Order Code RL33366
CRS Report for Congress
Received through the CRS Web
SCHIP Original Allotments:
Funding Formula Issues and Options
April 18, 2006
Chris L. Peterson
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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SCHIP Original Allotments:
Funding Formula Issues and Options
Summary
The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) authorized the State
Children’s Health Insurance Program (SCHIP) for FY1998-FY2007. In BBA 97,
Congress appropriated annual funding levels totaling nearly $40 billion for the
10-year period of SCHIP’s authorization, with each state receiving access to a portion
of the annual amount. Each state’s portion — the original allotment — is calculated
based on a formula that has been altered one time since the program’s inception.
SCHIP’s authorization expires at the end of FY2007. When Congress takes up
reauthorization, the focus regarding SCHIP original allotments will be on (1) setting
the national annual appropriations for SCHIP, and (2) deciding how those funds will
be allotted to individual states. Some of the issues are technical — for example,
whether there is a better data source for estimating the number of low-income
children. Other issues raise more fundamental questions about the program.
For example, beginning in FY2002, states’ total spending of federal SCHIP
funds has exceeded their annual original allotments, a trend projected to continue
through the current authorization. Shortfalls of federal SCHIP funds have largely
been avoided by leftover prior-year balances and because administrative actions
targeted unspent funds from other states to those states facing shortfalls. However,
the funds available for redistribution have been shrinking over the past several years.
In fact, because such amounts will be inadequate to prevent shortfalls in FY2006,
Congress appropriated an additional $283 million for projected shortfall states in the
Deficit Reduction Act of 2005 (DRA, P.L. 109-171). As a result, how much is
provided to states in their original allotments is becoming increasingly important.
Increasing current SCHIP appropriations across the board to match total national
demand for funds would not necessarily prevent shortfalls because there is wide
state-level variation between how much states are allotted and how much they spend.
In reauthorization, Congress will have to decide the extent to which other factors,
such as states’ historical spending and the populations they cover under SCHIP,
should be added to the original allotment formula.
If current allotment formulas continue to be used — for example, if states’
SCHIP spending has no bearing on their original allotments, as is currently the case
— then several states will face chronic shortfalls of federal SCHIP funds. However,
such shortfalls are an inherent possibility in a capped-grant program such as SCHIP.
Congress will be grappling with a number of issues in determining the level and
distribution of original allotments in reauthorization. These include whether SCHIP
is effectively operating as an open-ended entitlement to states and whether the current
original allotment structure is inadequate.
This report describes how SCHIP original allotments have operated from
FY1998 to FY2007, and discusses issues and options Congress might consider for
reauthorization. This report will be updated as major developments occur.

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Contents
SCHIP Appropriation: Total Amount of Original Allotments . . . . . . . . . . . . . . . . 2
Allotment Formulas for Territories and States . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Territories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Number of Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
State Cost Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Floors and Ceilings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Issues and Options Affecting States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Total Appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Original Allotment Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Technical Appendix: Sources of Data for Current Original Allotment
Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1. Federal SCHIP Appropriations, Original Allotments, and
Spending, FY1998-FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Factors, with Associated Weights, for Calculating States’ SCHIP
Original Allotments, by Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3. Applicable Floors and Ceilings for Calculating States’ SCHIP
Original Allotments, by Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 4. Derivation of FY2006 Federal SCHIP Original Allotments . . . . . . . . . . 8
Table 5. FY2005 Original Allotments and Federal SCHIP Spending,
by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 6. Sum of FY1999-FY2005 Original Allotments and Demand for
Federal SCHIP Funds, by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 7. Variation in States’ SCHIP Original Allotments (Adjusted
Proportion of Total Appropriation Available to States) and Number
of Years State Hit Floor or Ceiling, FY1998-FY2006, by Percentage
Difference between Lowest and Highest . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 8. Estimated Percentage of Uninsured Children in Rhode Island and
Vermont, 2002-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 9. Number of Children and State Cost Factor for SCHIP Original
Allotment Formula, FY2001 and FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 10. U.S. Census Bureau Poverty Thresholds, 2005 . . . . . . . . . . . . . . . . . 23
Table 11. U.S. Health and Human Services Poverty Guidelines, 2005 . . . . . . . 23

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SCHIP Original Allotments:
Funding Formula Issues and Options
The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) authorized the State
Children’s Health Insurance Program (SCHIP) for FY1998-FY2007. In general, this
program allows states1 to cover targeted low-income children with no health
insurance in families with incomes above Medicaid eligibility levels. In BBA 97,
Congress appropriated annual funding levels totaling nearly $40 billion for the
10-year period of SCHIP’s authorization, with each state receiving access to a portion
of the annual amount. Each state’s portion — the original allotment2 — is calculated
based on a formula that has been altered one time since the program’s inception.
Each year’s original allotment is available to states for three years. At the end
of the three-year period of availability, unspent balances are to be redistributed to
states that have exhausted that allotment, with some exceptions. This report does not
analyze the impact or amounts of redistributed funds. Nor does this report quantify
projected state shortfalls of federal SCHIP funds. Other CRS reports delve into these
issues3 and describe the characteristics of each state’s SCHIP program.4 This report
is narrowly focused on the amounts and formulas for the original allotments. Other
SCHIP issues are presented only to the extent that they inform the discussion of
original allotments.
1 For this report, “states” includes the District of Columbia, since it is treated as other states
for SCHIP purposes. Generally, the word “states” does not include the five territories,
Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.
These five “commonwealths and territories” are identified in §2104(c)(3) of the Social
Security Act and are treated differently from states for purposes of calculating their original
allotments. Unless noted otherwise, section references in law used in this report are to the
Social Security Act.
2 §2104 is the section entitled “Allotments.” The term “original allotments” does not occur
in the law. However, CRS uses this term to distinguish each year’s original, or initial,
allotment (paragraphs (a) through (e) of §2104) from the reallocation of the unspent
balances of these funds available for redistribution to other states (paragraphs (f) and (g)).
3 CRS Report RL30473, State Children’s Health Insurance Program (SCHIP): A Brief
Overview, by Elicia J. Herz, et al. CRS Report RL32807, SCHIP Financing: Funding
Projections and State Redistribution Issues, by Chris L. Peterson.
4 CRS Report RL32389, A State-by-State Compilation of Key State Children’s Health
Insurance Program (SCHIP) Characteristics, by Elicia J. Herz, et al.

