Public Sector Initiatives to Control Costs: The State Children’s Health Insurance Program

1. Public Sector Initiatives to Control Costs:The State Children’s Health Insurance Program Genevieve Kenney The Urban Institute http://www.urban.org Citizens’ Health Care Working Group Meeting May 13, 2005

2. State Children’s Health Insurance Program (SCHIP) • New public health insurance program for children • Enacted in 1997 with bipartisan support • Funded as a ten-year block grant • Higher federal matching rates than under Medicaid • States given latitude over eligibility thresholds and program design

3. SCHIP Background • All states have expanded coverage under SCHIP • 39 states have eligibility thresholds at or above 200% of the federal poverty level • Program Structure Varies Across States • 36 states use a non-Medicaid program for some or all of the expansion • 9 states use SCHIP funds to finance care for adults • Some variability in benefits and cost sharing, but overall benefit packages are broad and out-of-pocket cost sharing requirements are low • States simplified enrollment process and engaged in unprecedented levels of outreach • SCHIP provided coverage to 6.1 millionchildren at some point in 2004

4. Key Features • SCHIP is layered on top of Medicaid coverage for children • SCHIP is not an entitlement • States pay only between 15 cents and 35 cents on each dollar expended under SCHIP • To date, no state has experienced a shortfall in terms of federal dollars, but future looks different

5. Federal SCHIP Spending vs. Federal Allotment Source: CMS for FY 1998 – FY 2004

6. Cost Containment Pressures • Rare in SCHIP’s early years due to strong economy, state budget surpluses, and large federal allocations • 2002 marked a turning point, but mainly saw reduced funding for outreach • Cost containment pressures have increased since 2002

7. Cost Containment Tools in SCHIP • Limit Enrollment • Freeze enrollment or reduce eligibility thresholds • Increase premiums • Increase length of waiting periods • Increase procedural barriers • Limit cost per Enrollee • Cut benefits • Increase out-of-pocket cost sharing for services • Reduce provider reimbursement

8. Which Cost Containment Tools Have States Used Under SCHIP? • Outreach cutbacks have been the most commonly used tool, followed by premium increases • States have also implemented enrollment caps and eligibility cuts, procedural barriers, waiting periods, cuts in optional services, increases in co-payment amounts, and reductions in provider payments • For the first time in the program’s history, SCHIP enrollment levels fell during late 2003 and early 2004

9. Impacts of SCHIP Cost Containment – Two Case Studies • In 2003, Texas lowered eligibility thresholds, decreased the period of continuous eligibility, and imposed a 90 day waiting period before coverage was effective. Enrollment dropped by about 150,000 children (30 percent) over the 9 month period following these changes. • In 2003, Wisconsin increased premiums from 3 percent of family income to 5 percent of family income. Enrollment dropped by about 2,500 children (13 percent) in the premium paying category in the four months following the premium hike.

10. What Does the Future Hold? • SCHIP programs enjoy popular support at state and federal levels • Federal spending is capped; in the past year, funds were returned to the Treasury • Reductions in SCHIP enrollment do not generate large-scale savings to the state • Large federal match • Spillover effect on Medicaid • But an increasing number of states are projected to face federal funding shortfalls • Unfortunately, states lack information on the costs and benefits of alternative cost containment measures

11. References • Cohen Ross, Donna and Laura Cox. 2003. “Enrollment Freezes in Six State Children’s Health Insurance Programs Withhold Coverage From Eligible Children.” Washington, DC: Kaiser Commission on Medicaid and the Uninsured. • Cohen Ross, Donna and Laura Cox. 2004. “Beneath the Surface: Barriers Threaten to Slow Progress on Expanding Health Coverage of Children and Families: A 50 State Update on Eligibility, Enrollment, Renewal and Cost-Sharing Practices in Medicaid and SCHIP.” Washington, DC: Kaiser Commission on Medicaid and the Uninsured. • Dubay, Lisa, Ian Hill, Genevieve Kenney. 2002. “Five Things Everyone Should Know about SCHIP.” Assessing the New Federalism Policy Brief A-55. Washington, DC: The Urban Institute. • Dubay, Lisa and Genevieve Kenney. 2004. “Gains in Children's Health Insurance Coverage but Additional Progress Needed.” Pediatrics, 114(5): 1338-1340. • Fox, Harriette and Stephanie Limb. 2004. “SCHIP Programs More Likely to Increase Children’s Cost Sharing Than to Reduce Their Eligibility or Benefits to Control Costs.” Washington, DC: Maternal & Child Health Policy Research Center. • Hill, Ian, Brigette Courtot, and Jennifer Sullivan. Forthcoming. “Ebbing and Flowing: Some Gains, Some Losses as SCHIP Responds to Third Year of Budget Pressures.” Washington, DC: The Urban Institute. • Hill, Ian, Holly Stockdale, and Brigette Courtot. 2004. “Squeezing SCHIP: States Use Flexibility to Respond to the Ongoing Budget Crisis.” Assessing the New Federalism Policy Brief A-65. Washington, DC: The Urban Institute. • Howell, Embry, Ian Hill, and Heidi Kaputska. 2002. “SCHIP Dodges the First Budget Ax.” Assessing the New Federalism Policy Brief A-56. Washington, DC: The Urban Institute. • Kenney, Genevieve and Debbie Chang. 2004. “The State Children’s Health Insurance Program: Successes, Shortcomings, and Challenges.” Health Affairs, 23(5): 51-62. • Selden, Thomas and Julie Hudson. 2005. “How Much Can Really Be Saved by Rolling Back SCHIP? The Net Cost of Public Health Insurance for Children.” Inquiry, 42(1).