With the Clock Running Out on CHIP Reauthorization, State Officials Are Preparing to Panic

WASHINGTON — Congress is nearing the edge of a cliff and the decisions made on Capitol Hill in the coming days will have serious consequences for the health of millions of Americans.

If you think that sentence refers only to the vote on the Cassidy-Graham plan to repeal and replace the Affordable Care Act, you would be wrong.  

Federal funding for the Children’s Health Insurance Program—through which 8.9 million children receive health coverage—is set to expire on Sept. 30 and an act of Congress is required to reauthorize its allotment.

If Congress fails to act, funding for the program could run out in as many as 10 states, as soon as the end of this year. Twenty-seven states will run out of their CHIP funding by March 2018.

On Sept. 12, Senate leaders reached a bipartisan agreement, a bill crafted by Finance Committee Chairman Orrin Hatch and the committee’s ranking member, Oregon Democrat Ron Wyden, that would extend CHIP—with some alterations—for five years. The advent of the Cassidy-Graham bill, and the attention that is being paid to that repeal effort, has shifted congressional focus away from the matter of renewing CHIP.

A failure to extend the life of this program, or even a delayed decision on the part of Congress, would have serious ramifications not just for children’s health care, but also for state budgets across the country.

When Does the Money Run Out?

A handful of groups, the Medicaid and CHIP Payment and Access Commission and the Kaiser Family Foundation among them, gather information on the status of CHIP coffers across the country. There is some level of disagreement between these organizations over how soon each state would exhaust its CHIP allotment if Congress were to choose to not renew the program.

According to MACPAC, three states—Arizona, Minnesota and North Carolina—and the District of Columbia are projected to run out of CHIP funding by the end of 2017. The Kaiser Family Foundation has compiled a slightly different set of projections. By their count, which is based on self-reporting from state agencies, as many as 10 states fall into that category, including Arizona, California, Connecticut, Hawaii, Idaho, Mississippi, Nevada, Oregon, Pennsylvania and Utah.

These organizations, with the addition of the National Governors Association, however, agree unanimously on one thing. Without renewal, every single state, plus the District of Columbia, will run out of the funding that keeps their CHIP beneficiaries covered by the end of 2018. The forecasts are simply varying degrees of bad.

Failure to Extend Hits State Budgets Hard

Going down to the wire on the CHIP reauthorization is causing major budgetary anxiety at the state level.

“Almost every single state legislature has approved a budget assuming that CHIP is going to be there and the enhanced [federal] match was going to be there,” Peter Eckrich, the legislative director for the Health and Human Services Committee at NGA, told Route Fifty in a phone interview.

In fact, the Kaiser Family Foundation and Health Management Associates conducted a survey of state Medicaid officials this summer and found that 48 out of the 50 states, including the District, had already written and passed their budgets taking continued funding of CHIP as a given.

These states face a significant shortfall if Congress chooses not to reauthorize the program, and many of these states are already up against uncertain revenue forecasts.

“It would be just a terrible time to try to find tens of millions of dollars more,” said Linda Nablo, the chief deputy director of the Virginia Department of Medical Services.

Nablo, who spoke with Route Fifty by phone earlier this week, was formerly the director of CHIP at the federal level. She was in the role during the implementation of the Affordable Care Act.  

Diminishing Federal Match Rate Is More Likely

While the idea that Congress would fail to reauthorize CHIP entirely is terrifying to officials and policy experts at the state level, they agree that it doesn’t seem particularly likely.

“Everybody is so convinced that CHIP, being the popular and bipartisan program that it is, that it will get reauthorized,” Nablo said.

“Surely Congress wouldn’t let this program end,” she added, with a nervous laugh.

Eckrich, from the National Governors Association, agreed. “This is really low-hanging fruit that could be passed,” he told Route Fifty.

What is looking much more likely, especially given the content of the Hatch-Wyden plan—the closest Congress has come to having a CHIP reauthorization plan—is that the program could be reauthorized, but at a decreased federal match rate.

The Hatch-Wyden plan doesn’t begin to scale back the federal match rate until fiscal year 2019, but if a different plan were to be pushed that reduces that match rate starting now, many state budgets would be left in the lurch. According to that same KFF survey mentioned earlier, at least 32 states have built the enhanced federal match rate—bumped up by 23 percent by the Affordable Care Act—into their budgets for the current fiscal year.

And rightly so, according to Eckrich. “There’s no reason for them to think they shouldn’t have budgeted on that,” he said.

An Affordable Care Act Rule Could Threaten State Budgets Even Further

Some states administer CHIP through a separate CHIP program and some administer the coverage through a CHIP-funded Medicaid expansion. Some state CHIP programs are made up of a combination of those two systems.

The states that administer the program through CHIP-funded Medicaid expansion must maintain the current level of coverage thanks to a provision of the Affordable Care Act called the “maintenance of effort” requirement.

Put simply, if the maintenance of effort requirement remains in place and the federal matching rate is cut, states that operate their programs in this way would be required to keep the same eligibility levels for the children they cover, but with much less money coming in from the federal government.