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CRS-2
SCHIP Appropriation:
Total Amount of Original Allotments
BBA 97 established SCHIP under a new Title XXI of the Social Security Act.
Section 2104(a) specified the total appropriation available in every fiscal year from
FY1998-FY2007. The only change to these numbers since BBA 97 was to add $20
million to the total FY1998 appropriation.5 The current-law numbers in Section
2104(a) are shown in column A of Table 1. For SCHIP’s first four years, BBA 97
held the total appropriation constant. However, for FY2002-FY2004, the annual
appropriation was $1.125 billion less than in FY1998-FY2001. This drop in funding,
sometimes referred to as the “SCHIP dip,” was written into BBA 97 due to budgetary
constraints applicable at the time the legislation was drafted.
Sections 4921 and 4922 of BBA 97 called for $60 million to be used from the
total SCHIP appropriation each year from FY1998-FY2002 for special diabetes
grants.6 These subtractions to the total original allotments available to states and
territories are shown in column B of Table 1. Beginning in FY2003, these two
diabetes programs have been funded by direct appropriations, not from the SCHIP
appropriation.
Besides the $20 million adjustment to the total FY1998 SCHIP appropriation,
all legislative changes to the total SCHIP appropriation since BBA 97 have affected
only the original allotments to the five territories.7 BBA 97 called for the territories
to receive 0.25% of the amounts shown in column A of Table 1. The FY1999
Omnibus Appropriations Act (P.L. 105-277) appropriated $32 million for the
territories’ SCHIP original allotment for FY1999, in addition to the 0.25% of the
total appropriation. The $32 million was approximately 0.75% of the $4.275 billion
in column A of Table 1. The Medicare, Medicaid and SCHIP Balanced Budget
Refinement Act (BBRA) of 1999 (P.L. 106-113) specified additional amounts to be
appropriated to the territories for FY2000-FY2007. The amounts specified for these
years were exactly 0.8% of the total appropriations shown in column A of Table 1.
Thus, for FY2000-FY2007, territories were slated to receive a total of 1.05% of the
amounts specified in §2104(a), although only the 0.25% portion would reduce the
amount of original allotments available to the states specifically.8 Column C of
Table 1 shows the additional appropriations for the territories from these provisions.
5 §162 of P.L. 105-100 made changes “[e]ffective as if included in the enactment of ... the
Balanced Budget Act of 1997.” Paragraph (8)(A) increased the FY1998 appropriation of
$4,275,000,000 by $20 million to $4,295,000,000.
6 Public Health Service Act §330B and §330C.
7 The appropriation of $283 million to SCHIP for FY2006 through the Deficit Reduction Act
of 2005 (DRA, P.L. 109-171) is not considered a legislative change to original allotments.
The DRA appropriation for SCHIP is a special appropriation targeted to shortfall states. It
did not go through the original allotment formula, nor is it available for three years.
8 As discussed in other previously referenced CRS reports, the 1.05% amount is used in the
annual reallocation of unspent original allotment funds after their three-year period of
availability has passed. Of the total unspent funds, 1.05% is designated for the territories.

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CRS-3
Column D of Table 1 displays the total amount of federal SCHIP original
allotments provided to the states and territories under current law. For comparative
purposes, column E shows the total spending or demand for federal SCHIP funds in
each of those years, projecting for FY2006 and FY2007. If the amounts represented
only federal SCHIP “spending,” the maximum that a state could spend is its available
balance. For states that exhausted or are projected to exhaust all available balances,
“demand” is used to reflect not only total spending but also the shortfall of federal
SCHIP funds (that is, the additional amount of federal SCHIP funds the state would
have used had the funds been available). The spending/demand is applied against all
available federal SCHIP funds, not just the original allotments. Thus, even though
the spending/demand for federal SCHIP funds has exceeded some years’ total
original allotments, state shortfalls of federal SCHIP funds have largely been avoided
because of the redistribution of unspent funds.9
Table 1. Federal SCHIP Appropriations, Original Allotments,
and Spending, FY1998-FY2007
A
B
C


