By John Reichard, CQ HealthBeat Editor
February 1, 2007 -- The multiple challenges that must be met to maintain current levels of enrollment in the State Children's Health Insurance Program (SCHIP) dominated the attention of the Senate Finance Committee Thursday, with only muted discussion of expanding the program at a hearing on its reauthorization.
Chairman Max Baucus, D-Mont., saluted the cause of increasing coverage in his opening remarks. But evidence that the panel is busy figuring out how to come up with the dollars was not apparent at the hearing.
"Today, three out of four of our nation's nine million uninsured children are eligible for either SCHIP or Medicaid," he said. "But they are not enrolled. We must do a better job of covering all eligible children."
A committee aide said it would be premature to draw conclusions based on the hearing about the prospects of funding for much wider coverage. But the panel's top Republican, Charles E. Grassley of Iowa, spoke of the importance of managing expectations for reauthorization.
"A critical part of this discussion needs to be about how we are going to pay for the existing services before we can discuss expanding services," Grassley said in his opening statement. "I hope that we can effectively manage expectations about what we can do through this SCHIP reauthorization."
The challenges of simply maintaining SCHIP's current enrollment of six million are many. Baucus noted that over the next five years, the program will need an additional $12 billion to $15 billion to maintain services for those now receiving coverage. That's on top of the current rate of spending of $5 billion a year. In other words, running the program in the next five years will cost $7 billion to $8 billion a year, an increase needed to make up for rising health costs. But it appears that under budget rules that will be followed by Congress this year, lawmakers will have to find funds for the added costs of the program, meaning it would have to raise taxes or cut spending elsewhere or a combination of both to come up with $12 billion to $15 billion over five years.
Congress also has to come up with the cash to keep a number of SCHIP programs from running out of money this fiscal year. Although lawmakers redirected $271 million of SCHIP money late last year to states facing shortfalls, 14 states won't have enough money to keep their programs going unless Congress acts.
Georgia Republican Gov. Sonny Perdue pressed the case most forcefully, saying his state's program, the nation's fourth largest with 273,000 enrollees, will run out of federal money in March. "Georgia stands ready to meet its obligation to this program, but we cannot go it alone," he testified.
A Grassley aide estimated that the federal cost of preventing the shortfall and ensuring enough funds this year for temporary Medicaid coverage for people leaving welfare would cost $500 million.
Perdue and other witnesses noted a variety of difficulties created by the current funding formula. Testifying on behalf of the Southern Governors' Association, Perdue said a "state cost factor" used in calculating state allotments of SCHIP money penalizes his part of the country. The factor is based on annual wages for the health care industry for each state and is intended as a proxy for health care costs generally. But Perdue said there is little correlation between the factor and overall health care costs in low-wage states and it unfairly reduces their allotments.
Two other factors used in calculating allotments also are flawed, he said. The formula estimates allotment needs by counting low-income children in a state as well as the number of uninsured low-income children, he said. But those estimates do not keep pace with population growth in fast-growing states such as Georgia, he said. The more states cover kids, the less money they get the following year, he said. "How can we keep these children insured if we are penalized for insuring them?" Perdue asked.
Anita Smith, who heads Iowa's SCHIP program, also said the funding formula is flawed because it lacks an inflation factor to adjust for "ever-increasing health care costs." She said it also penalizes states such as Iowa that used SCHIP money to create a separate children's coverage program rather than expanding Medicaid coverage. Medicaid-expansion states can use Medicaid money to help fund their programs when SCHIP money runs out, but other states with a separate SCHIP program cannot, she said.
Kathryn G. Allen of the Government Accountability Office noted that in the earlier years of SCHIP, states that insured many children and spent their allotments were able to tap into unspent allocations of states that covered fewer kids. But "as spending has grown, the pool of funds available for redistribution has shrunk," she noted.
States that have spent their allotments are more likely to have a Medicaid component to their SCHIP programs, to cover children across a broader range of income groups and to cover adults in their programs, Allen testified.
Senators were critical of the use of SCHIP money to cover adults. The program covers a total of 639,000 adults. Some states cover parents of children in the program, pregnant women, and childless adults with low incomes.
Cindy Mann, executive director of the Georgetown University Center for Children and Families, said some states have covered adults because they were precluded from using SCHIP allotments to pay for existing programs they had to cover uninsured children when SCHIP was created. Existing SCHIP law allowed them to extend coverage to adults if there were no other uninsured kids on which they were permitted to spend funding. "Coverage for pregnant women and parents promotes children's health and well-being in a number of different ways," she said.
But Grassley said "the 'C' stands for children, and there is no letter 'A' in SCHIP." The senators' criticism suggested the possibility that they would seek to end the enrollment of more adults in the future. But achieving savings by ending coverage of adults now in the program could be politically difficult.
In her testimony, Mann sought to focus attention on the importance of expanding the program. "The single most important step that can be taken to lower the uninsured rate among children is to enroll the children eligible under current program rules," she testified.
"We can get health care to more kids who need it," Baucus said in a statement after the hearing. "We're going to need more money . . . and we need to move fast to find it to keep kids from losing coverage this year." Baucus said his goal is to complete legislation reauthorizing SCHIP and to address the funding shortfall by May. But whether the kind of money will be available to do what Mann is talking about is iffy. A committee aide estimated that the cost of continuing coverage at existing enrollment levels and of adding the six million children who are eligible for SCHIP and Medicaid but not enrolled would cost $60 billion to $75 billion over five years.
Whether the White House and Democratic leaders want to spend that kind of money will become more apparent over the next several weeks when the White House releases its budget proposal and Congress begins trying to assemble a fiscal 2008 budget resolution.