CHIPRA Mandated Evaluation of the Children's Health Insurance Program: Final Findings. How CHIP Works


Like Medicaid, CHIP is jointly financed by states and the federal government, and the Centers for Medicare & Medicaid Services (CMS) administers both programs for the federal government. However, CHIP was designed as a block grant program with limits on federal allotments, while Medicaid is an entitlement program with no spending cap.10 Medicaid targets the poorest children (along with certain poor adults), generally those with family income up to 133 percent of the FPL (for children under age 6) or up to 100 percent of the FPL (for children ages 6 to 18).11 CHIP picks up where a state’s Medicaid eligibility thresholds end, with most states offering coverage to children with family incomes up to at least 200 percent of the FPL.12 The federal matching rate for CHIP is about 23 percent higher than Medicaid, an enhancement designed to give states an incentive to adopt CHIP. States can decide on their CHIP program’s upper income eligibility limit, but they receive only the Medicaid matching rate amount for children with family incomes above 300 percent of the FPL; as of late 2013, 13 states had upper income limits for CHIP above this level (Centers for Medicaid and CHIP Services 2013).13

Congress deliberately designed CHIP to give states more control over program design compared with Medicaid, with the hope that states might experiment with providing coverage that more closely resembled products in the commercial insurance market (Ryan 2009). States decide how they administer CHIP: they can (1) expand their existing Medicaid program (this is called a Medicaid expansion CHIP program), (2) create a separate program, or (3) blend the two approaches to create a combination program. While many states initially implemented a Medicaid expansion CHIP program, in part because they could do so fairly quickly, over time more states began administering separate CHIP and combination programs, which offer greater flexibility in program design. Table I.1 summarizes characteristics of each program type and the number of states with each type in 2001 and in 2013.

Table I.1. Characteristics of CHIP Programs, FFYs 2001 and 2013

Program Type Summary Number of States 2001 Number of States 2013
Medicaid Expansion CHIP Required to follow all Medicaid program rules, including benefits and cost–sharing; prohibited from capping or freezing enrollment 17 8
Separate CHIP Allows increased flexibility in program design. Benefits must be equivalent to a “benchmark” benefit package. Typically, a commercial plan or the state employees’ health benefit package is used as the benchmark, although it can also be a benchmark equivalent package or a plan approved by the Secretary of the Department of Health and Human Services. Cost-sharing (premiums, copayments, and deductibles) must be nominal for children from families with incomes below 150 percent of the federal poverty level; for families with higher incomes, cost-sharing cannot exceed 5 percent of total family income. Provides no federal entitlement to coverage. Prior to maintenance of effort (MOE) rules established by the American Recovery and Reinvestment Act of 2009 (and extended and broadened by the Affordable Care Act), states could cap or freeze enrollment and maintain waiting lists at any time to limit costs and coverage. Option to impose waiting periods. 16 15
Combination States operate both Medicaid expansion CHIP and separate CHIP programs; each covers a different population based on income threshold 18 28

Sources: Mann et al. 2003; Rosenbach et al. 2003; CMS 2013.

Within certain limits established in the law, states also can design the CHIP benefit package and cost-sharing requirements to be consistent with public or private insurance in the state, and they can choose the program’s delivery system (managed care, fee for service, or primary care case management) (Rosenbach et al. 2003). Finally, states can use a portion of their administrative funds to conduct outreach for the program—a new role for states (Williams and Rosenbach 2007).14 Because of the flexibility CHIP affords, the characteristics of CHIP programs vary across states (Rosenbach et al. 2007). As shown in Table I.2, 8.13million children were enrolled in CHIP programs at some point in FFY 2013; of these, 89 percent had a family income under 200 percent of the FPL. 15 Most (80 percent) children enrolled in CHIP receive care through a managed care delivery system. Total spending on the program amounted to $13.2 million in FFY 2013, with the federal government contributing 70 percent of those expenditures.

Table I.2.

CHIP at a Glance, FFY 2013
Children ever enrolled in CHIP during the year
CHIP children with family incomes below 200% of the Federal Poverty Level (FFY 2013)
8.13 million
Number of children in separate CHIP programs
Who obtained care through managed care plan enrollment
Who obtained care on a fee-for-service basis
Who obtained care through primary care case management
5.7 million
4.5 million (80%)
0.9 million (16%)
0.2 million (4%)
Government spending on CHIP
Federal spending on CHIP
State spending on CHIP
$13.2 billion
$9.2 billion (70%)
$4.0 billion (30%)

Sources: Medicaid and CHIP Payment and Access Commission (MACPAC) March 2014.
Notes: CHIP = Children’s Health Insurance Program; FFY = federal fiscal year.

10 The original CHIP allotments were based on three state factors: (1) the number of low-income children (2) the number of low-income uninsured children, and (3) health sector wages (Czajka and Jabine 2002; Families USA 2009). Legislation in 1999 and 2005 made adjustments to the allotments to address problems with the initial formula, which did not consider state CHIP expenditures and led to the risk of shortages in some states (Kenney and Chang 2004; Kenney and Yee 2007).

11 There are many exceptions to these general Medicaid eligibility rules for children: for example, states can offer Medicaid coverage to children from higher-income households by disregarding certain income or deducting certain expenses; they can also modify their Medicaid eligibility requirements through a Federally approved waiver; and they can permit children with high medical costs to spend down to Medicaid eligibility levels (Hess et al. 2011). In addition, states must cover many other populations in Medicaid, including certain poor adults and pregnant women, certain poor individuals with disabilities or who qualify for cash assistance under the Supplemental Security Income (SSI) program, and certain groups of legal permanent resident immigrants (Congressional Research Service 2010). The Affordable Care Act changed the Medicaid income threshold for children ages 6 to 18 to 133 percent of the FPL starting in January 2014, and at that time states are required to transition children with income under that threshold from CHIP to Medicaid, and states may continue to claim the higher CHIP match for these children.

12 Although intended to cover children, states could initially cover certain uninsured adults in their CHIP programs with a federally approved waiver; this has since been phased out. States may still cover pregnant women under CHIP.

13 States with thresholds above 300 percent FPL in place when the Title XXI CHIP legislation (P.L. 105-33) was passed in 1997 were permitted to receive the higher CHIP matching rate for expenditures made for children with family incomes up to the pre-existing threshold. At that time, Tennessee was the only state with a Medicaid income threshold above 300 percent of the FPL.

14 Marketing efforts were not part of the Medicaid program

15 Total enrollment in CHIP for FFY 2013 reported as of March 2014 was 8,350,266 million, which includes 219,473 adults enrolled primarily through special waiver programs for low-income parents and pregnant women in some states.

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