D = A-B+C
E
Subtract
Add
For
Allotments
Special
territories
Original
specified in
diabetes
per
allotments to states
Total spending/
FY
§2104(a)
grants
§2104(c)(4)
and territories
demand
1998
$4,295,000,000 $60,000,000
$4,235,000,000
$121,800,000
1999
$4,275,000,000 $60,000,000 $32,000,000 $4,247,000,000
$921,800,000
2000
$4,275,000,000 $60,000,000 $34,200,000 $4,249,200,000
$1,928,800,000
2001
$4,275,000,000 $60,000,000 $34,200,000 $4,249,200,000
$2,671,600,000
2002
$3,150,000,000 $60,000,000 $25,200,000 $3,115,200,000
$3,776,200,000
2003
$3,150,000,000 $25,200,000
$3,175,200,000
$4,276,400,000
2004
$3,150,000,000 $25,200,000
$3,175,200,000
$4,644,700,000
2005
$4,050,000,000 $32,400,000
$4,082,400,000
$5,089,500,000
2006
$4,050,000,000 $32,400,000
$4,082,400,000
$5,983,700,000
2007
$5,000,000,000 $40,000,000
$5,040,000,000
$6,343,500,000
Total $39,670,000,000 $300,000,000 $280,800,000
$39,650,800,000 $35,758,100,000
Source: Congressional Research Service (CRS) analysis and CRS SCHIP Projection Model.
Notes: Section numbers refer to Title XXI of the Social Security Act. The special diabetes grants are
described in Public Health Service Act §330B and §330C. Numbers rounded to the nearest $100,000.
“Spending/demand” is included for comparative purposes and is from all federal SCHIP funds —
reallocated funds (that is, amounts from the redistribution and retention of unspent funds after original
allotments’ three-year period of availability) as well as from original allotments. Spending/demand
for FY2006 and FY2007 are projections. If the projections were only of federal SCHIP spending, the
maximum that a state could spend is its available balance. For states that exhausted (or are projected
to exhaust) all available balances, demand reflects not only total spending but also the shortfall of
federal SCHIP funds (the additional amount of federal SCHIP funds the state would have spent had
the funds been available). For more details, see CRS Report RL32807, SCHIP Financing: Funding
Projections and State Redistribution Issues, by Chris L. Peterson.
9 For additional details, see CRS Report RL32807, SCHIP Financing: Funding Projections
and State Redistribution Issues, by Chris L. Peterson.

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CRS-4
Allotment Formulas for Territories and States
Territories
Of the total amount of original allotments available to territories (described
above), a certain percentage is provided to each of the territories as its original
allotment: Puerto Rico receives 91.6%, Guam 3.5%, the Virgin Islands 2.6%,
American Samoa 1.2%, and the Northern Mariana Islands 1.1%. These percentages
are specified in law and have been unaltered since BBA 97.10
States
Each state’s original allotment is based primarily on two factors described in
law as the “number of children” and a “state cost factor.”11 Once calculated, these
two factors are multiplied by each other for each state, with the results added for a
national total. Each state’s percentage of the total, subject to floors and ceilings, is
then multiplied by the total allotment funds available to states in that year (after the
reductions for the territories and, for FY1998-FY2002, the special diabetes grants).
The result is the amount allotted to each state for that fiscal year.
Number of Children. The “number of children” is composed of two
estimates for each state:
! the number of low-income children without health insurance; and
! the number of all low-income children.
A low-income child is an individual under the age of 19 whose family income
is at or below 200% of the poverty line.12 The weight attached to each of the two
factors varies by fiscal year. For FY1998 and FY1999, the “number of children” in
each state relied solely on the number of uninsured low-income children, as shown
in Table 2. As SCHIP began to cover more low-income children, the formula was
designed to rely less on the number of uninsured low-income children and more on
the number of all low-income children. FY2000 was the transition year, in which the
“number of children” used 75% of the number of uninsured low-income children and
25% of the number of all low-income children, as illustrated in Table 2.13 For
FY2001 onward, the “number of children” is weighted evenly between the number
of uninsured low-income children and the number of all low-income children in each
state.
10 §2104(c)(2).
11 §2104(b).
12 For 2005, this measure of poverty for a family of three with two children was $15,735
[http://www.census.gov/hhes/www/poverty/threshld/thresh05.html]. At 200% of this level,
the amount would be $31,470. The measures of poverty are discussed in greater detail in
the technical appendix of this report.
13 In BBA 97, FY2001 was slated to be the transition year rather than FY2000. The
transition year was moved up by BBRA.

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CRS-5
Table 2. Factors, with Associated Weights, for Calculating
States’ SCHIP Original Allotments, by Fiscal Year
State’s original allotment = “number of children” x “state cost factor”
(subject to floors and ceilings shown in Table 3)
“Number of children” in §2104(b)(2) is the
“State cost factor” in §2104(b)(3) is the
sum of the two factors below multiplied by sum of the two factors below multiplied by
the associated percentage
the associated percentage
Ratio of state’s
Number of low-
average annual
income children
wages (health
without health
Number of all low-
Constant (at the
services industry) to
FY
insurance
income children
national average)
national average
1998
100%
0%
15%
85%
1999
100%
0%
15%
85%
2000
75%
25%
15%
85%
2001
50%
50%
15%
85%
2002
50%
50%
15%
85%
2003
50%
50%
15%
85%
2004
50%
50%
15%
85%
2005
50%
50%
15%
85%
2006
50%
50%
15%
85%
2007
50%
50%
15%
85%
Source: Congressional Research Service (CRS) analysis.
Table 3. Applicable Floors and Ceilings for Calculating
States’ SCHIP Original Allotments, by Fiscal Year
Ceiling: state’s
Floor: state’s minimum original allotment
maximum original
(greatest applicable factor applies)
allotment
90% of last year’s
70% of 1999
145% of 1999
FY
$2,000,000
original allotment
original allotment
original allotment
1998
X
1999
X
2000
X
X
X
X
2001
X
X
X
X
2002
X
X
X
X
2003
X
X
X
X
2004
X
X
X
X
2005
X
X
X
X
2006
X
X
X
X
2007
X
X
X
X
Source: Congressional Research Service (CRS) analysis.
Note: The “X” represents factors applicable for that fiscal year. Once a state’s original allotment
based on Table 2 is calculated, it is tested against the applicable floors and ceilings in this table. The
tests are evaluated in terms of the state’s percentage of the total original allotments to states for each
year, not on the dollar amounts. This is described in the text of the report.
The source of data for these state-level estimates is the March supplement of the
Current Population Survey (CPS), which is administered by the U.S. Census Bureau.
The CPS is a monthly survey of households that provides estimates of employment
and unemployment in the U.S. Some time between February and April, respondents

