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

08/01/2014

Congress designed CHIP to give states more control over program design compared with Medicaid so that states might experiment with providing coverage that more closely resembles options available in the commercial insurance market (Ryan 2009). States 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 that approach could be implemented quickly, over time more states began administering separate CHIP and combination programs, which offer greater flexibility in program design. Table ES.2 summarizes characteristics of each program type and the number of states with each type in 2001 and in 2013.

Table ES.2. 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
Characteristics of CHIP Programs, FFYs 2001 and 2013


Characteristics of CHIP Programs, FFY 2001

Program TypeNumber of States
Medicaid Expansion CHIP17
Separate CHIP16
Combination18

Characteristics of CHIP Programs, FFY 2013

Program TypeNumber of States
Medicaid Expansion CHIP8
Separate CHIP15
Combination28

 

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


Like Medicaid, CHIP is jointly financed by the states and 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.2 Also, the federal matching rate for CHIP is about 20 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).3 Of the 8.13 million children enrolled in CHIP at some point in FFY 2013, 89 percent had a family income under 200 percent of the FPL (Medicaid and CHIP Payment and Access Commission 2014).4


2 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 shortfalls in some states (Kenney and Chang 2004; Kenney and Yee 2007).

3 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.

4 Total enrollment in CHIP as of March 4, 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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