Congress Defers States’ Bid To Retain Child-Health Dollars

State governors saw their best hope for an immediate bailout of the federal health-insurance program for children dashed this month, when a lame-duck Congress failed to take up the issue before closing shop for the year.

With nearly $3 billion in federal funding on the line, the National Governors’ Association and other groups had urged Congress to pass a bill during the 2002 legislative session that would change the way federal money is distributed under the State Children’s Health Insurance Program, or SCHIP.

Eleventh-hour attempts by some legislators to heed that request failed in the face of objections from key appropriators. Lawmakers instead voted to continue funding the federal government at fiscal 2002 levels into January, leaving the fate of SCHIP and other health-policy issues for the next Congress. Republicans, who in this session controlled only the House, will be in charge of both chambers next year.

“It’s extremely disappointing that the [House] Republicans put holds on this,” said Jeffrey C. Viohl, Democratic Indiana Gov. Frank L. O’Bannon’s federal liaison at the NGA. Mr. O’Bannon’s state lost $100 million in federal SCHIP funds this year when it failed to meet a deadline for spending the money.

“I don’t know what this means for the long-term prognosis of this program,” Mr. Viohl said, “but it doesn’t look good.”

The urgency behind the governors’ push for congressional action on the insurance program this year was fueled by the fact that states had already lost $1.2 billion in federal aid that was distributed under SCHIP in 1998 and 1999, according to the Center on Budget and Policy Priorities, a Washington think tank. States were unable to spend the money quickly enough, so authorization for the funds expired on Sept. 30, the last day of fiscal 2002, and the money went back to the U.S. Treasury. Governors had hoped to recoup the loss with the help of Congress.

The center projects that another $1.6 billion may expire in fall 2003 unless the law changes. The Office of Management and Budget has projected that under the status quo, states will have to drop 900,000 children from their SCHIP programs over the next three years.

Back to the Treasury

Passed in 1997 as part of the Balanced Budget Act, the five-year, $40 billion SCHIP was a major expansion of the government’s role in health care. SCHIP provides health insurance for needy children who otherwise would not be covered. Enrollment was initially sluggish, as states implemented their programs and struggled to reach eligible families.

SCHIP has been more successful in recent years. Some 3.8 million children were receiving health benefits under the program in the second quarter of fiscal 2002—a increase of 22 percent over the enrollment in the same quarter in fiscal 2001, according to the federal Centers for Medicare & Medicaid Services. Just as SCHIP’s reach expands, though, its annual federal allocations are dropping.

In the program’s first four years, states received yearly allocations of $4 billion. Under the terms of the 1997 Balanced Budget Act, however, funding dropped by $1 billion, or 26 percent, in fiscal 2002 and remains at that reduced level through the 2004 spending year, according to the Center on Budget and Policy Priorities.

That “CHIP dip” means a cash crunch for state programs.

“It seems very counterintuitive,” said Edwin C. Park, a senior health policy analyst with the think tank. “The highest funding was upfront, before the program had really gotten off the ground, and then there’s a huge decrease [in funding] just as the program is now being fully implemented.”

Adding to the program’s budgetary woes is a provision that causes unspent money to revert to the federal government.

The states, which cover about 30 percent of the program’s cost, are required to spend their federal grants within three years. Money left over after that time is redistributed to states that have already spent their grants, and those states have one more year to spend the money. After that, any unspent dollars are returned to the federal government.

This was the first year money had to be sent back.

Hope for Next Year?

Congress had no shortage of proposed fixes.

The administration offered a solution with the president’s fiscal 2003 budget proposal that would save the federal grants that expired this year, as well as the money states expect to lose in 2003, and extend those funds through the end of fiscal 2006.

But the money would not be reshuffled to states facing shortfalls in their programs. The Center on Budget and Policy Priorities and the Children’s Defense Fund, a Washington-based advocacy group, say that provision of the administration’s plan would force needier states to drop some 200,000 children from the programs.

Those groups support a bill sponsored by Sens. John D. Rockefeller IV, D-W.Va., and Lincoln Chafee, R-R.I., that would also save the unspent SCHIP funds and give states more time to spend the money.

Unlike the White House proposal, however, the Senate plan would then create a “caseload stabilization pool” to collect unspent aid and redistribute it to states that developed shortfalls in future years. The plan would also provide extra money to make up for the three-year funding decrease to SCHIP.

The NGA deemed the Rockefeller-Chafee bill unworkable and backed a compromise—introduced in the House last week—that would save the nearly $3 billion in federal funding. States that lost the $1.2 billion at the end of fiscal 2002 would keep those funds. The $1.6 billion set to expire next September year would be divided into different pots: Half would remain in the states that lost it, and half would be reallocated to states that needed more money.