effect of crowd-out under SCHIP is
Targeted Families’        difficult, in part because the results of previous crowd-out studies cannot
Access to Other           be directly used to predict SCHIP crowd-out experience. Most studies
Insurance Underlies       examining previous public health insurance expansions focused on
                          Medicaid populations quite different from those eligible for SCHIP and not
Concern About             subject to crowd-out prevention strategies. National studies found
Crowd-Out                 crowd-out occurring at higher levels than did state-focused studies—15 to
                          17 percent compared with 5 to 7 percent. Another complication is the
                          problem of separating the effect of public insurance expansions from
                          other insurance trends occurring at the same time. Finally, no studies have
                          determined which of the many existing crowd-out prevention measures
                          are the most successful and under what state conditions they should be
                          applied.

                          68
                            On concern about whether employers may reduce their premium contributions or provide less
                          service coverage, see David M. Cutler and Jonathan Gruber, “Does Public Insurance Crowd Out Private
                          Insurance?” The Quarterly Journal of Economics, 111:2 (1996), pp. 391-430.



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Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




Despite these uncertainties, researchers believe that private insurance is
more likely to be substituted when public programs serve individuals at
higher income levels, who are more likely to have access to and are able to
afford some level of employer-sponsored or individually purchased
insurance.69 Congressional concern about SCHIP’s potential for crowd-out
also arises from the higher incomes of targeted families with
children—between 100 and 200 percent of the poverty level—who often
are referred to as near-poor or low-income working families. One study
highlights the potential for crowd-out among the near-poor. As shown in
figure V.1, the report found that more than twice as many near-poor
children as poor children were covered by private insurance.
Underscoring the potential for crowd-out, ten states in our sample cover
children living in families with incomes at 200 percent of the poverty level
or greater (see appendix II, table II.2). While children in families with
higher incomes will be more likely to have, or to have access to,
employer-based dependent insurance, these families also may be attracted
to the lower-cost public programs if they find the purchasing power of
their wages declining and their premiums increasing.




69
  See Deborah J. Chollet, Michael Birnbaum, and Michael J. Sherman, Deterring Crowd-Out in Public
Insurance Programs: State Policies and Experience (Washington, D.C.: Robert Wood Johnson
Foundation, Oct. 1997), p. 17, and O’Brien and Feder, How Well Does the Employment-Based Health
Insurance System Work for Low-Income Families?



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                                      Appendix V
                                      Despite Divergent Views, the States Are
                                      Taking Steps to Avoid Crowd-Out




Figure V.1: Children With
Employer-Sponsored or Other Private
Insurance by Federal Poverty Level,
1996




                                      Note: Insured status does not include coverage under Medicaid, CHAMPUS, or Medicare.

                                      Source: Percentages derived from Kenneth E. Thorpe and Curtis S. Florence, Covering Uninsured
                                      Children and Their Parents: Estimated Costs and Number of Newly Insured (New York: The
                                      Commonwealth Fund, July 1998); tabulations taken from the March 1997 CPS.




                                      Estimates of possible crowd-out as well as views on the importance
                                      attached to crowd-out differ. The Urban Institute’s projection of crowd-out
                                      ranges from 22 to 36 percent of SCHIP enrollees.70 In analyzing the SCHIP
                                      legislation, CBO offered a long-term assessment that 40 percent of ultimate
                                      SCHIP participants would have had some other form of insurance coverage.
                                      CBO based its projection on both a review of crowd-out under earlier
                                      Medicaid eligibility expansions and the anticipated reaction of labor
                                      markets to SCHIP. Over time, CBO concluded, labor markets will adapt to the
                                      existence of federal subsidies, with low-income workers receiving more
                                      compensation in the form of wages and less in the form of health

                                      70
                                       The Urban Institute estimated that if 20 percent of families dropped their employer’s dependent
                                      coverage to enroll children in SCHIP, then about 36 percent of all new SCHIP participants would be
                                      substituting their private insurance for public coverage. If 10 percent dropped coverage, then the
                                      crowd-out would amount to 22 percent of the new SCHIP children. See Lisa Dubay, Session 5:
                                      Exploring Potential for “Crowd Out” Under CHIP, presentation at the Agency for Health Care Policy
                                      and Research Workshop entitled CHIP: Implementing Effective Programs and Understanding Their
                                      Impacts, Portland, Oregon, Sept. 1998.



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Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




insurance. In fact, CBO analysts suggested that some displacement of
private insurance is inevitable in the trade-off between the SCHIP goals of
stable insurance coverage for children and crowd-out prevention. Under
this scenario, if children who move in and out of private insurance based
on their families’ changing jobs and incomes were to qualify for consistent
coverage under SCHIP, then their previous private insurance is crowded
out. However, these children gain more reliable access to health coverage
and a greater likelihood of receiving both preventive and primary health
care, leading to improved health status.

