Federal court dismisses New Jersey suit over SCHIP limits

A New Jersey federal judge in November tossed out the state's lawsuit challenging limits on federal funding for the State Children's Health Insurance Program. But state officials and policy experts said some good still came out of the case, part of a nationwide outcry against the new policy that led the Centers for Medicare & Medicaid Services to delay enforcement of the limits, at least temporarily.

The CMS directive -- which was first announced Aug. 17, 2007, and took effect a year later -- prohibits states from using federal funds to cover uninsured children in families earning more than 250% of the federal poverty level. States can avoid the restriction only if they can prove that at least 95% of eligible children at or below 200% of the poverty level are enrolled in Medicaid or SCHIP, as well as meet other standards. They also can cover kids at higher family incomes using state dollars alone.

In October 2007, Gov. Jon S. Corzine sued CMS to block the rules, alleging that the government violated federal law by issuing such a significant policy change without any notice or public comment period. New Jersey received the government's approval in 1999 to expand its SCHIP program to children in families earning up to 350% of the federal poverty level.

The changes threatened coverage for as many as 10,000 children enrolled in the state program, known as FamilyCare, according to a friend-of-the-court brief filed by the New Jersey Chapter of the American Academy of Pediatrics and other patient advocates. That figure did not include the thousands of other eligible children in the state not yet covered by SCHIP.

The rules -- which were deemed to affect at least 17 states -- also drew widespread criticism from a number of other states, federal lawmakers and physician organizations, including the American Medical Association.

But because CMS announced in August that it would delay enforcement of its directive indefinitely, New Jersey District Judge Joel Pisano concluded Nov. 17 that the state's lawsuit was premature.

If the agency eventually decides to take action against New Jersey for noncompliance, the state has several remedies. Those options include negotiating with CMS or seeking legal recourse in court at that time, Pisano wrote.

The impact that the ruling could have on a separate, similar lawsuit filed by several other states remains unclear. That case remains pending in New York district court.

A fresh start

Despite the legal setback, New Jersey and other states are anticipating changes under the incoming administration that would allow them to continue planned expansions of child health coverage.

"Since we sued to assure our most vulnerable remain eligible to receive SCHIP benefits, the Bush administration backed off," said Corzine spokesman Robert Corrales. "We look forward to the fresh ideas and approaches of the incoming administration of President-elect Obama."

CMS also had made the announcement that it would delay enforcement of the federal funding limits after California said it would not comply with what it considered a violation of state law. The Bush administration gave no indication that it had made its decision based on that challenge or on pressure from other quarters.

Physicians also await SCHIP improvements soon after Obama takes office. The program is set to expire March 31, 2009, and congressional Democrats aim to expand the size of the program at the same time that they reauthorize it.

Children remain "one of the most underinsured, underserved groups in the community," said Michael L. Segarra, MD, president of the AAP's New Jersey chapter.

Expansions halted

The threat of the CMS directive had forced a number of states to halt planned SCHIP expansions or rely on state funds alone to augment their programs, said Rachel Klein, deputy director of health policy for the advocacy group Families USA. Her organization supported the state lawsuits, which Klein agreed have been successful in keeping the federal directive at bay thus far.

But in the meantime, many states already offering coverage beyond 250% of the federal poverty level have yet to roll back these expansions. "That's an indication states are hopeful for quick action" to lift the limits in 2009, Klein said. Families USA has filed comments asking the Obama administration immediately to rescind the CMS directive.

Other states have legislation ready to move that would grow their uninsured programs under SCHIP in the coming year.

CMS spokesman Jeff Nelligan said the agency was pleased with the New Jersey federal court decision, which allows the administration "to move forward with its goal of placing the poor and uninsured first in line to receive health care."

Despite the enforcement delay on the directive, CMS has been working with states to get them in compliance voluntarily. By the time the new policy took effect, the agency was indicating that more than half of the roughly 17 affected states already may have been in line with the requirements.

Nelligan declined to say whether the agency eventually intends to enforce the rules.