Senate Report 108-78 - AVAILABILITY OF SCHIP ALLOTMENTS FOR FISCAL YEARS 1998 THROUGH 2001

[Senate Report 108-78]
[From the U.S. Government Publishing Office]

Calendar No. 166
108th Congress Report
SENATE
1st Session 108-78

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AVAILABILITY OF SCHIP ALLOTMENTS FOR FISCAL YEARS 1998 THROUGH 2001

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June 24, 2003.--Ordered to be printed

_______

Mr. Grassley, from the Committee on Finance, submitted the following

R E P O R T

[To accompany S. 312]

[Including cost estimate of the Congressional Budget Office]

The Committee on Finance, to which was referred the bill
(S. 312) to amend title XXI of the Social Security Act to
extend the availability of allotments for fiscal years 1998
through 2001 under the State Children's Health Insurance
Program (SCHIP), reports favorably thereon and recommends that
the bill do pass.

I. BACKGROUND

The Balanced Budget Act of 1997 (BBA 97; P.L. 105-33)
established the State Children's Health Insurance Program
(SCHIP) under a new Title XXI of the Social Security Act. In
general, this program gives States the option to provide health
insurance coverage to uninsured children in families with
income that is above Medicaid eligibility levels, but below 200
percent of the Federal poverty level. States may provide
coverage through Medicaid, create a new separate State program
that meets minimum benefit requirements, or employ a
combination of both approaches.
All 50 States, the District of Columbia, and the 5
territories operate SCHIP programs. As of December 2002, 21
States provided coverage through Medicaid, 20 states offered
coverage through separate State programs, and 15 States used a
combination approach. Approximately 4.6 million children were
enrolled in SCHIP during FY2001, the most recent year for which
data is available. More than 3.4 million children were served
in separate State programs, while 1.2 million were enrolled in
Medicaid expansions.
Like Medicaid, SCHIP is a Federal-State matching program.
While the Medicaid Federal medical assistance percentage (FMAP)
ranges from 50 percent to 76.62 percent in FY2003, the enhanced
SCHIP matching rate ranges from 65 percent to 83.63 percent
across States.
The BBA appropriated a total of $39.7 billion for SCHIP for
the period from fiscal year 1998 through fiscal year 2007.
Annual allotments among the States are determined by a formula
that is based on a combination of the number of low-income
children and low-income uninsured children in the State, and
includes a regional cost factor. Federal funds not drawn from a
State's allotment by the end of each fiscal year continue to be
available to that State for 2 additional fiscal years. SCHIP
law requires that allotments not used at the end of 3 years be
redistributed by the Secretary of Health and Human Services
(HHS) to States that have fully spent their original allotments
for that year. Redistributed funds which are not used by the
end of the fiscal year in which they are reallocated return to
the Treasury.
On September 30, 2002, unspent SCHIP funds from fiscal
years 1998 and 1999 expired and reverted to the U.S. Treasury.
Unspent funds from fiscal year 2000 are to be recovered from
States that did not use these funds by September 30, 2002 and
redistributed to States that fully spent their fiscal year 2000
allocations. Redistributed fiscal year 2000 funds that are not
used by September 30, 2003 will expire and revert to the
Treasury at that time.
Unspent funds are largely the result of timing conflicts
between the initial implementation of SCHIP and the period of
availability of the annual allotments. Funds from the early
years of the SCHIP program accumulated while States worked
through the start-up process and established functioning
programs. Now that State SCHIP programs are fully operational
and have enrolled millions of children, they are threatened
with the loss of funding necessary to keep those children
enrolled. The redistribution and retention of unspent funds
permitted under this bill will help States maintain enrollment
of children in SCHIP.