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CRS-6
are asked additional questions about their work experience, income, noncash
benefits, migration and health insurance status in the previous year. Because the
supplement is no longer given only in March, it has been renamed the Annual Social
and Economic (ASEC) Supplement, though many analysts continue to call it the
March supplement.
Since survey estimates come from only a sample of the population, the estimates
could differ from the results from a complete census using the same survey questions.
It is possible to estimate this “sampling error” based on the sample size (that is, the
number of respondents). Because sample sizes can be relatively small in less
populous states, results from multiple years are often averaged together to reduce the
sampling error. Current law specifies that for estimating the SCHIP original
allotment’s “number of children,” an average of the most recent three years is used.14
The original allotments for FY2006 were announced June 24, 2005.15 The
“number of children” for these allotments was based on ASEC data from 2001, 2002,
and 2003. Data for 2004, collected in the 2005 ASEC, were not released until
August 30, 2005. Regardless, that later data could not be used for calculating the
FY2006 original allotments. The law specifies that the original allotment for a fiscal
year must be based on “the 3 most recent March supplements to the Current
Population Survey of the Bureau of the Census before the beginning of the calendar
year in which such fiscal year begins.”16 FY2006 began (October 1, 2005) in
calendar year 2005. Thus, the Centers for Medicare and Medicaid Services (CMS)
interpreted the law to mean that, for the FY2006 original allotments, the CPS data
can be no more recent than those available on December 31, 2004. On that date, the
2004 ASEC, providing data from 2003, was the most recent officially available.
Thus, the FY2006 original allotments were based on data averaged over the three-
year period 2001-2003.
State Cost Factor. The other major factor used in calculating states’ portion
of the total annual SCHIP appropriation is a state cost factor, based on wages of
employees in the health services industry. The factor is intended to adjust for
geographic variations in health costs. The national average is scaled to equal 1.00.
States with above-average wages in the health services industry will have an amount
greater than 1.00, which will increase the amount of their allotment — and vice
versa. As shown in Table 2, 15% of state cost factor does not vary. In essence, that
portion is held at 1.00, the national average. The remaining 85% reflects how
different a state’s average wages are compared to the national average.
The law specifies that the wage data are to be obtained from the Bureau of
Labor Statistics (BLS) of the Department of Labor, using three-year averages for the
same years used to calculate the number of children. The law also defines the “health
14 §2104(b)(2)(B).
15 U.S. Department of Health and Human Services, “State Children’s Health Insurance
Program; Final Allotments to States, the District of Columbia, and U.S. Territories and
Commonwealths for Fiscal Year 2006,” 70 Federal Register 36615, June 24, 2005.
16 §2104(b)(2)(B).

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CRS-7
services industry” as employers with a Standard Industrial Classification (SIC) code
of 8000.17 However, in 2002, BLS replaced SIC with the North American Industry
Classification System (NAICS). Although the mapping between the two systems for
the health services industry was not identical, the NAICS wage data codes “represent
approximately 98 percent of the wage data that would have been provided under the
related SIC code 8000.”18 The NAICS codes now used are 621 (ambulatory health
care services), 622 (hospitals), and 623 (nursing and residential care facilities).
These three codes are under the broader category (62) for health care and social
assistance. The only NAICS code from this category not used for the state cost factor
is 624 (social assistance).19
The source of data BLS uses for calculating the average wages is from
mandatory reports filed quarterly by every employer on their unemployment
insurance contributions. BLS provides the data directly to CMS. Because the data
cover all employers subject to unemployment insurance coverage under federal law
(nearly 99% of employers), it is not technically a survey, but rather a census.20 As a
result, using a three-year average does not reduce sampling error, since censuses do
not have sampling error.
Floors and Ceilings. For FY1998 and FY1999, the only adjustment to the
calculated state shares of annual SCHIP appropriations was a floor, guaranteeing that
every state would receive an allotment of at least $2 million, as shown in Table 3.
No state’s preadjusted allotment for FY1998 or FY1999 was below $2 million, so
this floor never applied.
BBRA added two other tests to ensure states’ original allotments did not drop
below certain levels. The legislation also added a ceiling to cap the amount of the
allotments to individual states based on certain prior-year allotments. These BBRA
provisions were effective beginning with the FY2000 allotment. As previously
mentioned, in calculating the allotment for each state, the number of children and the
state cost factor are multiplied together, with the results added for a national total.
Each state’s percentage of the total — its “preadjusted proportion” — became the
values against which BBRA’s floors and ceilings are assessed. For the floor, two
new tests were applied: (1) a state’s original allotment could not be less than 90%
of last year’s, and (2) its original allotment could not be less than 70% of the FY1999
allotment, as shown in Table 3. For the ceiling, no state’s original allotment could
exceed 145% of the FY1999 allotment, also shown in Table 3. Once the floors and
ceilings were applied to affected states to produce their adjusted proportion, the other
states’ proportions were adjusted equally to use exactly 100% of the original funding
17 §2104(b)(3)(B).
18 U.S. Department of Health and Human Services, “State Children’s Health Insurance
Program; Final Allotments to States, the District of Columbia, and U.S. Territories and
Commonwealths for Fiscal Year 2006,” 70 Federal Register 36617, June 24, 2005.
19 U.S. Census Bureau, “2002 NAICS Codes and Titles,” Title 62, at [http://www.census.
gov/epcd/naics02/naicod02.htm#N62].
20 U.S. Department of Labor Bureau of Labor Statistics, “Quarterly Census of Employment
and Wages: Overview,” at [http://www.bls.gov/cew/cewover.htm].