According to a January 1998 telephone survey of 450 businesses
conducted by the Maternal and Child Health Policy Research Center, most
companies are unlikely to make significant changes in the health coverage
they offer to employee dependents as a result of SCHIP.71 The availability of
new public insurance for low-income children would persuade 7 percent
of those surveyed to stop offering dependent health insurance coverage.
Another 5 percent said they would consider dropping coverage, while
12 percent would not drop coverage but would increase the cost or
decrease the value of dependent health insurance. When the employers
likely to drop coverage were informed that children would have to wait 3
months to be eligible for public coverage, the number willing to eliminate
coverage fell from 7 to 3 percent. Only 1 percent of businesses would drop
coverage if the waiting period was 6 months, and none of the employers
would drop coverage if children had to wait 12 months for new public
insurance.

In addition, a number of studies indicate that the effect of some crowding
out of private insurance may be less negative than expected. While some
researchers believe that crowd-out leads to problems in ensuring that
public dollars serve targeted populations, and may actually increase the
cost of public insurance programs, analyses by the Urban Institute show
that the costs of crowd-out from the expansions of the late 1980s and early
1990s did little to increase overall Medicaid costs and suggest that




71
  The survey was conducted as part of a larger study of employer-based coverage of dependent
children. The sample consisted of an equal distribution of small, medium, and large businesses and
was regionally stratified. Small businesses had 10 to 99 employees, medium-sized businesses had 99 to
1,000 employees, and large businesses had more than 1,000 employees. The sample included a
significant proportion of businesses most likely to employ low- and moderate-wage workers. See Fox
and McManus, The Potential for Crowd Out Due to CHIP.



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                     Despite Divergent Views, the States Are
                     Taking Steps to Avoid Crowd-Out




                     crowd-out will not siphon off a significant portion of SCHIP funds.72
                     Moreover, some states have pointed out that prohibiting insured children
                     from participating in SCHIP does not take into account the quality of their
                     existing insurance coverage, which may be much more limited than either
                     Medicaid or the SCHIP benchmark plans. For example, Alabama officials
                     said the state is “rife with poor coverage,” including catastrophic plans
                     with large deductibles that provide no incentive for preventive care.
                     Finally, some researchers who attempted to estimate the extent of
                     crowd-out suggested that there may be benefits in the health
                     improvements gained when expanded public insurance that encourages
                     the use of preventive care substitutes for private coverage.73


                     While title XXI requires the states to address crowd-out, the Congress
HCFA Focuses         provided no direction to HCFA or the states on how to do so. In fact, title
Crowd-Out Scrutiny   XXI somewhat limits the states’ ability to employ higher cost-sharing or
on High-Risk SCHIP   benefit limitations, tools used previously to prevent crowd-out. As we
                     noted in appendix II, the states must follow either Medicaid or SCHIP
Designs              restrictions on cost sharing, depending on the state plan design and a
                     child’s family income level. However, several states, including Arkansas
                     and Nevada, have indicated a preference for gradually increasing
                     cost-sharing levels for children in families with higher incomes. They
                     suggest that SCHIP’s limits on cost sharing for higher-income families make
                     their contributions artificially low compared with those in the private
                     market. Thus, the limit may reduce incentives to keep private coverage.
                     The states are required to use one of several benchmark benefit packages
                     outlined in title XXI. For some states with employer-based coverage less
                     generous than SCHIP coverage, the relative richness of these benchmark
                     packages contributes to the crowd-out concern.

                     As a consequence of title XXI’s limited direction on crowd-out, HCFA’s
                     guidance to the states was based on the available research and has evolved
                     as the agency has gained more experience in reviewing state plans. On
                     February 13, 1998, the agency issued guidance for states that elected to
                     provide coverage directly through a stand-alone program or a Medicaid
                     expansion and issued separate requirements for states electing to
                     subsidize employer-sponsored group health plans. Regarding the former,

                     72
                      See David M. Cutler and Jonathan Gruber, “The Effect of Medicaid Expansions on Public Insurance,
                     Private Insurance, and Redistribution,” American Economic Review, 86:2 (1996), pp. 378-83; Chollet,
                     Birnbaum, and Sherman, Deterring Crowd-Out in Public Insurance Programs; Robert Wood Johnson
                     Foundation October 1997 Monograph; and John Holahan, “Crowding Out: How Big a Problem?” Health
                     Affairs, 16:1 (1997), pp. 204-6.
                     73
                      David M. Cutler and Jonathan Gruber, “Medicaid and Private Insurance: Evidence and Implications,”
                     Health Affairs, 16:1 (1997), pp. 194-200.


