GAO: CMS violated law with SCHIP eligibility directive

Washington -- The Centers for Medicare & Medicaid Services did not follow federal law when it issued a directive limiting enrollment in a children's health program to kids in lower-income families, according to a new Government Accountability Office opinion.

State officials are concerned that they could not meet a provision in the CMS State Children's Health Insurance Program directive taking effect on Aug. 17. Among its restrictions, the order requires states to cover 95% of SCHIP-eligible children in families earning 200% or less of the federal poverty level before receiving federal funding to cover children in families earning 250% of poverty or more. Existing SCHIP enrollees would not be affected, the agency said.

The April 17 GAO opinion -- requested by Sen. John Rockefeller (D, W.Va.) -- found that the Aug. 17 CMS directive is a regulation that should have been submitted to the GAO and Congress for review and is not in effect until CMS does so. The Congressional Review Act requires this step to keep both the GAO and lawmakers informed of agency activities. But the law doesn't have an enforcement mechanism, said Dayna Shah, GAO managing associate general counsel.

CMS spokesman Jeff Nelligan said the opinion did not change the agency's view that the directive will go into effect on Aug. 17.

The GAO opinion arrived about a week after CMS announced that more than half of the 17 states subject to the directive's 95% standard already may have met it.

Some kids must wait

The SCHIP rules, issued on Aug. 17, 2007, are designed to make sure the program covers children from the lowest-income families first. "SCHIP was never designed or funded to serve all 78 million children in the United States at all income levels," testified Dennis Smith, then-director of the CMS Center for Medicaid and State Operations, at an April 9 Senate Finance subcommittee hearing on the directive. Smith voluntarily left his position on April 11.

States have fared better than they initially expected with the 95% standard, Smith said. At least nine of the 17 states that cover children above 250% of poverty already might meet the standard.

"We believe that it's aggressive but achievable," he said. Smith did not release the names of the nine states because CMS had not verified state-submitted data supporting their claims.

The AMA has asked the Bush administration to rescind the SCHIP directive. States have railed against the CMS policy. Five have filed lawsuits to block it. For example, states have questioned how they are supposed to calculate when they have covered 95% of eligible children. While no state would meet the standard under the Census Bureau's Current Population Survey, that count is known to underestimate Medicaid and SCHIP enrollment by several million people, testified Chris L. Peterson, a specialist in health care financing with the Congressional Research Service.

Smith said that data adjusted for the Census undercount show states faring much better than they initially expected.

The news didn't change the views of most members of a Senate Finance subcommittee, especially its chair, Rockefeller, who questioned Smith intensely during the April 9 hearing. "The [SCHIP] directive is a bold-faced attempt to subvert the law and prevent states from implementing their plans to provide health insurance coverage to millions of uninsured children nationwide," Rockefeller said.

The Aug. 17 order "is a solution to a problem that doesn't exist," he said. Of the 7 million children covered by SCHIP in 2007, only 5% were in families earning more than 250% of poverty, testified Peter Orszag, PhD, director of the Congressional Budget Office.

Rockefeller, like many other lawmakers and state officials, wants to block the SCHIP directive. He's the sponsor of the Economic Recovery in Health Care Act of 2008, which would delay until April 1, 2009, not only the SCHIP order but also seven controversial Medicaid rules CMS has issued in the last year. The bipartisan measure would provide additional federal funding to states for Medicaid and other programs. The bill, unveiled on April 3, has not yet faced a committee vote.

Sen. Chuck Grassley (R, Iowa), the highest-ranking Republican on the Senate Finance Committee, said he has no problem with the directive's goal of covering children from the lowest-income families first. "While I do have some questions about how the policy would work, I think the intent is laudable," he said.

Smith said the directive was issued to close loopholes left open by the legislation that created SCHIP in 1997. Specifically, the program limits income eligibility to 200% of poverty or 50 percentage points above a state's Medicaid eligibility. But the law does not include a definition of family income. This has allowed states to disregard certain income and, in effect, increase eligibility for SCHIP, Smith said. New Jersey, for example, covers children up to 350% of poverty by not counting any income over 200% of poverty, he said.

The directive also is designed to prevent families from dropping private insurance for children in favor of SCHIP, an effect known as crowd-out. Dr. Orszag testified that for every 100 new SCHIP enrollees, 25 to 50 had private health coverage, although it isn't clear how many of these children's parents lost coverage versus how many dropped it voluntarily.

To prevent crowd-out, the SCHIP rules also require children to be uninsured for one year before signing up for the program. "That is not meant to be punitive. It is meant to be preventive," Smith said.

Rockefeller wondered why the administration didn't apply the same 95% standard to Medicare Part D, even though Dr. Orszag testified that Part D produces the same crowd-out effect as SCHIP.

Rockefeller and some other Democrats in Congress interpreted the directive as the administration's attempt to force its SCHIP priorities on Congress and the states. Democrats and some Republicans have spent the last 18 months trying to advance legislation expanding the program to cover millions more uninsured children. President Bush has vetoed such SCHIP bills repeatedly.