Washington, DC—The new State Children's Health Insurance Program (CHIP), has enough funding to provide health insurance to approximately 5.8 million children, according to a new study issued as part of the Assessing the New Federalism project of the Urban Institute. However, certain program features may limit states to insuring only 2.9 million children under the program.

CHIP was designed to provide health insurance to children without private health insurance or who are not receiving Medicaid. The program has approximately $20.3 billion in funding over the next five years. Over 10 million children in the U.S. currently lack health insurance.

The Children's Health Insurance Program: A Look at the Numbers, is one of an occasional series of papers published by Assessing the New Federalism, a multi-year Urban Institute project designed to analyze the shifting of responsibility for social programs from the federal to state governments. It was authored by Frank Ullman, Brian Bruen and John Holahan.

Approximately 10.6 million children under age 18 are uninsured in the United States based on 1994-95 data (see page 11 for state-by-state statistics on uninsured children)

• 7.5 million of these children are at 200 percent of the federal poverty line (FPL) or below, the income group CHIP is designed to reach.
• Of these, 4.5 million are eligible for Medicaid.
• Since Medicaid-eligible children are not eligible for CHIP, only 2.9 million children in families with incomes below 200 percent FPL are eligible for CHIP.
• The increased matching rate available under CHIP creates greater incentives for high-income states to expand coverage than low-income states. Low-income states, which tend to have the highest percentages of uninsured children, already had high federal matching rates under Medicaid. For them, the increased match from CHIP may not be sufficient to encourage large increases in coverage.
• CHIP is intended to target dollars to states with more uninsured children, but the result is to penalize those states that have had the greatest success in covering them. States that have had the greatest success covering uninsured children receive less funding under CHIP because the CHIP allocation formula makes smaller amounts of money available to states that already have broad coverage.

Eligibility issues make it difficult for states to spend all of the money available

• The average cost of coverage for CHIP-eligible children is estimated at $1,030 per child in 1998 (see pages 13 and 14). If all states draw down their full federal allotment of funds, 5.8 million children could be covered.
• Only 2.9 million uninsured children are eligible for CHIP. Even spending the federal maximum 10% of CHIP funds on administrative costs including outreach, states are likely to have difficulty using their full CHIP allotments.
• In addition, not all CHIP-eligible children will participate in the program. The Congressional Budget Office estimates that only 55 percent of eligible children will participate (page 15).
• The promotion of CHIP could bring additional Medicaid-eligible children onto the rolls. States will not receive higher matching funds for these children. As a result, some states have no incentive to increase outreach efforts.

States might cover more children than these estimates indicate

• States with expanded Medicaid income eligibility guidelines may choose to expand the income limit for CHIP above 200 percent of FPL. Within the policy guidelines, the authors estimate that such action could make approximately 300,000 additional children eligible for CHIP.
• States can expand the number of CHIP-eligible children by adopting liberal methodologies for evaluating income and assets. Because states set their own standards related to income and assets, they could disregard a substantial amount of family income in determining CHIP eligibility. The Health Care Financing Administration (HCFA) has indicated a willingness to allow states to do this.
• The number of children eligible for CHIP may expand if employers drop dependent coverage or if families drop employer coverage because CHIP is more attractive. The Congressional Budget Office estimates that 20 percent of children (1.1 million children) with some form of private coverage will enroll in CHIP despite rules against such "crowding out."
• Efforts to prevent crowding-out, such as high premiums and lengthy waiting periods, could result in lower participation rates and weaken the effort to reduce the number of uninsured children.

Policy alternatives are available

• CHIP was enacted to meet a real need—provide health insurance to low-income children. The federal funding available is adequate to meet much of this need.
• If the higher CHIP matching rate were available to those states that successfully enroll new children into either Medicaid or CHIP, states could adopt more effective outreach programs without fear of harming their budgets.
• By eliminating waiting periods or keeping them short and eliminating premiums or keeping them low, states may increase participation rates.

Program Overview

• The Children's Health Insurance Program will provide up to $20.3 billion in grants over the next five years to help states expand health insurance for low-income children.
• During the first three years, states receive annual allotments based on the number of low-income, uninsured children in the state. The allocation formula changes in year four to give greater weight to the number of low-income children in the state regardless of health insurance status.
• To obtain these federal funds, states must contribute matching funds. CHIP requires a smaller state match than Medicaid. The portion must states must put up to obtain federal funds varies from 16% to 35%.
• States can use CHIP funds to expand Medicaid, enroll uninsured children in separate plans, or try a combination of the two.
• The program covers children under 19 unless the state receives a waiver to cover parents, too.
• Eligibility is limited to families with incomes under 200% of the federal poverty line unless that state's Medicaid income limit for a particular group of children was already greater than 150% of the federal poverty line, in which case eligibility can go somewhat higher.

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