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                           Appendix V
                           Despite Divergent Views, the States Are
                           Taking Steps to Avoid Crowd-Out




                           HCFA  imposed no specific crowd-out mechanisms; rather, it indicated that
                           the states, especially those with higher income eligibility levels, must
                           address the crowd-out of private insurance in some manner. The states
                           were put on notice that HCFA would later review their crowd-out efforts
                           and might require them to alter their plans if crowd-out proved to be a
                           problem. Because HCFA believes that there is greater potential for
                           substitution when states attempt to subsidize employer-based coverage,
                           the guidance spells out a specific five-point mandate for states that pursue
                           this option. Their SCHIP programs must incorporate provisions that are
                           “substantially equivalent” to the following:

                       •   adopting a 6-to-12-month waiting period during which children must have
                           no existing insurance;
                       •   allowing subsidies only where the employer covers at least 60 percent of
                           the employee cost;
                       •   demonstrating cost-effectiveness of family coverage, where the cost is no
                           greater than the cost of covering the children alone;
                       •   ensuring that the employer pays the highest level of premium possible; and
                       •   requiring a crowd-out study to help demonstrate cost-effectiveness.

                           As indicated in HCFA’s guidance, the most scrutiny was directed toward
                           programs with eligibility at higher poverty levels and those proposing or
                           considering employer subsidies. HCFA officials told us that any Medicaid
                           expansion that raises income eligibility to higher levels will also be held to
                           crowd out prevention requirements. However, HCFA officials told us that
                           during SCHIP plan review, the agency was sensitive to the states’ different
                           needs and circumstances. For example, the states chose different time
                           periods for their waiting periods and will design their own crowd-out
                           studies.


                           Among the 15 states in our sample, strategies to avoid crowd-out varied,
Crowd-Out Strategies       depending on program design and poverty level eligibility standards. Title
Reflect State Design       XXI allows all participating states to impose a waiting period, but
Choices and                generally only states that select a stand-alone approach may use cost
                           sharing or the SCHIP benefit design to discourage crowd-out. Unless
Experience                 operating with a section 1115 waiver, states that elect to expand Medicaid
                           must offer the Medicaid benefits package and may not introduce cost
                           sharing for most children. State strategies also differed depending on their
                           level of concern regarding crowd-out, which for some was influenced by
                           previous experience with a state-funded children’s health insurance
                           program. At issue for some states was the level of crowd-out that could be



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                         Appendix V
                         Despite Divergent Views, the States Are
                         Taking Steps to Avoid Crowd-Out




                         considered acceptable and, thus, not serious enough to address. While
                         several states said that they developed their crowd-out strategies because
                         of local concern, others included prevention measures only as a result of
                         the legislative mandate or HCFA’s review. In general, states covering
                         children at higher income levels tend to have more aggressive crowd-out
                         strategies


State Views About        The SCHIP plans of 13 of the 15 states in our sample included strategies that
Crowd-Out Range Widely   were intended, either directly or indirectly, to help prevent crowd-out.
                         Each of these 13 states’ SCHIP programs had income eligibility levels
                         greater than 150 percent of the poverty level.74 In South Carolina and
                         Texas, the Medicaid expansions were at poverty levels low enough
                         (150 percent and 100 percent, respectively) that significant crowd-out was
                         not considered likely.

                         States in our sample ranged from exhibiting a deep concern about
                         crowd-out to a conviction, in part based on previous experience, that
                         crowd-out was unlikely to be a problem. For example, Missouri, a
                         Medicaid expansion state raising its eligibility level to 300 percent of the
                         poverty level, had serious concerns about crowd-out and instituted
                         broad-ranging preventive measures, including a 6-month waiting period
                         and cost sharing. In a unique provision, the state required children whose
                         family incomes are between 225 and 300 percent of the poverty level to
                         wait 30 days after enrollment before using health care services. State
                         officials believe this will prevent people from “shopping for health care”
                         only when they are ill.

                         Several other states agreed to mitigation plans or crowd-out studies only
                         after discussion with HCFA. Connecticut’s crowd-out provision—a 6-month
                         waiting period without employer-sponsored insurance—was a response to
                         federal concerns and was developed by studying the tactics of other states
                         and charting a middle course between what others states had chosen.
                         Connecticut officials said that the state built “flexibility” into its
                         prevention strategies by establishing ten exceptions to its waiting period
                         requirement and increasing the waiting period to 12 months if crowd-out




                         74
                          A July 1998 HCFA report also shows that states with higher eligibility levels had more comprehensive
                         crowd-out prevention components. Of the 23 states profiled, the 15 with higher income levels planned
                         waiting periods or studies. The remaining eight states planning only to monitor the situation were
                         covering children with family incomes at or less than 150 percent of the poverty level.



