Wiley Lauerman
Published on February 20, 2018
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CHIP: A Case Study in Congressional Negligence

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By: Wiley Lauerman

Studying the history of CHIP provides a lesson in the intersection of health economics, policy and political gamesmanship.

2017 was a year of bizarre headlines.  In retrospect it’s hard to imagine that Headline Bingo would be won with the combination “Crowd Size”, “Alt-Right”, “Kneeling During the Anthem”, “Rapid Turnover of Justice Department Personnel”, and “Rocket Man” (without the Elton John). No cow has been deemed sacred enough to spare, evident from the fact that the headline “Congress Funds Children’s Health Program After four-Month Delay” seems tame in comparison to the rest of the buffet. Considering the fact that the Children’s Health Insurance Program (CHIP) historically has had massive bipartisan support, having been a very effective way to ensure the health of future generations of Americans, this speaks volumes.  CHIP is a program that went from relative obscurity outside of the health policy realm to being the topic of late-night TV hosts monologues, because of its proximity to congressional controversies surrounding recent tax and immigration reform.  CHIP is run in partnership by the federal and state governments, and it provides health coverage for kids in families that make too much to qualify for Medicaid but do not get coverage through a parents employer or cannot afford private coverage.  Studying the history of CHIP provides a lesson in the intersection of health economics, policy and political gamesmanship.

CHIP is the product of over 100 years of policy and agency initiatives aimed at improving the welfare of children.  In 1912, President Taft created the Children’s Bureau to address a range of issues from infant mortality, child labor, orphanages and foster care.  Then in 1935, as part of the Social Security Act of 1935, the Bureau oversaw the transfer of funds to the states to provide health services to disabled children and to mothers who require maternal health services in areas of high unemployment as a result of the Great Depression.  President Johnson signed the Social Security Amendments of 1965, officially creating Medicare to provide care to the elderly and disabled and Medicaid to cover low-income people.  Over the next 30 years, Medicaid eligibility was extremely static.  Financial thresholds for eligibility fluctuated and states varied in the populations and services they would cover.  It took a particularly odd pair of senators, Senator Orrin Hatch of Utah and Senator Ted Kennedy of Massachusetts, to write legislation and lobby on its behalf before CHIP, then SCHIP (State Children’s Health Insurance Program), was signed into law in 1997.  It created a jointly state and federally funded program that would provide coverage to children whose family income was too high to qualify for Medicaid but too low to afford private insurance coverage.  Each state would be assigned a certain amount they could spend on CHIP, with the state and federal government splitting the cost based on state population and median income.  Other than a President Bush veto in 2007, CHIP has been reauthorized and praised in a relatively bipartisan fashion in the 20 years since its creation, and has resulted in historically low uninsured rates of 4.5% among children in 2016.

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Figure 1 Uninsured Rate in Children Since CHIP Created in 1997

In 2016, CHIP provided health coverage to 8.9 million children and maternity coverage for roughly 370,000 mothers.  The eligibility floor across the country is 200% of the federal poverty level (FPL), which is currently $49,200 for a family of four.  States can expand eligibility up to 300% FPL ($73,800 for a family of four), and thereby receive increased federal funding.  In fact, if states expanded their CHIP programs to 300% FPL through the Affordable Care Act (ACA) Medicaid expansion, the federal government pays for 100% of the expansion, but that rate expired in 2017.  The average eligibility across all the states is 255% FPL, and the government pays anywhere from 62% to 85% of the shared bill.  Certain states and politicians argue that they cannot afford to expand Medicaid and CHIP programs beyond the 200% FPL, when in reality the population of children covered by the expansion is comparatively minuscule.  89% of children covered through CHIP are in families at or below 200% FPL, and roughly 9% are between 200%-250% FPL.  This leaves roughly 3% above 250% FPL.  This program covers the poorest population of children who do not qualify for Medicaid, whose parents may not get coverage through their employer, or have no access to affordable private insurance.

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Figure 2 Child Enrollment in CHIP-Financed Coverage, by Family Income
as a Percentage of FPL, 2013

CHIP expired on September 30, 2017 after last being authorized in 2015 through the Medicare Access and CHIP Reauthorization of 2015.  After its expiration, six states predicted they would exhaust all possible CHIP funding before the end of the year or by early January, with 37 saying they would last until possibly March.  The federal government maintains a contingency fund in case states run low on money, but government and private officials predicted the fund would last two months at most.  Making matters worse is the fact that some states automatically shut down their programs if certain threshold floors are met, such as federal matching rates or their total allotment.  This is because the physical act of shutting down CHIP at the state level is quite expensive.  They need to either decrease the services they cover, lower their income eligibility threshold, shutdown enrollment all together or some combination of the three.  All would require sending out adequate notification to all enrollees and providers, which can be taxing on a state budget given they are not legally allowed to operate at a deficit.  They are not allowed to plan on spending more than they plan on having.  Lastly, Medicaid, CHIP, and emergency contingency funds are extremely sensitive to external factors, and can be depleted quickly by events like natural disasters, such as the ones seen in Texas, Florida, California and Puerto Rico in the past year.  The situation got so dire that one state completely shut down new enrollment in late December, and others planned on following suit in January and February.

