States Rob CHIP Dollars to Fill Budget Holes

Justin Haskins Heartland Institute
Published August 19, 2015

Consumer Power Report #469

In March 2010, while the details of the Affordable Care Act (ACA) were still being hammered out, Rep. Nancy Pelosi (D-CA) famously declared to a frustrated and bewildered American public, “But we have to pass the bill so that you can find out what is in it away from the fog of the controversy.”

Congress did pass Obamacare, and citizens and states have steadily been finding out what’s actually in the legislation ever since.

One of the recent “finds” is a provision that will shift to the national government a significant amount of the burden placed on states for the funding of the Children’s Health Insurance Program (CHIP).

CHIP, formerly called the State Children’s Health Insurance Program, was created as part of the Balanced Budget Act of 1997 to help states provide insurance for children in low-income households not eligible for Medicaid. According to the Centers for Medicare and Medicaid Services, an estimated 8.1 million children were enrolled in CHIP in fiscal year 2014.

To help offset the expected growing costs of Obamacare to the states, legislators included a provision in ACA that shifts all or nearly all of the CHIP burden to the national government, beginning this year. Sarah Ferris reports in The Hill that under ACA, states will not pay more than 12 percent of CHIP expenses, and 11 states plus Washington, DC will not contribute anything. In previous years, the national government’s contributions to CHIP amounted to 65 to 83 percent.

Shifting the CHIP burden to the national government could free up as much as $6 billion for states over two years. Special-interest groups and advocacy organizations say the increased funding should be used only to improve CHIP, but instead of expanding or shoring up CHIP programs, many states are choosing to use those dollars to help fill budget holes completely unrelated to health care.

According to a report by California Healthline, California is estimated to receive as much as $1.1 billion over the next two fiscal years from the national government for CHIP. Gov. Jerry Brown (D) has already proposed pulling $381 million of state funds from the CHIP program to pay for other programs’ expenses in his recent budget proposal.

In Kansas, Gov. Sam Brownback (R) is receiving significant criticism for his decision to transfer $17.6 million in federal CHIP funding to help cover the estimated $63 million needed to close the state’s budget shortfall.

Shannon Cotsoradis, president of Kansas Action for Children, says the federal dollars “could have been reinvested in Kansas children and their families,” according to the Kansas Health Institute.

“I think it’s troubling that Kansas kids continue to foot the bill for unsustainable tax cuts in our state,” said Cotsoradis.

Other states, such as Ohio, are using the federal CHIP funds to fix health-care-related programs. Ohio plans to use its funds to stop what would have been an estimated $100 million cut to Medicaid.

The decision to divert federal CHIP dollars from CHIP to other budget needs is just further proof of ACA’s flawed design. Governors and state legislators are using what seems to them to be a lotto-like influx of free cash to make it appear as though their budgets are more sound than they actually are, scoring big politically while the state’s budget situation quietly becomes more unsustainable. Eventually, the federal cash bonanza will stop, and when it does, states will be stuck trying to figure out a way to pay for CHIP and other state programs.

Now that Obamacare is the law of the land, this dangerous and irresponsible political game will likely lead to calls for further reimbursement cuts to doctors, a reduction in the quality of care, and eventually health care rationing.

It’s a never-ending, vicious cycle of irresponsible government action. The national government forces on the states programs they cannot afford. The national government then promises to temporarily help cover the costs, eventually pulling the funding and leaving the states without any way to make up for budget shortfalls. States are then forced to beg the national government for more money and regulations or to raise taxes. Either way, health care becomes more costly and the American people suffer as a result.

— Justin Haskins



Almost 950,000 new customers selected health coverage on outside of the open-enrollment period after they became eligible due to changes such as losing their employer-provided insurance or having a baby, according to a government report on the federal health insurance exchange.

With the new consumers who enrolled during the year due to changes in their circumstances, the Obama administration remains on track to meet its goal of 9.1 million to 9.9 million people who have paid for coverage through the insurance exchanges by the end of 2015.

“So far this year, nearly 950,000 people have gained the peace of mind that comes with access to coverage by taking advantage of a special enrollment period, providing us with further evidence that the Health Insurance Marketplace is working for America’s families,” said Kevin Counihan, CEO of the federal exchange known as, in a statement.

The number reflects consumers who selected plans between Feb. 23, 2015 and June 30, 2015 in the 37 states that rely on the federal exchange, according to Thursday’s report from the Centers for Medicare and Medicaid Services. It doesn’t necessarily mean these consumers have paid premiums.

Nearly 85% of the people who selected a plan did so for one of three reasons, according to CMS. Half had lost their health insurance or access to minimal benefits required by law. Nearly 20% found out they were ineligible for Medicaid, the state-federal program for low-income people. And 15% obtained coverage during a tax season special enrollment period for people who learned they would have to pay a penalty for not having health insurance under the Affordable Care Act.