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                           Appendix V
                           Despite Divergent Views, the States Are
                           Taking Steps to Avoid Crowd-Out




                           proves to be a serious problem.75 Most states with waiting periods also
                           allow some exceptions, although in most of the states in our sample they
                           are not as extensive as in Connecticut. Connecticut also coordinates with
                           employers to review 20 percent of its applicants to ensure that they do not
                           have insurance or did not drop available insurance coverage.


States Most Often Choose   The crowd-out strategy adopted most often by the states in our sample
a Waiting Period as a      was to impose a waiting period, as shown in table V.1.76 The assumption is
Prevention Strategy        that parents will not want currently covered children to go without health
                           insurance for several months and, as a result, will be discouraged from
                           dropping private coverage. California initially has selected a 3-month
                           waiting period that will be increased to 6 months if the state finds that it is
                           covering substantial numbers of children previously covered under
                           employer-sponsored plans. In contrast, Rhode Island implemented
                           crowd-out provisions in 1994 when it received approval to expand
                           eligibility and operate its Medicaid program under a section 1115 waiver.
                           The state continued to require a 12-month waiting period when it
                           expanded the program to incorporate SCHIP and requires applicants to be
                           not only uninsured but without access to affordable insurance before
                           applying for SCHIP.77 All four states conducting studies to determine
                           whether SCHIP programs either resulted in or increased crowd-out will
                           impose some type of waiting period if the studies find that sufficient
                           crowd-out exists.




                           75
                             Exceptions include the loss of employment for reasons other than voluntary termination, a change to
                           a new employer that does not provide a dependent coverage option, and discontinuation of health
                           benefits to all employees by the applicant’s employer.
                           76
                             Notably, even Medicaid expansion plans were allowed to implement waiting periods. A HCFA official
                           said that imposing a waiting period on the “targeted low-income children” eligible under SCHIP does
                           not violate Medicaid entitlement rules because the eligibility focus is on the child’s income level rather
                           than on the Medicaid eligibility categories. In effect, SCHIP Medicaid expansions can require eligibility
                           criteria for children different from those of regular Medicaid programs.
                           77
                             Rhode Island describes affordable coverage as costing less than $150 per month for premiums for an
                           individual or less than $300 per month in premiums for a family.



                           Page 94                                              GAO/HEHS-99-65 Children’s Health Insurance
                                        Appendix V
                                        Despite Divergent Views, the States Are
                                        Taking Steps to Avoid Crowd-Out




Table V.1: Crowd-Out Strategies in 15
States                                  Strategy                                         State
                                        Waiting period with no insurance
                                            1 month                                      Vt.
                                            3 months                                     Calif., Colo., Wisc.
                                            6 months                                     Conn., Mich., Mo., Oreg.
                                            12 months                                    R.I.
                                        Crowd-out study and implement waiting            Fla., Mass., N.Y., Pa.
                                        period or limits to access if needed
                                        Cost-sharing (premiums or copayments)a           Calif., Mo., N.Y., Wisc.
                                        Compare SCHIP enrollment to private              Mass., Mich., Pa., Wisc.
                                        coverage
                                        State insurance regulation                       Calif.
                                        a
                                        Texas noted plans to use cost sharing in proposed phase II components to prevent crowd-out.
                                        Neither Texas’ nor South Carolina’s Medicaid expansion imposes cost sharing.



                                        Two of these states, Florida and New York, had found low levels of
                                        substitution in studies of their previous state-funded children’s health
                                        programs and questioned how much priority they should place on the
                                        issue. Pennsylvania did not have a previous crowd-out study but also
                                        disagreed with the importance attached to crowd-out during the review of
                                        state SCHIP plans. In the end, all three states finally complied with HCFA’s
                                        request to include prevention components in their plans. HCFA expressed
                                        concern that the existing evaluations might poorly predict SCHIP
                                        substitution effects because children targeted under SCHIP had higher
                                        incomes than those already in their state-funded programs. Under the
                                        agreement reached with HCFA, Florida will conduct a crowd-out study after
                                        6 months of enrollment and will add a 3-month waiting period if crowd-out
                                        is greater than that found previously. Florida officials also decided to fully
                                        study and reevaluate crowd-out after 36 months of operation. New York
                                        agreed to study crowd-out for 9 months and impose a waiting period or
                                        restrictions for children with access to insurance if more than 8 percent of
                                        SCHIP enrollment is attributed to crowd-out. New York also had argued that
                                        a waiting period “penalized” children for actions taken by a parent or
                                        employer to drop private coverage. For example, the state was opposed to
                                        making a child with asthma wait 6 months for care. Finally, after studying
                                        both Florida’s and New York’s mitigation plans, Pennsylvania agreed to
                                        take crowd-out action if at least 12 percent of SCHIP enrollment is the result
                                        of crowding out of private insurance.




