Considerations for States Crafting Budgets to Support Children’s Coverage

After months of uncertainty and a three-month federal funding lapse, in early 2018 Congress passed the HEALTHY KIDS and ACCESS Acts, which appropriated federal funds for the Children’s Health Insurance Program (CHIP) through federal fiscal year (FFY) 2027. While the HEALTHY KIDS and ACCESS Acts’ long-term funding stabilizes CHIP programs and helps states develop forward-focused strategies to improve children’s coverage, a decrease in the federal CHIP match rate will require additional state funding beginning this October.

The Affordable Care Act (ACA) increased states’ federal CHIP match rates by 23 percentage points — referred to as the “23 percent bump” — beginning in FFY 2016, which resulted in match rates ranging from 88 to 100 percent. While the HEALTHY KIDS and ACCESS Acts continued to fund the 23 percent bump through FFY 2019, beginning this October it will be phased down to 11.5 percentage points. Subsequently, in FFY 2021 and beyond, the percentage returns to the regular enhanced CHIP match rate that states received prior to the 23 percent bump.

States are currently finalizing budgets for their CHIP programs and must factor in this reduction in the federal match rate to determine the state financing needed to sustain these critical programs. State officials in Alabama estimate that $30 to $35 million in additional state funding will be needed for the state’s CHIP program in FFY 2020, and Oklahoma predicts it will need $14.8 million more. Planning for the phased reduction in the CHIP match rate may pose a particular challenge for states with legislatures that only meet every other year, considering additional state dollars will be needed in FFY 2021 as well.

Some states may consider modifying income eligibility levels for CHIP as a way to address the decreasing federal CHIP match rate, but that is not an option because the 2018 CHIP funding extension includes a requirement that states maintain certain coverage levels for children enrolled in Medicaid and CHIP — called the maintenance of effort (MOE). The HEALTHY KIDS and ACCESS Acts build on the ACA’s MOE provision, which requires states to maintain their Medicaid and CHIP eligibility levels for children that were in place as of March 23, 2010.

Through the ACA, the MOE for children was set to expire at the end of FFY 2019, but the HEALTHY KIDS and ACCESS Acts extend the MOE requirements through FFY 2027. However, beginning Oct. 1, 2019, the MOE protection targets children in families with incomes up to 300 percent of the federal poverty level (FPL). This means that states with Medicaid or CHIP eligibility levels for children above this level have flexibility to lower them to 300 percent of FPL. However, because the majority of states do not provide coverage above 300 percent of FPL, most states will be required to keep their current eligibility levels in place. The intent of the MOE is to help ensure coverage stability for children enrolled in Medicaid and CHIP, and it may become increasingly important if recently reported declines in children’s coverage continue. For more information about the MOE, read 101: Maintenance of Effort (MOE) Requirements for Children in Medicaid and CHIP Fact Sheet.

As state officials weigh these budgetary issues, many states are also seeking to implement initiatives to enhance children’s coverage and care. Some states are developing innovative Health Services Initiatives, strengthening coordination with schools and other community partners to better meet children’s health and behavioral health needs, or  improving integrated care for children. In the coming months, the National Academy for State Health Policy (NASHP) will be gathering and sharing information highlighting state efforts to improve children’s coverage and care.