II. DESCRIPTION OF BILL

Section 1. Extension of availability of SCHIP allotments for fiscal
years 1998 through 2001

(a) Extending availability of SCHIP allotments for fiscal
years 1998 through 2001

CURRENT LAW

Funds for the State Children's Health Insurance Program
(SCHIP) are authorized to be appropriated for FY1998 through
FY2007. From each year's appropriation, each State is allotted
an amount determined by a formula set in law. Federal funds not
drawn from a State's allotment by the end of each fiscal year
continue to be available to that State for 2 additional fiscal
years. For example, FY2003 allotments are available until the
end of FY2005. SCHIP law requires that allotments not used at
the end of 3 years be redistributed by the Secretary of Health
and Human Services (HHS) to States that have fully spent their
original allotments for that year. Redistributed funds which
are not used by the end of the fiscal year in which they are
reallocated return to the Treasury.
The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA 2000), created a special rule for
the redistribution and availability of unused FY1998 and FY1999
SCHIP allotments. This special rule decreased the amount
available for redistribution to States that had used all of
their original allotments for these 2 years and allowed States
that had not spent all of their allotments to retain some of
their unspent funds.
States that did fully expend their SCHIP allotments for
each of those years by the 3-year deadline received an amount
equal to spending in excess of their original exhausted
allotment. Each territory that used its original allotment for
each of those years by the 3-year deadline received an amount
equal to 1.05 percent of the total amount available for
redistribution to all States and territories multiplied by that
territory's proportion of the allotments available for all
territories.
States that did not fully expend their SCHIP allotments by
the 3-year deadline retained from remaining unspent funds an
amount equal to their proportional contribution to the total
pool of unspent funds. These States were able to use up to 10
percent of the retained FY1998 funds for outreach activities.
To calculate the amounts available for redistribution and
retention in each formula described above, the Secretary used
expenditures reported by States not later than December 15,
2000 for the FY1998 reallocation, and November 30, 2001 for the
FY1999 reallocation. Redistributed and retained funds from
FY1998 and FY1999 were available through the end of FY2002. Not
all States used their redistributed 1998 and 1999 funds.
On March 27, 2003, CMS published an interim policy for a
partial redistribution of unused FY2000 allotments (available
for redistribution after September 30, 2002). CMS intends to
issue a final redistribution methodology (as determined by the
Secretary) in the Federal Register by June 30, 2003 unless
Congress passes legislation for the redistribution of unspent
FY2000 allotments.

COMMITTEE PROVISION

The Committee's bill would extend the availability of
FY1998 and FY1999 reallocated funds through the end of FY2004
and would establish a new method for redistributing unspent
allotments for FY2000 and for FY2001. This new method is a
modified version of the special redistribution rules for
unspent FY1998 and FY1999 allotments.
For each of FY2000 and FY2001, no more than 50 percent of
the total amount of unspent funds would be available for
redistribution to States, commonwealths, and territories that
exhausted their SCHIP allotments for each of those years by the
applicable 3-year deadline. Subject to this ceiling, each such
State would receive an amount equal to 50 percent of the total
amount of unspent funds for each of those years minus amounts
redistributed to the territories, multiplied by the ratio of
such State's spending by the applicable 3-year deadline in
excess of such State's original exhausted allotment for each of
those years, to total spending by the applicable 3-year
deadline for all States that exhausted their SCHIP allotments
for each of those years in excess of all such State's original
exhausted allotments for each of those years. Each territory
would receive an amount equal to 1.05 percent of the total
amount available for redistribution for each of those years
multiplied by that territory's proportion of the original
allotment available for all territories.
The Committee's bill would make redistributed funds from
the FY2000 reallocation available through the end of FY2004.
Redistributed funds from the reallocations for FY2001 would be
available through the end of fiscal year 2005.
For each of FY2000 and FY2001, the amount available for
retention among those States that did not fully expend their
SCHIP allotments by the applicable 3-year deadline would be
equal to 50 percent of such State's unspent funds for each of
those years.
The Committee's bill would make retained funds for such
jurisdictions from the FY2000 reallocation available through
the end of FY2004. Retained funds from the reallocation for
FY2001 would be available through the end of FY2005.
Similar to current law for FY1998 and FY1999, to calculate
the amounts available for reallocation for FY2000 and FY2001,
the Secretary would use expenditures reported by States not
later than November 30 of the applicable calendar year.