                                        Page 95                                         GAO/HEHS-99-65 Children’s Health Insurance
Appendix V
Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




While 11 states in our sample required participants to pay either premiums
or copayments, only 4 characterized their cost-sharing provisions as
intended to prevent crowd-out (see appendix II, table II.6). Cost sharing
helps narrow the cost difference between public and private insurance,
reducing the likelihood that lower out-of-pocket costs for SCHIP will attract
individuals with existing insurance. In addition to using waiting periods
and cost sharing, some states are using other methods to prevent
crowd-out. A few states asserted that eliminating or limiting dental
coverage within benefits packages may make a plan less attractive to
families with existing insurance. Several states indicated that they plan to
periodically check their SCHIP enrollment with private insurers to identify
and disenroll or deny coverage to persons who have private coverage or
have recently dropped it. For example, Pennsylvania provides SCHIP
benefits through five state grantees—a health maintenance organization
and four subsidiaries of large health insurance providers. These grantees
will compare SCHIP applicants’ names with the names of their commercial
subscribers to determine whether they have other coverage. Michigan is
considering whether to contract with Blue Cross and Blue Shield to
compare its applicants with their commercial enrollees and with Medicaid.
This venture would allow the state to review coverage for about
75 percent of people with health insurance in Michigan. To protect its
public programs, California passed insurance regulations that prohibit
insurance agents from referring children covered by employee plans to the
state’s stand-alone program.78 The state also makes it an unfair labor
practice for an employer to either refer a covered employee to SCHIP or
change the employee’s coverage or cost sharing to induce enrollment in
the state program.

Several state officials expressed concern that HCFA did not use consistent
standards among states for crowd-out studies. HCFA officials
acknowledged that crowd-out scrutiny evolved as they gained more review
experience. Agency representatives said that they intentionally did not set
specific crowd-out study standards in order to consider each state’s
previous crowd-out research and its expectations of SCHIP’s effect. For
example, New York’s previous study, which was conducted when the state
provided only outpatient care and not the hospitalization included in the
SCHIP expansion, found only a 2-percent crowd-out effect. HCFA, however,



78
  In addition to California, Rhode Island had previously enacted legislation that prohibits employers
from dropping coverage for lower-income employees who might be eligible for publicly funded
programs while maintaining insurance coverage for higher-income employees. The law includes civil
penalties and extends a federal requirement that applies only to employers who choose to bear the
financial risk of offering coverage themselves to firms that rely on an insurance company to bear the
risk.



Page 96                                             GAO/HEHS-99-65 Children’s Health Insurance
                           Appendix V
                           Despite Divergent Views, the States Are
                           Taking Steps to Avoid Crowd-Out




                           believed that the expansion of both the poverty level and benefits under
                           New York’s SCHIP stand-alone would increase crowd-out. After
                           negotiations, the state agreed that an 8-percent crowd-out effect would
                           trigger prevention measures. In contrast, Florida’s study had indicated a
                           10-percent crowd-out effect under its previous state program. Therefore,
                           HCFA officials said, Florida’s waiting period should be triggered if the same
                           level, or higher, crowd-out occurs with its SCHIP program.


States Face Crowd-Out      Although HCFA views crowd-out as particularly worrisome for states that
Scrutiny If They Explore   elect to subsidize employer-based insurance, some states and analysts
Employer-Based Options     view such subsidization as helping preserve employer-based coverage. As
                           of April 1, 1999, only Massachusetts and Wisconsin had received approval
                           for the employer-subsidy option under their SCHIP programs, although
                           several other states have expressed interest in this option for future SCHIP
                           amendments. Massachusetts believes that the incentives for employees to
                           drop workplace coverage are removed with its premium assistance
                           program; the SCHIP stand-alone program covers low-income families with
                           access to employer insurance who have not enrolled, while the state’s
                           section 1115 Medicaid waiver can assist those who already pay for
                           employer coverage. State officials said that their challenge will be to
                           educate families that they do not have to drop existing employer coverage
                           in order to be eligible for premium assistance. Massachusetts is more
                           concerned about the response of employers that may have an incentive to
                           reduce their premium contribution, thereby increasing the public subsidy,
                           or to drop dependent coverage entirely. The state will conduct a survey of
                           employers to track contribution levels and other state insurance trends. If
                           it finds evidence of employer-connected crowd-out practices,
                           Massachusetts will attempt to develop corrective action plans. California,
                           which is planning to submit an employer subsidy amendment, told us that
                           keeping children in their parents’ employer-based insurance programs
                           ameliorates crowd-out by providing an affordable option to families. With
                           the SCHIP subsidy, families are able to buy the previously unaffordable
                           dependent coverage offered at their workplace.