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CRS-8
for the year available to the states. Table 4 shows how all of these factors were
applied to calculate states’ and territories’ FY2006 original allotments.
Table 4. Derivation of FY2006 Federal SCHIP
Original Allotments
A
B
C=A*B
Number of
Pre-
State or
children
State cost
adjusted
Adjusted
territory
(000s)
factor
Product
proportion proportion
Allotment
Alabama 289
0.9793
283.0266
1.5802%
1.5887%
$64,182,128
Alaska 38
1.0701
40.1300
0.2241%
0.2253%
$9,100,310
Arizona 434
1.0909
473.4557
2.6435%
2.6577%
$107,365,854
Arkansas 210
0.9178
192.7374
1.0761%
1.0841%
$43,795,428
California 2,531
1.1267 2,851.7012
15.9220%
16.0075%
$646,682,123
Colorado 248
1.0678
264.2903
1.4756%
1.4345%
$57,951,287
Connecticut 134
1.1365
152.2908
0.8503%
0.8549%
$34,535,088
Delaware 35
1.1396
39.8866
0.2227%
0.2239%
$9,045,121
D.C.
34
1.2395
42.1444
0.2353%
0.2366%
$9,557,107
Florida 1,062
1.0353 1,099.4804
6.1388%
6.1717%
$249,329,871
Georgia 555
1.0295
570.8758
3.1874%
3.2045%
$129,457,875
Hawaii 64
1.1167
71.4686
0.3990%
0.3071%
$12,404,524
Idaho 102
0.8911
90.8880
0.5075%
0.5102%
$20,610,739
Illinois 719
1.0384
746.1197
4.1658%
4.1882%
$169,198,045
Indiana 333
0.9667
321.9135
1.7973%
1.8070%
$73,000,528
Iowa 133
0.8948
119.0055
0.6644%
0.6680%
$26,986,944
Kansas 134
0.9080
121.2234
0.6768%
0.6805%
$27,489,909
Kentucky 267
0.9540
254.7259
1.4222%
1.4299%
$57,764,350
Louisiana 366
0.9306
340.1369
1.8991%
1.9093%
$77,133,066
Maine 59
0.8915
52.6004
0.2937%
0.2953%
$11,928,229
Maryland 201
1.0713
214.7894
1.1992%
1.2057%
$48,707,931
Massachusetts 246
1.1072
272.3684
1.5207%
1.4704%
$59,401,346
Michigan 506
1.0211
516.6683
2.8847%
2.9002%
$117,165,211
Minnesota 177
1.0242
181.2763
1.0121%
0.9747%
$39,376,933
Mississippi 243
0.9058
220.1172
1.2290%
1.2356%
$49,916,118
Missouri 264
0.9420
248.2235
1.3859%
1.3934%
$56,289,799
Montana 63
0.8860
55.3778
0.3092%
0.3109%
$12,558,064
Nebraska 82
0.9116
74.2934
0.4148%
0.4170%
$16,847,571
Nevada 155
1.1919
184.7509
1.0315%
1.0371%
$41,896,088
New Hampshire
39
1.0529
40.5358
0.2263%
0.2275%
$9,192,336
New Jersey
346
1.1420
394.5673
2.2030%
2.2148%
$89,476,287
New Mexico
166
0.9561
158.2400
0.8835%
1.0435%
$42,156,779
New York
1,111
1.0814 1,201.4443
6.7081%
6.7441%
$272,452,310
North Carolina
559
0.9900
553.4211
3.0899%
2.7292%
$110,255,024
North Dakota
32
0.8745
27.9849
0.1562%
0.1571%
$6,346,156
Ohio 568
0.9676
549.5955
3.0686%
3.0850%
$124,632,131
Oklahoma 258
0.8818
227.0515
1.2677%
1.4201%
$57,370,830
Oregon 205
1.0110
206.7594
1.1544%
1.1606%
$46,886,967
Pennsylvania 594
0.9955
591.3332
3.3016%
3.3193%
$134,097,011
Rhode Island
44
0.9803
43.1345
0.2408%
0.2421%
$9,781,641
South Carolina
247
0.9917
244.9403
1.3676%
1.3749%
$55,545,268
South Dakota
38
0.9205
34.5204
0.1927%
0.1938%
$7,828,211
Tennessee 348
1.0189
354.5737
1.9797%
1.9903%
$80,406,910
Texas 2,055
0.9758 2,005.2932
11.1962%
11.2563%
$454,741,626
Utah 160
0.8905
142.0277
0.7930%
0.7972%
$32,207,704
Vermont 23
0.9236
21.2435
0.1186%
0.1192%
$4,817,413

---

CRS-9
A
B
C=A*B
Number of
Pre-
State or
children
State cost
adjusted
Adjusted
territory
(000s)
factor
Product
proportion proportion
Allotment
Virginia 315
1.0122
318.8368
1.7802%
1.7897%
$72,302,825
Washington 327
0.9914
324.1917
1.8101%
1.6017%
$64,705,479
West Virginia
114
0.9072
102.9648
0.5749%
0.5780%
$23,349,395
Wisconsin 245
1.0057
245.9053
1.3730%
1.3803%
$55,764,106
Wyoming 28
0.9430
25.9337
0.1448%
0.1456%
$5,881,004
State subtotals 17,910.4652 100.0000% 100.0000%
Total amount available to states = $4,050,000,000 less 0.25% for territories = $4,039,875,000
Puerto Rico
91.6%
$38,952,900
Guam
3.5%
$1,488,375
Virgin Islands
2.6%
$1,105,650
American Samoa
1.2%
$510,300
N. Mariana Islands
1.1%
$467,775
Total amount available to territories = 0.25% of $4,050,000,000 + $32,400,000
$42,525,000
=
Total original allotments to states and territories $4,082,400,000
Source: U.S. Department of Health and Human Services, “State Children’s Health Insurance
Program; Final Allotments to States, the District of Columbia, and U.S. Territories and
Commonwealths for Fiscal Year 2006,” 70 Federal Register 36619, June 24, 2005.
The decision to use the preadjusted proportion rather than the dollar amounts
of the allotments for applying floors and ceilings was a practical one, particularly
because of the impact of the SCHIP dip that occurred in FY2002. Using a
hypothetical example to illustrate, assume that the preadjusted proportions for all the
states were the same in FY2002 as in FY2001. Because of the SCHIP dip, every state
in FY2002 would have been slated to receive 73.3% of the dollar amount of its
FY2001 allotment, even if its preadjusted proportion was unchanged.21 One of the
BBRA’s new floors specified that no state would have its allotment be less than 90%
of the previous year’s. In this hypothetical example, if that floor were applied to the
dollar amounts calculated from the formula, then every state would have hit it. The
BBRA’s floors were not intended to prevent a state’s allotment from falling below
a particular dollar amount; rather, their purpose was to ensure that, regardless of
whether the total amount available for allotments rose or fell, individual states’ share
of the overall appropriation would not vary substantially over time.
Issues and Options Affecting States
Total Appropriation
The last row of Table 5 (below) shows that the FY2005 appropriation to states
was $4.0 billion. However, federal SCHIP spending in FY2005 (the most recent full
fiscal year) was $5.0 billion — 25% more than the total original allotments to states
for that year, also shown in the table. Funds available in FY2005 in addition to the
21 From column D of Table 1: 3,115,200,000/4,249,200,000 = 73.3%. Reducing both the
numerator and the denominator by the 0.25% going to the territories would still yield 73.3%.