REASON FOR CHANGE

Under current law, a total of $2.7 billion in SCHIP funds
either expired September 30, 2002 or are projected to expire on
September 30, 2003. These unspent funds are largely the result
of timing conflicts between the initial implementation of SCHIP
and the period of availability of the annual allotments. Funds
from the early years of the SCHIP program accumulated while
States worked through the start-up process and established
functioning programs. Now that State SCHIP programs are fully
operational and have enrolled more than 5 million children,
they are threatened with the loss of funding necessary to keep
those children enrolled.
This provision would prevent $2.7 billion in unspent SCHIP
funds from reverting to the Treasury and will help States to
avert the projected national enrollment decline resulting from
the decrease in SCHIP allotments.

EFFECTIVE DATE

This subsection, and the amendments made by this
subsection, shall be effective as if this subsection had been
enacted on September 30, 2002, and amendments under Title XXI
of the Social Security Act for fiscal years 1998 through 2000
are available for expenditure on and after October 1, 2002,
under the amendments made by this subsection as if this
subsection had been enacted on September 30, 2002.
(b) Authority for qualifying States to use certain funds
for Medicaid expenditures

CURRENT LAW

No provision.

COMMITTEE PROVISION

For FY1998, FY1999, FY2000 and FY2001, the Committee's bill
would allow ``qualifying States'' to use up to 20 percent of
their original SCHIP allotment or their reallocated funds (for
that fiscal year) for certain Medicaid medical assistance
payments. Qualifying States would be eligible to receive,
subject to availability of their SCHIP allotment or reallocated
funds for the year, an amount equal to the difference between
the enhanced SCHIP matching rate and the FMAP for Medicaid
expenditures (in a given fiscal year) associated with children
through age 18 with family incomes greater than 150 percent of
the Federal poverty level (FPL). Use of these funds for
expenditures incurred under an approved Section 1115 waiver in
the qualifying State would not impact the budget neutrality
agreement for such States. For example, they may not be counted
as an offset to ensure that the predicted ``with waiver'' costs
do not exceed the ``without waiver'' costs as required by the
budget neutrality agreement.
For a given fiscal year, ``qualifying States'' would
include those who: (1) as of April 15, 1997, or under a Section
1115 waiver implemented on January 1, 1994, had a Medicaid
income eligibility standard for at least one category of
children (excluding infants) of at least 185 percent FPL; and
(2) as of January 1, 2001 had a SCHIP eligibility standard of
at least 200 percent FPL, or greater than 200 percent FPL if
under a Section 1115 waiver targeted at uninsured children; (3)
did not impose waiting lists or enrollment caps for children
whose family income is at least 200 percent FPL; (4) provide
statewide SCHIP coverage to all children who meet such State's
income and other eligibility requirements; and (5) have
implemented at least three of the following procedures for
establishing children's eligibility for their Medicaid and
SCHIP programs: (a) use the same uniform, simplified
application form; (b) do not apply asset tests; (c) adopt 12-
month continuous enrollment; (d) use same forms, verification
policies, and frequency for initial eligibility determinations
and eligibility redeterminations; and/or (e) initial
eligibility determinations can be made by disproportionate
share hospital (DSH) facilities as well as federally qualified
health centers.

REASON FOR CHANGE

In order for States to access their SCHIP allotments,
current law requires States to expand income eligibility levels
above the levels in effect under Medicaid on March 31, 1997.
SCHIP funds may not be used to pay for children already
eligible for Medicaid as of this date.
A small number of States have been unable to access a large
portion of their SCHIP allotments because their Medicaid
eligibility levels were significantly above the Federal
mandatory minimum levels for Medicaid when SCHIP was enacted.
This provision would allow those States to use a limited amount
of their SCHIP allocation to cover the costs of certain
children who were already enrolled in Medicaid when SCHIP was
enacted, provided that the States meet a number of criteria
related to eligibility simplification and enrollment.

EFFECTIVE DATE

Effective upon enactment of this act.

III. REGULATORY IMPACT STATEMENT AND RELATED MATTERS

Regulatory Impact

In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact of the bill as
amended.

