SCHIP was created as Title XXI of the Social Security Act by the Balanced Budget Act of 1997, which was signed into law in August 1997. Congress appropriated approximately $40 billion for the program's first ten years (fiscal years [FY]1998 through 2007). The funds were allotted to the states based on a formula that considers, primarily, the number of all low-income children and the number of low-income uninsured children residing in each state. It also includes a factor for each state's health care costs relative to the others'. To encourage states to implement this program, the federal match for SCHIP expenditures was enhanced relative to Medicaid: each state's share was set at 70 percent of its Medicaid (Title XIX) share. Under the law, states may cover uninsured children in families with income under 200 percent of the federal poverty level (FPL), and up to higher income levels in states that already provide extensive coverage under Medicaid.
The SCHIP legislation gave states three broad options for program design. A state could choose to expand its Medicaid program, develop a separate program, or implement a combination of both. By law, Medicaid expansion programs under SCHIP are subject to all the requirements of Title XIX, but raise the income eligibility thresholds. In particular, these programs establish an entitlement for all children who meet the eligibility criteria, and eligibility must comply with the Title XIX requirements for comparability and statewideness. In addition, states that expand Medicaid under SCHIP must cover the same broad benefits offered under Medicaid and use the Medicaid service delivery network, and may not impose cost-sharing. (Medicaid expansions established under a Section 1115 demonstration may require cost-sharing for children if a waiver of the prohibition against cost-sharing has been obtained.)
By contrast, the option for separate, non-Medicaid SCHIP programs permits states to adopt programs that more closely resemble private insurance. Separate child health programs do not establish an entitlement for children. Moreover, states electing this option have considerable flexibility in defining eligibility. Another important eligibility-related difference between Medicaid and separate child health programs concerns other insurance coverage. Whereas insurance status is irrelevant to eligibility for Medicaid (i.e., insured individuals can still qualify for Medicaid if they meet the eligibility criteria), SCHIP explicitly excludes insured children. Further, to discourage parents from substituting SCHIP for their children's existing private insurance, states with separate programs may impose waiting periods on children who have or who recently dropped their private health insurance. Except when using waiver authority, states with Medicaid expansion programs may not impose waiting periods.
Although subject to statutory standards for benefit packages, states with separate child health programs can provide benefits less broad than Medicaid's and more like coverage offered in the private sector. All the states with separate programs have adopted broad benefit packages, though usually not as comprehensive as Medicaid's. States with separate child health programs may also impose premiums and cost-sharing, and many do. Some have developed service delivery networks different from those serving Medicaid, and managed care is more widespread in SCHIP than in Medicaid.