Administration Backs Down on Enforcement of New SCHIP Rules

Published November 1, 2008

Congressional action on reforming the State Children’s Health Insurance Program (SCHIP) is on hold until 2009, analysts say, and one reform that had been decided on has been scuttled.

The administration had issued a directive aimed at 15 states that had extended SCHIP eligibility beyond 250 percent of the federal poverty level (FPL). (See “SCHIP Rules Get Mixed Reviews in States,” Health Care News, August 2008.)

The directive restricted the states from enrolling children unless they were uninsured for at least a year and required the states to enroll most of their eligible children before expanding eligibility beyond 250 percent of FPL. The administration also was highly critical of states using SCHIP funds to cover childless adults.

On August 15, Bush administration officials reversed their decision to penalize states that did not comply with the new directive.

Inappropriately Covering Adults

“Legislators need to remember what the ‘C’ in SCHIP stands for—children,” said Jim Frogue, state project director at the Center for Health Transformation. “States are covering large amounts of adults, and now will continue expanding eligibility to higher-income children. We are leaving behind the low-income children who SCHIP was designed for; it’s a dereliction of duty.”

Democrats and the Bush administration engaged in a political tug-of-war over SCHIP last year, battling over how much to expand the program, with proposals of $50 billion, then $35 billion, and then finally agreement, by a 411-3 Congressional vote, to continue the program at its current funding levels through March 2009.

Both sides had vowed to continue their battle—the Democrats to expand the program, the Bush administration to reform it.

White House Backed Down

The Bush administration responded to Congress’s failed attempt to expand SCHIP by enacting newer, tougher rules governing the program. The White House directive would have punished states that used federal funds to expand SCHIP enrollment eligibility to include adults and children from middle-income families.

By backing down on the directive, the administration allowed the debate to turn back to square one, analysts say. “The Bush administration’s reversal demonstrates the triumph of politics over principle,” said Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

Democrats’ own spending rules now present a barrier to re-engagement on SCHIP expansion. When the Democrats took over Congress in 2007, they imposed a “pay-as-you-go” system wherein any new spending had to be offset by increasing government revenues. The SCHIP expansion plans hinge upon an increase in the current federal tax on cigarettes. The increase would be either 45 cents or 61 cents per pack, depending on the version of SCHIP expansion under discussion.

Financing ‘Up in Smoke’

“Do we really want to make SCHIP dependent on smoking for its revenue stream? We will need smokers, in order to promote health care,” Frogue noted.

A report by the nonpartisan Congressional Budget Office (CBO) on August 12 found the Democrats’ proposed offset would not be sufficient. The CBO estimated the plan’s shortfall at $4.2 billion over 10 years. Because of the continuous rise in health care costs, the proposed SCHIP expansion is projected to cost $45 billion over five years, instead of the estimated $35 billion it would have cost if enacted last year.

The proposed cigarette tax increase already had been challenged as an inadequate offset by The Heritage Foundation, which estimated 22 million new smokers would be needed to provide the necessary revenue.

“Financing SCHIP expansion went up in smoke,” Antos said.

2008 Action Unlikely

Senate and House leaders plan to adjourn the 110th Congress on September 26, and the only health-related legislation insiders expect to pass before then are mental health parity and health information technology bills. A “healthy start” bill may also be voted on.

Debating only these three health bills was certainly not the plan a few months ago. Policy insiders had suspected the Congressional leadership would revive the SCHIP debate in September in order to gain favorable press for Democrats and paint Republicans as against children. The increasing complications in financing an SCHIP expansion while adhering to the pay-go system have made that much less likely.

With energy taking center stage in recent weeks and the November 2008 presidential election just around the corner, analysts say it is unlikely Congress will seek to expand SCHIP coverage until a comprehensive reform debate next year.

James Gelfand ([email protected]) writes from Washington, DC.

For more information …

“SCHIP Rules Get Mixed Reviews in States,” Health Care News, August 1, 2008: