Federal Financing for the State Children’s Health Insurance Program (CHIP)

Summary

The State Children’s Health Insurance Program (CHIP) is a means-tested program that provides health coverage to targeted low-income children and pregnant women in families that have annual income above Medicaid eligibility levels but have no health insurance. CHIP is jointly financed by the federal government and the states, and the states are responsible for administering CHIP.

The federal government pays about 70% of CHIP expenditures, and the federal government’s share of CHIP expenditures (including both services and administration) is determined by the enhanced federal medical assistance percentage (E-FMAP) rate. In FY2015, the E-FMAP rate ranges from 65% (13 states) to 82% (Mississippi). The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) included a provision to increase the E-FMAP rate by 23 percentage points for most CHIP expenditures from FY2016 through FY2019.

The federal appropriation for CHIP is provided in statute. From this federal appropriation, states receive CHIP allotments, which are the federal funds allocated to each state and the territories for the federal share of their CHIP expenditures. In addition, if a state has a shortfall in federal CHIP funding, there are a few sources of shortfall funding, such as the Child Enrollment Contingency Fund, redistribution funds, and Medicaid funds.

FY2015 was the final year for which federal CHIP funding was provided in statute, but the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10) extended federal CHIP funding, among other provisions. Specifically, P.L. 114-10 extended CHIP funding for two additional years (i.e., through FY2017) and maintained the current allotment formula with the 23 percentage point increase to the E-FMAP. The bill also extended the qualifying state option, the Child Enrollment Contingency Fund, and outreach and enrollment grants.

With FY2017 now being the final year for which federal CHIP funding is provided in statute, Congress’s action or inaction over the next couple of years will determine the future of CHIP and of health coverage for CHIP children. In considering the future of CHIP, Congress has a number of policy options, including extending federal CHIP funding and continuing the program or letting CHIP funding expire.

Even though federal CHIP funding is set to expire after FY2017, under current law the ACA maintenance of effort (MOE) requirement for children is in place through FY2019. The MOE provision requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving federal Medicaid payments (notwithstanding the lack of corresponding federal CHIP appropriations for FY2018 and FY2019). If federal CHIP funding expires, the MOE requirement would impact CHIP Medicaid expansion programs and separate CHIP programs differently. States with CHIP Medicaid expansion programs must continue to cover their CHIP children once federal funding is no longer available. However, states with separate CHIP programs would not be required to continue coverage.

This report provides an overview of CHIP financing, beginning with an explanation of the federal matching rate. It describes various aspects of federal CHIP funding, such as the federal appropriation, state allotments, the Child Enrollment Contingency Fund, redistribution funds, outreach and enrollment grants, and performance bonus payments. The report ends with a section about the future of CHIP funding, including the options for extending CHIP funding and what could happen if federal funding expires.