                           Title XXI reflects a concern that SCHIP might substitute for traditional
Coordination               Medicaid coverage. The states might have an incentive to enroll children
Requirements Seek to       who are eligible for Medicaid in SCHIP, since the federal financial match is
Limit SCHIP’s              higher for the new program. Children’s advocates were concerned that
                           children who are eligible for Medicaid and are incorrectly enrolled in a
Crowding Out of            stand-alone program would have less generous benefits or would find
Medicaid                   themselves dropped from coverage when or if SCHIP funding ended,


                           Page 97                                   GAO/HEHS-99-65 Children’s Health Insurance
Appendix V
Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




because the program, unlike Medicaid, is not an entitlement. As a result,
state coordination efforts were mandated to ensure that children who
qualify for Medicaid are enrolled in that program rather than in a SCHIP
program and that their applications are fully processed for Medicaid when
they are not eligible for SCHIP. HCFA’s plan review process led some states
to upgrade their screening strategies to check children first for Medicaid
eligibility and to create closer links between stand-alone and Medicaid
programs.

The possibility of SCHIP substitution is highlighted by the large numbers of
children who are eligible for Medicaid now but have no health insurance.
Nearly one-fourth of the children who currently are eligible are not
enrolled. For example, California has estimated that while it has 400,000
children eligible for its stand-alone program, another 600,000 children are
eligible but not enrolled in its Medicaid program. Children who are eligible
for Medicaid but not enrolled may be likely to apply for SCHIP programs if
they are attracted by the new outreach efforts that the states have
developed to attract children and their families eligible for SCHIP. CBO
estimated that nationwide the “outreach effect” of SCHIP will increase
Medicaid spending by $2.4 billion over the first 5 years of SCHIP enrollment
because of an increased enrollment of 460,000 children eligible for
Medicaid each year.79

Title XXI contains three provisions aimed at preventing SCHIP from
substituting for Medicaid coverage. First, the states must include
assurances in their program plans that they will develop Medicaid
coordination strategies. Second, statutory maintenance-of-effort
provisions for Medicaid eligibility apply to both Medicaid expansion and
SCHIP stand-alone plans. States with stand-alone components cannot adopt
income and resource methodologies for children eligible for Medicaid that
are more restrictive than those in effect on June 1, 1997. Medicaid
expansion programs cannot use the SCHIP enhanced match rate for any
child who would have been eligible for Medicaid under standards in effect
on March 31, 1997. Finally, any child who applies for SCHIP must be
screened for Medicaid and then enrolled if found eligible. Missouri
officials listed the strong coordination requirements in the legislation as a
factor that supported the decision to fold SCHIP into an application for a
section 1115 waiver and an expanded Medicaid program.




79
 Medicaid: Demographics of Nonenrolled Children Suggest State Outreach Strategies
(GAO/HEHS-98-93, Mar. 20, 1998).



Page 98                                          GAO/HEHS-99-65 Children’s Health Insurance
                             Appendix V
                             Despite Divergent Views, the States Are
                             Taking Steps to Avoid Crowd-Out




                             HCFA’s approach during plan review was to query states closely and require
                             assurances that they would plan to screen and enroll applicants eligible for
                             Medicaid. HCFA asked 8 of our 15 sample states for more information about
                             how they intended to meet the screening and enrolling requirement, and a
                             few states amended or revised their planned screening processes to meet
                             HCFA’s standards. In response to HCFA’s review, for example, Pennsylvania
                             developed a common application form and initial Medicaid screening to
                             ensure Medicaid enrollment. Colorado had developed a nonautomated
                             screen to prevent children eligible for Medicaid from enrolling in its
                             previously state-funded insurance program. Because HCFA did not consider
                             the screen adequate for SCHIP, the state hired a Medicaid consultant to
                             create a new computer-based program to screen applicants. Even with this
                             computerized method, Colorado officials characterized the screening
                             process as time-consuming and administratively costly.


