Children Are the Real Victims of the CMS August Directive

As Congress was finalizing bipartisan legislation to reauthorize the State Children’s Health Insurance Program (SCHIP), the Center for Medicaid and Medicare Services (CMS) circulated, on August 17, 2007, a new federal directive in the form of a letter to program directors. The directive dramatically alters rules that had governed SCHIP for the past ten years, limits states’ ability to design and finance their own programs, and gives them exactly one year to amend their individual SCHIP programs or risk corrective action by the federal government.

CMS imposed a uniform, federal gross income cap of 250 percent of the federal poverty level or $42,925 for a family of four. CMS does not have legal authority to set income caps on SCHIP, so CMS accomplished a de facto cap by limiting states’ flexibility to cover children above 250 percent of the federal poverty level, allowing the higher coverage only when states prove that they meet new federal guidelines.

The directive demands that, before raising income eligibility to higher levels, states must show that they have enrolled at least 95 percent of all uninsured children already eligible for SCHIP or Medicaid—that is, children with incomes below 200 percent of the federal poverty level. Based on estimates by the Urban Institute of the Census Bureau’s Current Population Survey, state Medicaid and SCHIP participation rates among low-income children range from a low of 51 percent in Nevada to a high of 89 percent in Vermont. Overall, enrollment rates vary widely among states and are difficult to measure. What data CMS will accept to show participation numbers among the already eligible but uninsured is still not clear.

Once the participation rate requirement is met, states are allowed to expand their programs above 250 percent of the federal poverty level only if they can show that they have reasonable procedures to prevent “crowd-out,” a process where parents move children from private coverage to the publicly funded SCHIP program. States must prove that private employer-based coverage for lower-income children has not declined by more than 2 percent over the past five years. Employer coverage has been on the decline for many years. According to a survey conducted in October 2007 by the Employee Benefit Research Institute, employer-sponsored coverage between 2000 and 2005 dropped almost 9 percent for children under 18. This is a trend that states have little control over, and once again CMS has not issued clear guidelines for “reasonable procedures” that states may use to measure such trends.

The CMS directive, effective August 2008, has already had a significantly negative impact on children’s coverage. The directive is not only slowing down the coverage of uninsured children but also leaving more children uninsured as some states pull back on SCHIP eligibility or scrap planned expansions. Congress must repudiate the CMS directive as inconsistent with CMS authority and with good policy. The focus should be on insuring all children, a goal that is within sight if CMS gets out of the way.

To learn more, contact Melissa Cubria at melissacubria@povertylaw.org or 312.263.3830 ext. 241.