IMPACT ON INDIVIDUALS AND BUSINESSES

Section 1(a) extends the availability of SCHIP allotments
for fiscal years 1998 through 2001 and Section 1(b) provides
authority for qualifying States to use certain funds for
Medicaid expenditures. Because these provisions merely enable
States to spend funds previously allocated to them, they do not
impose any additional paperwork or regulatory burdens on
individuals or businesses.

IMPACT ON PERSONAL PRIVACY

The Committee bill permits States to spend SCHIP funds
previously allotted to them. Because the bill does not change
any existing rules related to the health insurance coverage
provided by States through Medicaid or SCHIP, it has no new
impact on personal privacy.

IV. BUDGET EFFECTS

U.S. Congress,
Congressional Budget Office,
Washington, DC, June 23, 2003.
Hon. Charles E. Grassley,
Chairman, Committee on Finance,
U.S. Senate,
Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 312, a bill to amend
title XXI of the Social Security Act to extend the availability
of allotments for fiscal years 1998 through 2001 under the
State Children's Health Insurance Program.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Eric
Rollins and Jeanne De Sa.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.

S. 312--A bill to amend title XXI of the Social Security Act to extend
the availability of allotments for fiscal years 1998 through
2001 under the State Children's Health Insurance Program

Summary: S. 312 would make several changes to the
availability of allotments for the State Children's Health
Insurance Program (SCHIP). The bill would make allotments for
fiscal years 1998 through 2001 available for a longer period of
time and change the way that they are allocated among states.
The bill also would allow certain states to spend a portion of
these allotments on children enrolled in Medicaid.
CBO estimates that S. 312 would increase direct spending by
$85 million in 2003, $85 million in 2004, and $975 million over
the 2003-2013 period. The bill would increase spending in the
SCHIP program by almost $1.8 billion over the 2003-2013 period
by giving states more time to spend their SCHIP funds. By
making more SCHIP funds available, the bill also would reduce
the extent to which states would see Medicaid funds to offset
shortfalls in SCHIP funding. As a result, CBO estimates that
enacting the bill would reduce Medicaid outlays by $790 million
over the 2003-2013 period. On balance, enacting the bill would
increase direct spending by just under $1 billion over the
2003-2013 period.
S. 312 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
The bill would give states more time to spend unused SCHIP
funds from their allotments for the fiscal years 1998 through
2001. Certain states also would be able to use some of those
funds on behalf of children in Medicaid with family incomes
above 150 percent of the federal poverty level. CBO estimates
that state spending for SCHIP would increase by about $690
million over the 2003-3013 period, and state spending for
Medicaid would decline by about $750 million over the same
period.
Estimated cost to the Federal Government: The estimated
impact of S. 312 is shown in the following table. The costs of
this legislation fall within budget function 550 (health).
CBO's estimate assumes that S. 312 would be enacted before
August 1, 2003.

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By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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DIRECT SPENDING

SCHIP spending under current law:
Budget authority......................................... 3,175 3,175 4,082 4,082 5,040 5,040 5,040 5,040 5,040 5,040 5,040
Estimated outlays........................................ 4,518 4,885 4,721 4,689 5,024 5,203 5,186 5,340 5,446 5,465 5,443
Proposed changes:
SCHIP:
Estimated budget authority........................... 1,259 1,350 5 0 0 0 0 0 0 0 0
Estimated outlays.................................... 85 105 455 590 210 65 45 10 5 80 115
Medicaid \1\:
Estimated budget authority........................... 0 -20 -215 -290 -105 -35 -25 -5 0 -40 -55
Estimated outlays.................................... 0 -20 -215 -290 -105 -35 -25 -5 0 -40 -55
SCHIP spending under S. 312 \1\:
Estimated budget authority............................... 4,434 4,525 4,087 4,082 5,040 5,040 5,040 5,040 5,040 5,040 5,040
Estimated outlays........................................ 4,603 4,990 5,176 5,279 5,234 5,268 5,231 5,350 5,451 5,545 5,558
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\1\ The figures for SCHIP spending under S. 312 do not include the bill's effects on Medicaid spending.