States Find That Their       Coordination with Medicaid is easy for a Medicaid expansion state
Screens for Medicaid         because SCHIP is administratively part of its Medicaid program. In contrast,
Eligibility Meet the Title   some stand-alone programs went to significant time and expense to create
                             new administrative structures and find ways to connect them with
XXI Mandate                  Medicaid. The most practical way for states with stand-alone components
                             to meet the legislative mandate to screen and enroll is to check first for
                             Medicaid eligibility. The states in our sample with stand-alone components
                             have all included screening for Medicaid eligibility as the first step in the
                             eligibility determination process. They are also using a joint application
                             form for both programs, which simplifies the process. All but 2 of the 48
                             states whose applications had been submitted to HCFA by October 8, 1998,
                             were using or planning to use a single application for regular Medicaid and
                             SCHIP-related applicants.80


                             Some states are also using a single agency or entity to screen and track
                             referrals for both programs or are developing a coordination plan if two
                             offices are involved. For example, Connecticut and Michigan use a private
                             contractor to accept applications for both the expanded Medicaid and the
                             new stand-alone programs and to forward appropriate applications to the
                             state Medicaid eligibility agency. Connecticut’s Single Point of Entry
                             Servicer screens all applications and, if a family appears to be eligible for
                             Medicaid, sends its application to the Department of Social Services (DSS)
                             for final eligibility determination. The contractor keeps daily logs of

                             80
                               HCFA reported that Colorado, Florida, Montana, Nevada, and North Carolina, all with stand-alone
                             components, are not using joint applications. However, Colorado and Florida indicated in interviews
                             that they are using joint applications, while North Carolina had adopted a joint application by April 1,
                             1999.



                             Page 99                                              GAO/HEHS-99-65 Children’s Health Insurance
Appendix V
Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




referrals to DSS, and the state has a tracking system to follow referrals
once they reach the DSS office. In Colorado, the stand-alone administrator
and Medicaid office developed an agreement that each will forward
applications for children who appear to qualify for the other’s program.
Other states, including California and New York, compare SCHIP participant
lists against Medicaid enrollment files to ensure that children are not
already covered.

As anticipated under the enabling legislation, several states have found a
significant number of children who are eligible for Medicaid as initial
applicants for their new SCHIP programs. Connecticut has found that
approximately 8,000 of the 11,000 children determined to be eligible since
SCHIP’s implementation are eligible for Medicaid, including the SCHIP
Medicaid expansion component. The remaining 3,000 are in the state’s
stand-alone SCHIP component. New York officials believe that anywhere
from 20 to 40 percent of the approximately 170,000 children already in its
existing state program will be found to be eligible for Medicaid. New
York’s request for retroactive funding for its state-turned-SCHIP program
was denied because its state-funded program lacked an extensive
Medicaid screening and enrollment process and because its program did
not meet the title XXI premium and cost-sharing limits. HCFA indicated that
it will not include expenses for children eligible for Medicaid in a payment
for health expenses retroactive to October 1997. New York has requested
an “indefinite continuance” of its appeal, which is before an administrative
law judge. Others have reported finding applicants inflating income in
order to qualify for SCHIP rather than Medicaid or refusing to continue the
application process, once they are deemed ineligible for SCHIP, to avoid
Medicaid enrollment.

As SCHIP programs evolve, coordination plans may be complicated by the
income volatility many low-income families experience from fluctuation in
their paychecks and changing employment. Periodic reviews of SCHIP
eligibility will result in states shifting any children found eligible for
Medicaid out of SCHIP and into title XIX. This suggests that at
redetermination of eligibility, there could be significant movement in and
out of stand-alone and Medicaid programs. The changes may result in
either health care coverage lapses as children move into and out of
programs or situations in which states use SCHIP funds to cover individuals
whose changed income has made them ineligible. The states may offset
these problems by choosing to allow continuous eligibility for up to 12
months for participants in both Medicaid and SCHIP programs. Eight of the
15 states in our sample use 12 months of continuous eligibility for SCHIP



Page 100                                  GAO/HEHS-99-65 Children’s Health Insurance
Appendix V
Despite Divergent Views, the States Are
Taking Steps to Avoid Crowd-Out




programs, while 3 have a 6-month allowance. Additionally, California has
instituted a 1-month bridge eligibility transition period from Medicaid to
the stand-alone SCHIP program to give those who lose Medicaid eligibility
time to enroll in the SCHIP program while continuing to receive health
coverage. Michigan allows children who become eligible for Medicaid
because of high medical expenses to remain enrolled in SCHIP to ensure
continuity of care. Finally, HCFA officials noted that if a family’s financial
circumstances changed, making its children eligible for Medicaid, it could
request that the children be switched from SCHIP to Medicaid.




