Second Chance at KidCare, FamilyCare Funds

Congress in August passed a bill allowing states a second chance to use funds that had been allocated to them under the State Children’s Health Insurance Program, or SCHIP, known in Illinois as KidCare and FamilyCare. Illinois and most other states had forfeited these funds by failing to spend them on children’s health insurance. The bill makes these forfeited funds available for another year if the states can draw them down and use them. Illinois gets a second chance to spend $89 million that it had forfeited.

SCHIP allots to the states annual federal funds at highly favorable matching rates. For Illinois, this matching rate is 65 percent, compared to the standard Medicaid matching rate of 50 percent. For every dollar that KidCare and FamilyCare cost, the federal government pays $0.65 from the state’s SCHIP allotment. However, the states must spend each year’s allotment within three years, or else it is reallocated to other states that have spent their allotments. Anything left over reverts to the federal treasury.

SCHIP began in federal fiscal year 1998. The states had until the end of the 2000 federal fiscal year  to spend their 1998 allotment. They had until the end of the 2001 fiscal year to spend the 1999 allotment; until the end of the 2002 fiscal year to spend the 2000 allotment; and until the end of the 2003 fiscal year (September 30) to spend the 2001 allotment.

The problem. Illinois and many other states could not spend their allotments within the three years. In the case of Illinois, this was because (1) Illinois had a slow start enrolling children in KidCare and so spent the funds slowly at first and (2), more important, the SCHIP formula allotted to Illinois more funds than Illinois could spend on children alone. That is why Illinois had plenty of SCHIP funds available to fund the FamilyCare program, and why the federal government granted the FamilyCare waiver for Illinois to use these funds.

What the bill does. The “SCHIP fix” allows states a second chance to spend the 1998 and 1999 fiscal year funds that they forfeited to the federal treasury (not the funds already reallocated to other states). They may keep half of their unspent 2000 fiscal year funds (which originally would have been forfeited last year but had been temporarily preserved while Congress debated the “SCHIP fix”). And they will have another year to spend 2001 fiscal year funds that they are scheduled to forfeit at the end of September 2003.

What Illinois gets. The bottom line is that Illinois regains access to $20.3 million in forfeited 1998 and 1999 fiscal year funds and $68.7 million of unspent 2000 fiscal year funds. This total of $89 million must be spent by September 30, 2004, or it will be lost permanently. Illinois has until September 30, 2005, to spend half of the 2001 fiscal year funds—tens of millions of dollars—that it would have forfeited at the end of September 2003.

How Illinois can use it. The challenge for Illinois is to find ways quickly to access this valuable lode of federal funds for health insurance. One is to maximize enrollment in KidCare and FamilyCare as quickly as possible. Another is to prompt families aggressively to bring their children to the doctor for needed well-child examinations and health screens and any resulting treatment. Illinois can also consider speeding up the FamilyCare phase-in. This year Gov. Rod Blagojevich promised to move FamilyCare eligibility up to 185 percent of the federal poverty level over the next two years. If he did it all in next year’s budget, Illinois would have a better chance to access SCHIP funds. Illinois could consider increasing KidCare eligibility beyond the current 200 percent of the federal poverty level. The budget crisis, of course, makes these last two suggestions difficult, but full utilization of highly favorable federal matching funds for a valuable program is well worth considering.