---

CRS-10
FY2005 original allotments were the FY2003 and FY2004 original allotments (if
balances remained) and redistributed funds from other states’ unspent FY2002
original allotments. With all of these funds, no state experienced a shortfall of
federal SCHIP funds in FY2005.
In FY2006, the total appropriation to states is the same as in FY2005 ($4.0
billion), but states’ demand for federal SCHIP funds is projected to be approximately
$5.9 billion, 47% greater than the year’s original allotments. In FY2007, the
appropriation to states will rise to $4.9 billion, but states’ demand for federal SCHIP
funds is projected to be approximately $6.3 billion, 26% greater than the year’s
original allotments.22
For SCHIP’s first four years (FY1998-FY2001), the total annual amount
provided to states in original allotments exceeded federal SCHIP spending for the
year. Beginning in FY2003, however, states’ total annual spending exceeded the total
annual original allotment amounts, resulting in a greater reliance by many states on
unspent funds redistributed from other states. However, as more states spend more
of their own allotments, less money is available for redistribution. Simultaneously,
more states face the prospect of shortfalls as the gap grows between what they plan
to spend in federal SCHIP funds and the amounts projected to be available. CRS
projects that 18 states may likely face shortfalls of federal SCHIP funds in FY2007
under current law.23 (As of the end of FY2005, no more than one state has ever
experienced a shortfall in a given year.) If the total annual appropriated amount in
reauthorization continues to be the same as the FY2007 amount, the number of states
experiencing shortfalls will likely increase annually for several years, according to
preliminary CRS projections.24
Original Allotment Formula
Once the total amount appropriated to states has been set, the original allotment
formula determines how much each state will receive. This is as important to
individual states as the total amount allotted nationally. For example, in FY2000,
there were billions more dollars in federal SCHIP funds available to states through
their allotments than were being spent. However, in that year, Alaska experienced
a shortfall of federal SCHIP funds of about $419,000. Even though ample funds
appeared available from a national perspective, the way in which those funds were
allotted to individual states meant that Alaska exhausted all available federal SCHIP
funds, with no capability to tap into other states’ unspent funds that year.
22 For additional information on these projections, see CRS Report RL32807, SCHIP
Financing: Funding Projections and State Redistribution Issues, by Chris L. Peterson.
States’ demand for federal SCHIP funds in FY2006 and FY2007 is based on states’ own
projections provided to CMS.
23 CRS Report RL32807, SCHIP Financing: Funding Projections and State Redistribution
Issues, by Chris L. Peterson.
24 Projections based on states’ adjusted proportions for the FY2006 original allotments.
Beginning in FY2008, demand for federal SCHIP funds is held at the FY2007 level
increased by the projected growth rate of average per-capita health care expenditures,
according to CMS Office of the Actuary.

---

CRS-11
(Redistribution of states’ unspent original allotments to other states did not begin
until FY2001.)
For many states, there is a disconnect between their original allotment level and
their demand for federal SCHIP funds. Table 5 shows every state’s FY2005 original
allotment compared to its FY2005 federal SCHIP spending (from all available federal
SCHIP funds, not just the FY2005 original allotment). Only 16 states had total
federal SCHIP spending in FY2005 that was less than their FY2005 original
allotment. Tennessee is the lowest spender and Rhode Island is the highest spender
relative to their original allotment amounts. Tennessee’s federal SCHIP spending in
FY2005 was only 4% of its FY2005 original allotment amount.25 At the other
extreme, Rhode Island spent six times what was allotted to it in FY2005.26
Table 6 shows similar information, but for all full fiscal years since SCHIP’s
inception. The same two states are at the extremes. From FY1998-FY2005,
Tennessee’s federal SCHIP spending was only 12% of its total original allotments,
while Rhode Island had demand (i.e., actual spending plus shortfalls) for federal
SCHIP funds amounting to 259% of its total original allotment funds.
25 Targeted low-income children are defined as those who, among other factors, must have
family income that is above the Medicaid income eligibility level as of Mar. 31, 1997, per
§2210(b)(4). On that date, Tennessee’s Medicaid program covered children up to 400% of
the federal poverty level (FPL). Tennessee had used SCHIP funds to expand its existing
comprehensive Medicaid Section 1115 waiver program. Under the state’s SCHIP Medicaid
expansion, Tennessee began enrolling children in Oct. 1997. In FY2002, enrollment
reached 10,216. Eligibility for this Medicaid expansion program was limited to older
children in families with income up to 100% FPL. As of Oct. 1, 2002, all such children had
to be covered under regular Medicaid — that is, they were no longer eligible for SCHIP
coverage. Thus, Tennessee has had no SCHIP enrollment since FY2002. Since then,
Tennessee’s federal SCHIP expenditures have been limited to “20% spending.” This type
of spending, per §2105(g), permits 11 qualifying states to use federal SCHIP funds to cover
the difference between the enhanced (SCHIP) and regular (Medicaid) federal medical
assistance percentages (FMAPs) for Medicaid enrollees, who are under age 19 and whose
family income exceeds 150% of poverty.
26 Rhode Island covers targeted low-income children from conception (covering pregnant
women) to age 19 with income up to 250% FPL. SCHIP coverage is available to
Medicaid/SCHIP-enrolled children’s parents and adult caretakers up to 185% FPL. For
more information, see State of Rhode Island “RIte Care/RIte Share Fact Sheet,” at
[http://www.dhs.state.ri.us/dhs/reports/rc_rs_fact_sheet_eng.pdf].