“It’s going to be about whether or not they keep the maintenance of effort requirement but reduce the funding,” acknowledged Nablo. “If they do that, that of course blows a hole in state budgets that will have to be quickly addressed.”

Virginia is among the states that based its budget on that enhanced match rate. If Congress were to drop Virginia’s federal match from the current 88 percent rate to the former rate of 65 percent, as Nablo presented in her testimony before the Senate Committee on Finance, the state would experience an immediate budgetary shortfall of $56 million in the current fiscal year and an $83 million shortfall in the next.

That’s quite a budgetary hole. And, holes in state budgets aren’t exactly easy to fix quickly. Like many states, Virginia is already months into its fiscal year. The state General Assembly doesn’t return to session until Jan. 10, and whatever that body enacts—provided agreement from both houses and the governor—is unlikely to take effect any earlier than March, a long time for a state to remain in budget limbo.

In some states, any reduction of federal match rates automatically signals massive programmatic changes. In Arizona, under state statute, the state must freeze enrollment entirely if the federal match level dips below its current point. The last time Arizona implemented a CHIP enrollment freeze in December 2009, the waiting list for the program ballooned to over 100,000 children, and grew at a rate of 10,000 kids per month. West Virginia has a similar state statute. State law requires that CHIP be terminated if the level of federal funding dips below the level allocated in 1997.

Although not all states have these legislative CHIP kill switches in place, all states will have to come up with ways to make do with less money if federal funding is reduced.

“It would create a real scramble,” said Nablo. “The revenue forecasts here are not great so I can’t imagine that we’d have the resources to fill the hole, quickly. They’re going to have to find a way to cut something.”

In the case of Virginia, Nablo said “if the maintenance of effort goes away I think there will be discussions about rolling CHIP back or rolling benefits back, or giving up the waiver, which is what covers pregnant women.”

States would be looking at creating waiting lists, reducing eligibility levels, and capping programs.

“Realistically, you can’t come up with tens of millions of dollars instantly,” she added.

‘This Needs to Be Done Yesterday’

The last-minute nature of this decision is relatively unheard of. The most recent CHIP renewal, for example, in 2015, occured a full six months before the deadline. The NGA kicked their CHIP reauthorization push into high gear back in May. But each time, some other issue has been prioritized ahead of CHIP. Meetings between congressional members and state officials have been cancelled and rescheduled. Nablo’s testimony was meant to happen in the spring, but was pushed to mid-September.

Eckrich said he felt real optimism at one point in the process when he felt like they were finally getting traction, only to have that feeling diminish in the last few weeks.

“It felt like we were so close and then the rug was pulled out from under us when this Graham-Cassidy bill got so much attention,” he said.

For the most part, state officials find themselves in shock that it’s come to this point.

“This is a really unfortunate precedent to set,” said Eckrich. From the point of view of the states, he added, “this needs to be done yesterday.”

“It’s just insane that it’s come this close and it’s so embroiled. With all the terrible decisions to be made, surely this isn’t a hard decision,” said Nablo. “I get that they have to fund it but I have yet to hear anybody say, ‘Oh we shouldn’t be providing health care coverage for moderate income kids.’”

With all of the possibilities to consider, and the magnitude of the changes that could be coming, these state-level officials find themselves doing the math on when they’d have to begin taking some very difficult steps.

In Virginia, and elsewhere, CHIP administrators have started to count down to the day when they would have to begin notifying beneficiaries of changes to, or termination of their coverage. The last month of care that Virginia could afford to pay for is January. And for Nablo, the most important step is getting the word out to parents about the status of their children’s enrollment.

“We are talking here [in Virginia] about those letters having to be mailed out around December 1,” she said.

The CHIP program is not a system that can be shut down in a matter of days. It’s on this point in particular that Nablo believes Congress has displayed a distinct lack of understanding.

On a recent phone conversation with a congressional staffer tied to a committee with oversight over this particular issue, Nablo was asked whether Virginia has any statutes on the books that dictate how far in advance CHIP is required to inform beneficiaries that they would no longer be covered.

“What they wanted to know was: Do we have any state law that would require us to give families any particular amount of notice before doing this?” She got the idea the staffer was canvassing the states on that very question.

“And what they were looking for was, is there a hard and fast legislated requirement that we give them ten days or twenty days or thirty days or whatever.”

Nablo’s short answer to the staffer was “no, not in Virginia.” But there’s longer answer that she attempted to drive home:

“I tried to convince them that it’s not a question of whether or not there’s a law that drives us,” she said. "It’s a question of what am I telling 65,000 kids, and how do I prepare the system to deal with that.”

Nablo continued: “If I were to tell you your kids were going to lose their health insurance in five days, 10 days, 30 days, there’s a million and one things you have to do. You’ve got questions, you’ve got people you have to talk to, you have things you have to research, you have your rights to figure out. I tried to convince them it was really more a question of what is the reasonable amount of time that families need and that a state agency needs if this drastic change were to happen to prepare them for.”

For Nablo, and for other state officials in the same position, “it’s not a question of waiting for the last federal dollar to dry up. It’s a question of all the work and all the concerns that have to be dealt with to make this not chaos.”

At the time of writing, nine days remain until the clock runs out.