SCHIP enrollment could be headed for a dive

Washington --While the State Children's Health Insurance Program remains politically very popular, there seems to be little will in Congress to deal with looming funding shortfalls that could lead to new state cuts.

In the past few years, some states reduced physician reimbursement, pared back outreach efforts and created new cost-sharing arrangements. Most recently, some states began freezing enrollments. Last year, that resulted in a drop in the SCHIP rolls for the first time since the program was launched in 1998.

Now with a new report from the Congressional Research Service predicting that more than a dozen states will run out of federal money for the program before the end of 2006, experts say they expect enrollment freezes to continue. That, in turn, would lead to millions of children having a harder time accessing care.

Greg Martin, who analyzes state government issues for the American Academy of Family Physicians, believes that coverage could be threatened for as many as 2.8 million of the 6.2 million children in SCHIP.

"What we're talking about is a program that has become an integral part of states' strategies to ensure kids have access to care," he said.

Physicians shouldn't be surprised to see large, if brief, fluctuations in SCHIP enrollment over the next few years, said Ian Hill, senior research associate at the nonpartisan Urban Institute's Health Policy Center.

Hill and colleagues have monitored changes to the program in several states over the past few years. Freezing SCHIP sign-up is the quickest and easiest way states have to shave money from the program, he said.

Such freezes are followed by rapid attrition rates, anywhere between 5% and 29% of the program's rolls, which results in short-term savings that help states bridge whatever budget gap they happen to currently be facing. The freezes often are quickly followed by a public outcry that puts pressure on states to reopen enrollment, Hill said. But even if the freezes are short, they affect children's access to care.

"In the past, parents may not have experienced any consequence from allowing enrollment in the program to lapse, but when a freeze is in place, all of sudden, they are out of luck," he said.

With more freezes expected, physicians also might find themselves out of luck, said David Clark, MD, chair of the American Academy of Pediatrics' committee on state government affairs. Because of SCHIP's structure, doctors end up providing charity care to those children who, while eligible for the program, get caught in those gaps in coverage.

As with Medicaid, the federal government provides matching funds for every state dollar that goes into covering children under SCHIP. But unlike Medicaid, the federal government caps how much money it matches any state in a given year.

Several states will hit that cap over the next few years, says a report released in July by the Congressional Research Service, a branch of the Library of Congress that conducts independent analysis at the request of lawmakers. In 2006, between seven and 14 states will exhaust their federal allotment of SCHIP funds before the end of the year, the study predicts. And in 2007, between 13 and 22 states run out of federal funds early, it shows.

The report also concludes that Arizona and Rhode Island could run out of money as soon as this year.

The CRS report is just the most recent to indicate that federal funding for SCHIP is inadequate for an increasing number of states, the AAFP's Martin said.

That is because of a flawed federal funding formula that has left some states with too little money and others with too much, experts say.

When SCHIP was established as part of the 1997 Balanced Budget Act, the program's federal funding was front-loaded to help states with start-up costs. States were given up to three years to use their allotments.

States that got off to an early start have now built their programs up to a capacity at which current federal funding levels are inadequate, while states that got off to a slower start have lost the funds they were not able to use up in the three-year window.

A report produced by the Center on Budget and Policy Priorities, a nonprofit that studies how policies and programs affect low- and moderate-income households, late last year also projected that state difficulties would be exacerbated by a decision by Congress to allow more than $1 billion in federal SCHIP money to revert to the U.S. Treasury. The Bush administration announced that remaining available money could be redistributed to make up for funding gaps in a few states and discouraged Congress from holding over the expiring funds, as had been done in previous years.

"It's ironic that just as state budget problems are easing up, the federal budget is getting tight," said Leighton Ku, a senior fellow at the center.

SCHIP takes backseat to Medicaid

States hope that the federal government will bail them out of this situation, Ku said. But the prospects of that are still sketchy.

With appropriators trying to find $10 billion in savings, much of that expected to come from Medicaid, it is unclear where lawmakers would find extra federal dollars to boost funding for SCHIP, he said.

While there was some talk late last year about possible early reauthorization of the program, including adjusting the funding formula to fix faulty assumptions about how much money individual states would need, much of that discussion seems to have taken a backseat to the debate over how to curtail federal spending on Medicaid, experts said.

Given that SCHIP remains a very popular program, however, it might just take another election year to get lawmakers to begin addressing these issues again, Dr. Clark said.

Even before the SCHIP statute, states provided health coverage for children from low-income families, he said. But the program has helped increase access to preventive care, immunization and all of the basic services physicians have come to expect will be available to children.

Because the federally subsidized program made those state efforts largely obsolete, it is unclear where children will go for care if SCHIP enrollment is curtailed, Dr. Clark said.