WASHINGTON (By Daniel C. Vock, Stateline.org) February 23, 2007 —  Dinosaur mascots, ads on milk cartons and commercials at movie theaters encouraged working-poor parents in the late 1990s to sign up their children for discounted health insurance offered by states and the federal government.

Those enrollment efforts, plus changes in the economy that made medical coverage harder to get, succeeded in making the State Children's Health Insurance Program (S-CHIP) a popular choice over the last decade. Now, 6.1 million people - children and adults - rely on it for health insurance every year, and the percentage of kids without health insurance has dropped by a third.

But after its initial growth spurt, the 10-year-old program faces an identity crisis.

With the $500 Billion cost of the Iraq War, President Bush wants to slow its growth and keep its costs in check, refocusing its resources on children of the working poor. But many advocates, including Democrats in Congress and governors of both parties, want to use the highly touted program as the foundation for the increasingly popular goal of universal health coverage.

"If you're committed to children's health, if you're committed to get insurance on a broad basis, this is the program that should be used for that purpose. Governors are doing that, and they're being encouraged by their legislatures," New Jersey Gov. Jon Corzine (D) told reporters Wednesday (Feb. 14).

The need for answers is growing urgent. If Congress doesn't step in this spring, kids in more than a dozen states could face skimpier benefits or could lose coverage. The most pressing situation is in Georgia, where the governor is threatening to shut down the state's Peach Care program - and leave 260,000 kids without coverage - if Congress doesn't find more money soon.

Congress will confront all of these issues this year as it reauthorizes S-CHIP, which is set to expire this fall.

To fix S-CHIP's problems, Congress will have to strike a compromise that balances all sorts of parochial interests. Touchy subjects include revisions to the formula that divvies up S-CHIP money among the states and the question of whether to let adults, mostly parents, in certain states keep getting S-CHIP coverage.

Touchiest of all, though, is how much Congress can afford to spend on the program.

President Bush wants to add $5 billion of federal money over the next five years; pediatricians and labor unions are calling for a $60 billion influx. Just to continue covering the families it does now, the program would need an additional $13 billion to $15 billion over five years.

Despite the haggling over money, S-CHIP enjoys broad bipartisan support. It was negotiated by lawmakers on both sides of the aisle at a time when Republicans controlled Congress and a Democrat, President Clinton, sat in the White House.
By all accounts, S-CHIP has succeeded in driving down the number of American children without health coverage. Many advocates say the drop in uninsured kids - at a time when more adults are going without coverage - shows why the program should be expanded.

In 1997, 22.3 percent of kids were uninsured. By 2005, that number had dropped to 14.9 percent. Over the same period, the percentage of uninsured adults remained roughly the same.

Still, more than one-seventh of American children - a total of 9 million - have no health insurance. Of those, 68 percent already qualify for government help but aren't enrolled: Nearly half are eligible through Medicaid, government's safety net for the poorest Americans, and one fifth through S-CHIP, according to a Georgetown University analysis.

S-CHIP works to fill the gap between poor families who qualify for Medicaid, the state-federal program covering 59 million poor Americans, and those who can afford health insurance on their own.

In practice, S-CHIP coverage is similar to that offered by private plans. Recipients can be charged co-payments and premiums, and their benefits are often more limited compared to those provided by Medicaid. Because S-CHIP looks and operates more like private insurance, poor people sometimes ask to sign up for it rather than the more generous Medicaid package, an Iowa administrator told a congressional panel earlier this month.

So far, nearly 70 percent of kids who are financially eligible for S-CHIP are signed up, according to a new study by the Urban Institute. Barriers preventing the rest of the kids from joining the program include citizenship requirements, state caps on enrollment and parents' unawareness that their children are eligible.

S-CHIP plays a crucial role in efforts among states to offer universal health coverage for children. States have made the low-cost insurance available to more people by allowing better-off families to join, agreeing to subsidize some clients who don't qualify for federal help and letting others buy into the coverage.

There's another reason that S-CHIP expansions are attractive to states: The federal government foots, on average, 70 percent of the bill for S-CHIP, compared to an average of 57 cents of every $1 of Medicaid costs.

So in Illinois and Pennsylvania, the two states that have adopted plans to cover all children in their states, lawmakers raised the eligibility requirements to allow coverage of more lower-middle-class families. They are also among the eight states that let families purchase S-CHIP benefits, which allows those families to receive the same benefits as other enrollees though at a higher cost.

But as more states - including California, New York and Oregon - consider covering all kids based largely on S-CHIP expansions, the Bush administration is calling for restraint.

Under the president's newest budget proposal, the program would focus its resources on poor children living at less than twice the federal poverty level. Depending on how the idea were to be carried out, 16 to 35 states would have to trim the S-CHIP health benefits they now grant to families who make more than twice the federal poverty level ($41,300 for a family of four).

Congress would have to sign off on those changes, most likely when it reauthorizes the entire program.

Bush also wants to freeze enrollment of adults in the program. Of the 6.1 million people signed up for S-CHIP, there are 639,000 adults enrolled in the 15 states that permit it. Arizona, Minnesota, Wisconsin and Michigan all have more adults in S-CHIP than children.

The 1997 law that created S-CHIP allowed states to cover adults if the states received special permission from the federal government. In many cases, states argued they could reach more uninsured children if they also covered their parents. But Congress decided last year not to let any more states cover childless adults (other than pregnant women) under S-CHIP.

Under S-CHIP, unlike Medicaid, the federal government never agreed to cover every child who qualifies for the program.

The federal government agrees to match states for their S-CHIP spending up until a predetermined threshold. That makes S-CHIP a lot different from Medicaid. Because Medicaid is an entitlement program, states basically have a blank check from the federal government. No matter how much states spend on Medicaid, the federal government will match it.

But those limits on how much individual states can receive each year are a chronic problem for Congress, because more and more states spend more than their allotment each year. This year, as many as 14 states could find themselves short of cash by October unless Congress finds $715.6 million to keep their S-CHIP programs afloat.