The recent legislative process to reauthorize CHIP caused public outcry not usually seen in non-partisan programs.  The Senate submitted their reauthorization plan on September 18th, a bipartisan bill coauthored by the Chairman and Ranking Member of the Finance committee, Senator Hatch (R), one of the programs original sponsors, and Senator Wyden (D).  The House countered with their bill, submitted by a Republican, on October 3rd.  Both plans were estimated to cost the same amount over 10 years, but the House bill contained multiple offsets that were essentially nonstarters for Democrats.  Among them were altering what is called Medicaid third-party-liability and increasing Medicare premiums for high-income beneficiaries.   Medicaid is usually billed after any other insurance a person may have in order to avoid paying for services they may not have to, with the exception of prenatal care to ensure that mothers maintain a continuity of care.  The House bill repealed that, and would allow Medicaid to withhold payment for 90 days as long as it “does not affect quality of care”.  It adds ambiguity to the law, the same way that the GOP said their ACA repeal plans would provide access to “adequate and affordable” care, without saying explicitly what that is.  The bill also increased premiums for high-income Medicare beneficiaries, which are already determined in part by income.  Increasing these premiums more would alter the uniform nature of Medicare, and could lead to high-income people leaving Medicare altogether, leaving a poorer and costlier risk pool in its wake.  All this to say, it became clear that CHIP authorization was going to be led by the Senate Finance committee, and one of the fathers of the program, Senator Orrin Hatch.  However, CHIP was put on the legislative “back-burner” in favor of the GOP tax plan, which completely changed the conversation around reauthorization.  The match for the explosion was repealing the individual mandate.  The ensuing comotion was brought to you by the Congressional Budget Office (CBO).

Before the individual mandate was repealed, the CBO scored the senate bill at $8 billion over 10 years.  Repealing the mandate will lead to healthy people leaving the individual market because they will not have to have insurance anymore, leaving those with the highest health costs in the risk pool, thereby raising the cost of coverage.  This has a direct impact on CHIP projections.  If CHIP was not reauthorized, those families would turn to the individual market for coverage.  The government provides financial assistance to help pay for coverage in the market for those who make too much to qualify for Medicaid.  And those costs would be substantially higher relative to simply reauthorizing CHIP.  Put more simply, by making the individual market more expensive than CHIP, this made reauthorizing CHIP cheaper.  The CBO put out a new estimate and said the program would only cost $800 million over 10 years.  Even more, they estimated that extending the program for 10 years instead of just five would save the federal government $6 billion dollars.  Activists and politicians took this and demanded that the bill be put on the floor as a standalone bill, and it was hard for fiscal conservatives to denounce a plan that provides children coverage at that price, and could even save the government money.  But no debates or votes were held in the Senate.  Instead, it was seemingly held as a bargaining chip for future legislation.

CHIP was engulfed in controversy because it was placed in a must-pass spending bill that Democrats refused to vote for without protection for certain undocumented immigrants (DACA), resulting in a government shutdown.  It was then placed in a continuing resolution, prompting the GOP to paint the Democrats as putting undocumented immigrants above children.  The program was finally reauthorized for six years as part of that continuing resolution, ending the shutdown on January 22nd.

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Figure 3 The Public’s Priorities for President Trump and Congress

One can question the morality of involving political gamesmanship in discussions on children’s healthcare, especially when CHIP reauthorization could have passed as a bipartisan stand-alone bill at any time before its September 30th expiration.  The last reauthorization in 2015 passed with 92 votes in the Senate and 392 votes in the House (out of 435 members).  Instead, the House passed a bill that would never pass the Senate, and the Senate Majority Leader never brought a bill to the floor for debate or a vote.  Rather than allowing a vote on a bill that would have passed with nearly universal bipartisan support, the GOP allowed the program to expire and subjected the families enrolled in CHIP to fear that they may lose coverage for their children.  This was unnecessary and negligent.  In a poll that came out in November, 88% of respondents believed that reauthorizing CHIP should be President Trump and Congress’ “top priority” or “important”.  Senator Lindsey Graham recently said, in reference to DACA, “How could you take an 80% issue and screw it up?”  Politics is a lot of tactical maneuvering, give and take, and the utilization of leverage to achieve legislative victories.  There are many issues that for a variety of reasons will not be agreed upon and will be used as tools to advance or impede ideological agendas.  Up until this point, it was nice to not have children’s health insurance be one of those tools, but welcome to 2018. Get those bingo cards ready!

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