Basis of estimate: The State Children's Health Insurance
Program provides federal matching funds to states to provide
health coverage to certain children--generally in families with
incomes below 200 percent of the federal poverty level--who do
not qualify for Medicaid and do not have private health
coverage. States may provide this coverage by expanding their
Medicaid programs, setting up a separate program, or a
combination of the two. SCHIP began operation in 1998 and is
authorized through 2007. CBO's baseline for later years follows
statutory rules and assumes funding at the 2007 level.
(Specifically, section 257 of the Balanced Budget and Emergency
Deficit Control Act requires that the baseline assume the
Balanced Budget and Emergency Deficit Control Act requires that
the baseline assume the continuation of certain expiring
programs at the level ``in effect immediately before its
expiration.'')

Availability of SCHIP funds under current law

SCHIP gives each state an annual allotment that limits the
amount of federal matching funds that the state can receive.
States have three years to spend their allotments. At the end
of the third year, the Secretary of Health and Human Services
takes any unspent amounts and redistributes them to states that
have spent their entire allotment. These redistributed funds
are available for an additional year. After that, any unspent
allotments expire.
The Congress enacted special rules for the 1998 and 1999
allotments as part of the Benefits Improvement and Protection
Act of 2000 (BIPA). BIPA reduced the amount of unspent 1998 and
1999 funds that were redistributed to states that had spent
their entire allotments, and allowed states that did not spend
all of their funds within the three-year period to keep a
portion of their allotments. BIPA also extended the
availability of all funds from the 1998 and 1999 allotments
through 2002.

Availability of SCHIP funds under S. 312

S. 312 would change the availability of SCHIP allotments
for fiscal years 1998 through 2001 in a number of ways. First,
the bill would extend the availability of the 1998 and 1999
allotments through 2004. The allocation of those funds across
states would not be affected.
For the 2000 and 2001 allotments, the bill would allow
states that do not spend their entire allotment within the
three-year period to keep half of the unspent amounts. The
other half would be redistributed to states that have spent
their entire allotments. S. 312 would extend the availability
of all funds from the 2000 allotments through 2004 and the
availability of all funds from the 2001 allotments through
2005.
The bill also would allow certain states to spend up to 20
percent of their allotments for 1998 through 2001 on children
who are enrolled in Medicaid and have family incomes greater
than 150 percent of the federal poverty level. States could use
these amounts to claim the additional matching funds that they
would have received if these children were enrolled in SCHIP
instead of Medicaid and thus reduce the state share of Medicaid
spending. (The average federal match rate is 70 percent in
SCHIP, compared to 57 percent in Medicaid.)

How CBO models SCHIP spending

CBO's primary focus in its baseline projections and
estimates for legislation in SCHIP spending at the national
level. Nevertheless, the program's complex financing
structure--and its redistribution of unspent funds in
particular--make it essential to account for variation in
spending across states. Therefore, CBO models SCHIP spending by
state using a blend of state-specific and national data. These
projections are meant to reflect the program's complexity given
the limits of available data rather than provide precise
spending estimates for each state.
Our model incorporates the allotments for each state that
are published annually in the Federal Register and data on
SCHIP spending from the Centers for Medicare and Medicaid
Services (CMS). Spending data for prior years includes detail
by state on the amounts spent from each allotment. For future
years, CBO projects each state's allotment based on its share
of total SCHIP allotments for the most recent year. (Total
funding for the SCHIP allotments varies from year to year.) Our
estimate of spending in 2003 and 2004 is based on estimates
that the states have submitted to CMS. We project spending in
later years by taking the 2004 amounts and adjusting them for
population growth, inflation, and increased utilization. These
adjustments are based on national averages and do not vary by
state.
The spending projection described above approximates what
SCHIP spending would be if funding for the program were open-
ended, as in Medicaid. Since SCHIP funding is limited, CBO
projects spending by limiting expenditures in each state to the
amounts available from the allotments and any redistribution of
unspent funds.
Since SCHIP allotments are available for three years,
states typically have allotments from several years available
at any one time. For example, this year a state could have
funds from the 2001, 2002, and 2003 allotments available.
(States that qualify for a redistribution also would have funds
from the 2000 allotment available.) In line with CMS
regulations, CBO assumes that states will spend their
allotments in order--they will spend their 2001 allotment
before spending any of their 2002 allotments, and so on.
Redistributed funds are the only exception to this rule; CMS
gave states some flexibility in spending redistributions from
the 1998 and 1999 allotments, and CBO assumes that they would
do so for future redistributions.
CMS has not announced how it will allocate unspent funds
among states that qualify for a redistribution. Redistributions
from the 1998 and 1999 allotments (the only ones that have
happened so far) were based on the special rules enacted in
BIPA. We assume that unspent funds will be redistributed among
qualifying states based on their original allotment for that
year.
As noted above, SCHIP spending in some states will be
restricted by the availability of allotments. This will be
increasingly prevalent after 2007, when CBO's baseline holds
SCHIP funding constant at the 2007 level. In these cases, CBO
assumes that states will offset some of the funding shortfall
by expanding Medicaid eligibility. Doing so will allow states
to receive additional matching funds, albeit at a lower match
rate. We assume that higher Medicaid spending would offset the
full amount of any shortfall in SCHIP programs that were
implemented as Medicaid expansions (about 20 percent of total
spending) because children in those programs are entitled to
Medicaid if SCHIP funding is unavailable. CBO also assumes that
half of any shortfall where SCHIP was implemented as a separate
program (and children are not automatically entitled to
Medicaid) would be offset by higher Medicaid spending.