Page 101                                  GAO/HEHS-99-65 Children’s Health Insurance
Appendix VI

Key SCHIP Design Characteristics in 15
States as of February 1999


                 FY 1998 SCHIP                              Eligibilitya
                      allocation                        Maximum             % of federal    Stand-alone
State                 (millions)       Initial design    income            poverty level    coverage basisb
California               $854.6        Combination       $32,900                    200%    Secretary-approved
                                                                                            coverage

Colorado                   41.8        Stand-alone        30,433                    185     Benchmark
                                                                                            equivalent
Connecticut                34.9        Combination        49,350                    300     Secretary-approved
                                                                                            coverage
Florida                   270.2        Combination        32,900                    200     Existing state
                                                                                            coverage
Massachusetts              42.8        Combination        32,900                    200     Benchmark


Michigan                   91.6        Combination        32,900                    200     Benchmark


Missouri                   51.7        Medicaid           49,350                    300
                                       expansion
New York                  255.6        Stand-alone        36,519                    222     Existing state
                                                                                            coverage
Oregon                     39.1        Stand-alone        27,965                    170     Secretary-approved
                                                                                            coverage
Pennsylvania              117.5        Stand-alone        32,900                    200     Existing state
                                                                                            coverage

Rhode Island               10.7        Medicaid           49,350                    300
                                       expansion
South Carolina             63.6        Medicaid           24,675                    150
                                       expansion
Texas                     561.3        Medicaid           16,450                    100
                                       expansion
Vermont                      3.5       Stand-alone        49,350                    300     Secretary-approved
                                                                                            coverage
Wisconsin                  40.6        Medicaid           32,900                    200
                                       expansion




                                   Page 102                           GAO/HEHS-99-65 Children’s Health Insurance
                                     Appendix VI
                                     Key SCHIP Design Characteristics in 15
                                     States as of February 1999




                      Potential amendment
                                  Stand-
Cost-sharing                      alone         Eligibility and enrollment
practice       Coverage           component     simplificationc                       Crowd-out strategyd           Enrollmente
Premiums,      Employer buy-in                  No asset test, continuous             Waiting period, cost               63,100
copayments     for children                     eligibility                           sharing, insurance
                                                                                      regulation
Premiums,      Family                           Continuous eligibility                Waiting period                     17,400
copayments
Premiums,      Family                           No asset test, presumptive            Waiting period                      6,900
copayments                                      eligibility, continuous eligibility
Premiums,      Employer buy-in                  No asset test, continuous             Crowd-out study                    60,500
copayments     for children                     eligibility
Premiums,      None                             No asset test, presumptive            Crowd-out study,                   42,100
copayments                                      eligibility                           compare enrollment
                                                                                      with private data
Premiums       Family                           No asset test, presumptive            Waiting period,                    11,600
                                                eligibility, continuous eligibility   compare enrollment
                                                                                      with private data
Premiums,      None               None          No asset test, presumptive            Waiting period, cost               23,900
copayments                                      eligibility, continuous eligibility   sharing
Premiums       None                             No asset test, presumptive            Crowd-out study, cost             270,700
                                                eligibility                           sharing
None           Family                           Continuous eligibility                Waiting period                     10,400

None           None                             No asset test, continuous             Crowd-out study,                   68,400
                                                eligibility                           compare enrollment
                                                                                      with private data
Premiums,      Family             None          No asset test, continuous             Waiting period                      2,900
copayments                                      eligibility
None           None               None          No asset test, continuous             None                               44,500
                                                eligibility
None           None               Planning      None                                  None                               39,000

Premiums,      None                             No asset test                         Waiting period                        400
copayments
Premiums,      None               None          No asset test                         Waiting period, cost                None
copayments                                                                            sharing, compare
                                                                                      enrollment with private
                                                                                      data




                                     Page 103                                         GAO/HEHS-99-65 Children’s Health Insurance
Appendix VI
Key SCHIP Design Characteristics in 15
States as of February 1999




a
 Maximum income is for a family of four at that poverty level. States may increase eligibility up to
50 percentage points above current Medicaid eligibility levels or to 200 percent of the federal
poverty level. Some states do not consider certain portions of income, thereby effectively
increasing eligibility level above 200 percent.
b
    For a description of benchmark coverage options, see appendix II.
c
For a description of state approaches to simplifying eligibility and enrollment, see appendix IV.
d
 For a description of state strategies to prevent the substitution of SCHIP for either Medicaid or
private health insurance, see appendix V.
e
States generally reported enrollment to HCFA as of December 31, 1998. (See appendix IV.)




Page 104                                             GAO/HEHS-99-65 Children’s Health Insurance
Appendix VII

Comments From the Department of Health
and Human Services




               Page 105    GAO/HEHS-99-65 Children’s Health Insurance
Appendix VII
Comments From the Department of Health
and Human Services




Page 106                                 GAO/HEHS-99-65 Children’s Health Insurance
Appendix VII
Comments From the Department of Health
and Human Services




Page 107                                 GAO/HEHS-99-65 Children’s Health Insurance
           Appendix VII
           Comments From the Department of Health
           and Human Services




(101723)   Page 108                                 GAO/HEHS-99-65 Children’s Health Insurance
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