California, White House in Standoff Over SCHIP Directive

Six days before new guidelines were to take effect governing the federal State Children’s Health Insurance Program, California formally and officially said, “No.”

Three days later, federal officials issued a brief statement, saying, in part, “At this time, we are not taking compliance action.”

At issue is a directive issued last year by CMS: As of Aug. 18, 2008, state health departments have to show they have enrolled at least 95% of eligible children with family incomes below 200% of the poverty level before expanding SCHIP eligibility to children in families with incomes greater than 250% of the federal poverty level.

Although neither federal nor state officials will characterize it as such, California effectively created a standoff between the country’s largest SCHIP program and the Bush administration’s attempts to rein in spending on kids’ health insurance.

“California deserves credit for putting the question on the table and forcing the issue,” said Peter Harbage, a Sacramento-based health policy consultant who has worked on SCHIP issues for both state and federal governments.

“What California did was put the ball back into the feds’ court. At least for the time being, the feds have chosen to work cooperatively with states,” Harbage said. “The Bush administration could have responded by saying, ‘Well, we’re going to withhold the funds,’ but they didn’t. Or at least they haven’t yet.”

Harbage, assistant secretary of health for the state of California under Gov. Grey Davis and also a member of Hillary Rodham Clinton’s Health Care Task Force in 1993 during the Clinton administration, has worked on SCHIP issues since the program began in 1997.

“I definitely think it could eventually go in the wrong direction if the federal government chooses to take a hard line,” Harbage said. “It’s going to be interesting to see what happens.”

CMS Directive in Limbo

State officials who oversee the Healthy Families Program, California’s SCHIP, elected not to comply with the directive because it contains “key requirements” that “are inconsistent with current California law.”

Lesley Cummings, executive director of California’s Managed Risk Medical Insurance Board, which manages the Healthy Families program, wrote Herb Kuhn, deputy administrator of CMS and acting administrator of the Medicaid program:

“MRMIB … is constitutionally obligated to follow state law and cannot unilaterally change HFP (Healthy Families Program) operating rules that are embodied in state law,” Cummings wrote.

CMS did not respond directly to California’s action, but federal officials did release this brief statement three days before the new guidelines were scheduled to go into effect:

“HHS and CMS continue to work with States that are already providing coverage under the SCHIP program to children in families with effective family income levels above 250% of the federal poverty level. At this time, we are not taking compliance action. Additionally, as we clarified in the August 17th, 2007 letter to State Health Officials (SHO), even under the compliance strategies discussed there, no currently enrolled children will be disenrolled.”

California’s Not the Only One Balking

Healthy Families is the country’s largest SCHIP program, consuming 16% of all federal SCHIP funds, and it generates a commensurate amount of attention from other states and federal regulators. But California isn’t the only one balking at the new directive.

At least four other states have legally challenged the directive, and at least two government agencies say the Bush administration has overstepped its authority with the program.

A Government Accountability Office report concluded that the directive was an illegally issued rule, and the Congressional Research Service also questioned the directive’s legality.

“That’s two watchdog agencies who disagree with the Bush administration,” Harbage said. “Neither of those agencies have any policy-making authority, but their judgment carries some weight.”

California, which covers about 830,000 children through Healthy Families, filed an amicus brief supporting a legal challenge to the directive.

Not all states share California’s point of view.

“We understand that a few states have made program changes to comply with CMS’ request and a few states provided data to CMS to support their state’s position that they already comply or cannot comply with CMS,” said Ron Spingarn, spokesperson for MRMIB.

How Poor Is Poor Enough?

SCHIP, part of the Balanced Budget Act of 1997, helps states insure low-income children who are ineligible for Medicaid but cannot afford private insurance. States receive an enhanced federal match — greater than the Medicaid match — to provide this coverage.

The issue in play here is how low-income these kids need to be.

Kelly Hardy, associate director for health at Children Now, a national children’s rights advocacy group based in California, said poverty, standards of living and need are all relative terms.

Because of cost of living variations, a family of four in San Francisco with an annual income 300% of the poverty level has a lower standard of living than a similar family with an income 200% of the poverty level, Hardy noted.

“To have one-size-fits-all for the entire country just doesn’t make sense,” Hardy said.

Hardy, along with most children’s health advocates, applauded MRMIB’s decision not to comply with the CMS directive.

“It’s crucially important for children to have health insurance, and to do that states have to move forward, not only to keep their promise to families already covered, but to reach out to more families,” Hardy said.

SCHIP Future Up In the Air

The SCHIP program’s first phase technically expired almost a year ago. Congress and the Bush administration have yet to agree on how to continue the program. Congress has proposed spending $60 billion over the next five years, more than twice the $25 billion Bush wants to spend. At the Bush level, California’s program would move into the red within a year, officials predict.

In light of legal challenges, states’ refusals to comply and continued wrangling over SCHIP’s future, the CMS directive on poverty level thresholds may languish for several months.

“What happens next depends on the political scene and the economy,” Hardy predicted.

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