---

CRS-12
Table 5. FY2005 Original Allotments and Federal SCHIP
Spending, by State
(Millions of dollars; sorted by spending as a percentage of original allotment)
Spending as a percent
State
Original allotment
Spending
of original allotment
Tennessee
$78.9
$3.4
4%
New Mexico
$42.2
$23.2
55%
Connecticut $36.6
$20.5
56%
Washington $64.7
$40.3
62%
Texas $450.0
$287.7
64%
Nevada $40.4
$26.6
66%
Colorado $58.0
$38.7
67%
Delaware $9.0
$6.4
71%
Vermont $4.9
$3.7
75%
D.C.
$9.6
$7.4
77%
Idaho $20.7
$16.6
80%
New Hampshire
$9.3
$7.6
82%
Oregon $47.3
$38.6
82%
Wyoming $6.4
$5.7
90%
Utah $31.7
$28.7
91%
Florida $249.2
$244.0
98%
Indiana $73.4
$76.1
104%
Montana $12.3
$12.8
104%
Virginia $76.3
$79.8
105%
Hawaii $12.4
$13.0
105%
South Carolina
$54.3
$57.3
106%
Pennsylvania $131.0
$140.9
108%
Oklahoma $57.4
$63.6
111%
California $667.4
$760.0
114%
Alabama $68.0
$80.2
118%
North Dakota
$6.4
$8.3
129%
Arkansas $48.7
$63.0
130%
Kentucky $54.1
$70.8
131%
New York
$270.1
$362.5
134%
West Virginia
$24.4
$33.3
136%
Ohio $125.8
$172.3
137%
Louisiana $77.5
$109.9
142%
Iowa $28.3
$40.8
144%
South Dakota
$7.9
$11.9
151%
Kansas $28.5
$43.1
151%
Georgia $130.9
$201.6
154%
Michigan $111.3
$172.2
155%
Missouri $54.0
$88.7
164%
Maine $12.5
$20.6
165%
Wisconsin $51.9
$86.3
166%
Minnesota $38.6
$71.5
185%
Arizona $106.5
$198.0
186%
North Carolina
$110.3
$211.0
191%
Illinois $164.9
$320.2
194%
Nebraska $17.1
$34.0
199%
Massachusetts $59.4
$121.5
204%
Mississippi
$48.2
$112.5
233%
New Jersey
$84.7
$204.9
242%
Maryland $48.3
$122.4
253%
Alaska $9.0
$24.4
271%
Rhode Island
$9.4
$56.4
603%

---

CRS-13
Spending as a percent
State
Original allotment
Spending
of original allotment
State total
$4,040
$5,045
125%
Source: Congressional Research Service (CRS).
Table 6. Sum of FY1999-FY2005 Original Allotments and
Demand for Federal SCHIP Funds, by State
(Millions of dollars; sorted by spending as a percentage of original allotment)
Sum of annual
spending/demand
Spending/demand as
Sum of annual
(i.e., expenditures and a percent of original
State
original allotments
shortfalls)
allotments
Tennessee $549.7
$68.0
12%
New Mexico
$374.1
$88.9
24%
Washington $414.1
$109.8
27%
Delaware $69.7
$23.5
34%
New Hampshire
$80.3
$28.6
36%
Arkansas $357.5
$130.5
36%
Oregon $335.7
$134.9
40%
Connecticut $263.3
$109.5
42%
Wyoming $51.7
$22.0
42%
Nevada $252.1
$117.5
47%
Hawaii $80.7
$38.1
47%
D.C.
$78.5
$37.7
48%
Oklahoma $509.0
$255.3
50%
Vermont $31.9
$16.8
53%
Texas $3,469.5
$1,856.8
54%
Virginia $525.4
$286.2
54%
Colorado $349.9
$193.0
55%
California $5,454.4
$3,009.3
55%
Idaho $141.5
$83.3
59%
North Dakota
$44.9
$28.4
63%
Michigan $798.0
$521.3
65%
Louisiana $637.1
$423.2
66%
Utah $209.3
$146.1
70%
Alabama $541.1
$378.3
70%
Montana $96.5
$70.0
73%
Illinois $1,087.1
$818.2
75%
Pennsylvania $934.4
$705.5
76%
South Carolina
$451.1
$359.1
80%
Florida $1,780.4
$1,426.5
80%
Ohio $955.4
$804.7
84%
South Dakota
$58.9
$50.4
86%
Iowa $221.8
$190.8
86%
Georgia $952.9
$835.4
88%
Indiana $492.1
$439.0
89%
West Virginia
$167.8
$150.9
90%
Kansas $219.3
$201.7
92%
Nebraska $125.9
$125.4
100%
Arizona $856.1
$856.6
100%
Missouri $411.8
$415.9
101%
Minnesota $255.5
$273.9
107%
North Carolina
$710.5
$765.2
108%
Kentucky $381.4
$429.4
113%
Mississippi $386.4
$450.9
117%