Budgetary effects of S. 312

The provisions of S. 312 would increase the amount of
budget authority in SCHIP by extending the availability of some
allotments that would otherwise expire under current law. CBO
estimates that the increases under the bill would total $1.3
billion in 2003, $1.4 billion in 2004, and $5 million in 2005.
CBO estimates that enacting S. 312 would increase SCHIP
outlays by $85 million in 2003, $105 million in 2004, and $1.8
billion over the 2003-2013 period. Most of the additional
outlays in 2003 and 2004 would occur in states that under the
bill would be able to spend some of their allotments on
children enrolled in Medicaid.
The additional spending for most states would occur
primarily in 2005, 2006, and 2007. Spending in earlier years
would not be affected by the bill because states generally have
sufficient allotments under current law to fund their programs
in those years. However, the bill would let states fund their
spending in those years by drawing more heavily on older
allotments, such as those for 1998 and 1999. This would allow
states to conserve their newer allotments and would lead to
additional spending after 2004, when more states would
experience funding shortfalls under current law.
By making allotments available for a longer period of time,
S. 312 would lessen funding shortfalls in SCHIP and reduce
states' use of Medicaid funding to offset them. In total, CBO
estimates that the bill would reduce Medicaid spending by $20
million in 2004 and $790 million over the 2004-2013 period.
Savings in 2003 and 2004 would be relatively small because much
of the additional SCHIP spending in those years would be due to
states claiming additional matching funds on children enrolled
in Medicaid rather than a reduction in funding shortfalls.
Intergovernmental and private-sector impact: S. 312
contains no intergovernmental or private-sector mandates as
defined in UMRA. The bill would give states more time to spend
unused SCHIP funds from their allotments for fiscal years 1998
through 2001. Certain states also would be able to use some of
those funds on behalf of children in Medicaid with family
incomes above 150 percent of the federal poverty level. CBO
estimates that state spending for SCHIP would increase by about
$690 million over the 2003-2013 period, and state spending for
Medicaid would decline by about $750 million over the same
period.
Estimate prepared by: Federal costs: Eric Rollins and
Jeanne De Sa; impact on state, local, and tribal governments:
Leo Lex; impact on the private sector: Kate Bloniarz.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.

V. VOTE OF THE COMMITTEE

On June 12, 2003, a substitute for S. 312, entitled,
``Availability of SCHIP Allotments for Fiscal Years 1998
through 2001,'' was ordered favorably reported by a voice vote
with a quorum present.
No amendments were offered.

VI. CHANGES IN EXISTING LAW

In the opinion of the Committee, it is necessary in order
to expedite the business of the Senate, to dispense with the
requirements of paragraph 12 of rule XXVI of the Standing Rules
of the Senate (relating to the showing of changes in existing
law made by the bill as reported by the Committee).