SOURCE: Stephanie Armour, The Wall Street Journal


The Shumlin administration has placed a partial dollar amount on state staff costs stemming from manual processes and workarounds associated with Vermont Health Connect’s messy open enrollment period earlier this year.

The amount? $800,000 per month. That’s for the costs incurred for “staff augmentation” needed to process renewals manually “this winter and spring,” according to Vermont Health Connect spokesman Sean Sheehan.

The renewal and open enrollment period was from November 2014 to March 2015, which would mean the state paid at least $4 million to work around the incomplete IT system.

Lawrence Miller, Shumlin’s chief of Health Care Reform, said in an interview that the $800,000 per month figure does not capture the total amount of state spending on the system’s shortcomings. He described the monthly spending rate as one “direct attributable cost.”

Vermont Health Connect has been supported by manual processes that have required additional staff and resources since its launch in October 2013.

Miller said the state hasn’t calculated the total cost of manual workarounds and other expenses related to the exchange’s problems. Once Vermont Health Connect stabilizes and the state is able to establish a baseline budget for operating the exchange, Miller said the state can determine how much the problematic rollout actually cost.

The fiscal year 2016 budget for Vermont Health Connect is $48 million in state and federal funds. During the legislative session, Miller provided an estimated “sustainability budget” of $42 million. Total Vermont Health Connect costs in fiscal years 2014 and 2015 aren’t immediately available, because the administration didn’t publish budgets that aggregated exchange-related expenses across all departments.

The total cost of the exchange for 2016 is unclear at this point, due to cost overruns in several other areas.

SOURCE: Morgan True, VT


From quitting cigarettes to making two major acquisitions, it’s been a transformative year for CVS.

CVS Health announced it would acquire Omnicare and Target’s drugstore chain in May and June, respectively, and October will mark the one-year anniversary since it stopped selling tobacco products. With these changes in place, CVS is ramping up growth and taking market share in the rapidly evolving health space …

Scheuneman also notes that CVS’ negotiating power makes it attractive to clients coping with rising drug costs. “In 2014, the overall drug-cost trend was an increase of 12.7%, but CVS clients [saw] a 0.5% increase.”

There are macro tailwinds as well: Older people on average take four to five prescription drugs and two over-the-counter drugs each day, and America is an aging nation. Moreover, the Affordable Care Act is good news, as more insured people mean more people using a drug benefit. These factors easily outweigh the loss of tobacco products, which historically contributed some $2 billion to CVS’ sales, relatively small change compared with the company’s nearly $140 billion in revenue in 2014.

SOURCE: Teresa Rivas, Barron’s


Most federal insurance cooperatives created under the Affordable Care Act are losing money and could have difficulty repaying millions of dollars in federal loans, an internal government audit has found, prompting the Obama administration to step up supervision of the carriers.

Daniel R. Levinson, the inspector general at the Department of Health and Human Services, said that most of the insurance co-ops enrolled fewer people than they had predicted, and that 22 of the 23 co-ops lost money last year.

Even as overall enrollments for insurance have increased, many of the co-ops are still losing money, a review of 2015 data by federal health officials shows.

In February, the Iowa insurance commissioner moved to shut down a nonprofit co-op insurer, CoOportunity Health, created with $145 million in federal loans, and a state court found it insolvent because of “adverse claims experience.” Another carrier, the Louisiana Health Cooperative, started with $65 million in federal loans, said it would voluntarily halt operations at the end of this year. …

Over all, co-ops have received $2.4 billion in federal loans to help pay start-up costs and to meet state solvency requirements.

“The low enrollments and net losses might limit the ability of some co-ops to repay start-up and solvency loans and to remain viable and sustainable,” Mr. Levinson said in a report analyzing the insurers’ financial condition.

SOURCE: Robert Pear, The New York Times


To avoid the Affordable Care Act’s so-called “Cadillac tax” on rich benefit plans, companies are adding surcharges of $100 a month or more to wives and husbands of workers, hoping spouses will seek coverage elsewhere, new employer data shows.

The Cadillac tax was created as part of the Affordable Care Act largely as a way to help subsidize benefits to the uninsured under the law. Starting in 2018, employers pay a 40 percent tax on costs of health plans that are above $10,200 per individual and $27,500 for family coverage.

The idea behind the so-called “spousal surcharge” employers are implementing is to reduce the number of people an employer covers so the company can save money and avoid triggering the special excise tax for plans with high cost benefits.

“The spousal cost is wrapped into that $27,500,” Brian Marcotte, president and CEO of National Business Group on Health said in an interview last week. “If spouses have coverage elsewhere, the surcharge will get them to move to that other employer’s plan.”

SOURCE: Bruce Japsen, Forbes