---

CRS-14
Sum of annual
spending/demand
Spending/demand as
Sum of annual
(i.e., expenditures and a percent of original
State
original allotments
shortfalls)
allotments
New York
$2,067.0
$2,417.5
117%
Wisconsin $354.8
$437.2
123%
Maine $94.0
$115.8
123%
Massachusetts $386.5
$501.9
130%
New Jersey
$660.0
$1,140.9
173%
Maryland $383.3
$684.9
179%
Alaska $61.0
$134.3
220%
Rhode Island
$71.7
$186.1
259%
State total
$30,243
$23,095
76%
Source: Congressional Research Service (CRS).
Separate from the issue of the allotments being sufficient to cover states’
expenditures is states’ concern that the formula causes substantial variation and
unpredictability.27 This unpredictability is partly driven by the relatively large
standard errors associated with the two formula factors derived from the ASEC: the
number of low-income children and the number of those children without health
insurance. According to one source, “The funding fluctuations present significant
problems for states as they develop budget priorities under difficult fiscal
conditions.”28 Table 7 shows this variation in states’ original allotments, based on
each state’s percentage of the total appropriation available to states between FY1998
and FY2006. Over the nine-year period, the average difference between the lowest
and highest amounts was 31%. This calculation takes into account that the amounts
were limited in 19 states that hit the statutory floor and in 14 states that hit the
statutory ceiling, also shown in the table.
27 For example, see David Bergman, “Perspectives on Reauthorization: SCHIP Directors
Weigh In,” National Academy for State Health Policy, June 2005.
28 Michael Davern et al., “State Variation in SCHIP Allocations: How Much Is There, What
Are Its Sources, and Can It Be Reduced?” Inquiry, vol. 40, no. 2, summer 2003, p. 184.

---

CRS-15
Table 7. Variation in States’ SCHIP Original Allotments
(Adjusted Proportion of Total Appropriation Available to States)
and Number of Years State Hit Floor or Ceiling, FY1998-FY2006,
by Percentage Difference between Lowest and Highest
State
Lowest
Highest
Difference
Floor
Ceiling
Alaska
0.16%
0.24%
45%
0
1
Colorado 0.99%
1.43%
45%
0
2
Delaware 0.19%
0.28%
45%
2
2
Hawaii 0.21%
0.31%
45%
0
5
Idaho 0.38%
0.55%
45%
0
1
Illinois 2.90%
4.21%
45%
0
1
Massachusetts 1.01%
1.47%
45%
0
5
Michigan 2.17%
3.14%
45%
0
1
Minnesota 0.67%
0.97%
45%
0
4
North Carolina
1.88%
2.73%
45%
0
3
North Dakota
0.12%
0.17%
45%
0
3
Vermont 0.08%
0.12%
45%
0
4
Washington 1.10%
1.60%
45%
0
4
Wisconsin 0.96%
1.39%
45%
0
1
Nevada 0.72%
1.04%
44%
0
0
Oklahoma 1.42%
2.03%
43%
7
0
New Mexico
1.04%
1.49%
43%
7
0
Oregon 0.93%
1.30%
40%
0
0
Nebraska 0.35%
0.49%
39%
1
0
Utah 0.57%
0.80%
39%
0
0
Maryland 1.07%
1.46%
36%
1
0
Texas 9.79%
13.29%
36%
2
0
Ohio 2.74%
3.65%
33%
0
0
Tennessee 1.57%
2.05%
31%
0
0
Montana 0.28%
0.36%
30%
1
0
New Hampshire
0.23%
0.29%
30%
3
0
Alabama 1.58%
2.04%
29%
2
0
Louisiana 1.87%
2.41%
29%
2
0
Indiana 1.43%
1.82%
27%
1
0
Missouri 1.22%
1.56%
27%
0
0
New York
6.05%
7.66%
27%
0
0
California 16.01%
20.23%
26%
1
0
South Carolina
1.34%
1.70%
26%
1
0
Wyoming 0.15%
0.18%
25%
0
0
Iowa 0.63%
0.78%
25%
0
0
D.C.
0.23%
0.29%
25%
2
0
Florida 5.24%
6.40%
22%
1
0
Kentucky 1.18%
1.43%
21%
0
0
Connecticut 0.78%
0.94%
21%
1
0
West Virginia
0.50%
0.60%
20%
1
0
Pennsylvania 2.78%
3.32%
19%
0
0
Arkansas 1.08%
1.28%
18%
1
0
Mississippi 1.17%
1.38%
18%
0
0
Arizona 2.64%
3.10%
18%
0
0
Virginia 1.62%
1.89%
17%
0
0
Georgia 2.95%
3.41%
15%
0
0
New Jersey
2.05%
2.35%
15%
0
0
Rhode Island
0.22%
0.25%
14%
1
0
Kansas 0.68%
0.78%
14%
0
0
Maine 0.30%
0.33%
13%
0
0

---

CRS-16
State
Lowest
Highest
Difference
Floor
Ceiling
South Dakota
0.18%
0.20%
10%
0
0
All States
31% average
19 states
14 states
Source: Congressional Research Service (CRS) analysis using CRS SCHIP Projection Model.
Notes: Numbers displayed are rounded; calculations are based on unrounded numbers. The “adjusted
proportion” is each state’s percentage of the total appropriation available to states, taking into account
the statutory floors and ceilings described earlier in the report.
Discussion
SCHIP has been lauded for the health insurance it provides to children and the
flexibility states have in designing their SCHIP programs. With the expiration of
SCHIP’s current authorization looming, Congress is expected to examine some of
the issues surrounding the SCHIP original allotment levels and formula. This section
of the report discusses generally how these issues have played out in SCHIP’s current
authorization and how they could be handled in reauthorization.
Although SCHIP is a capped grant program to states, shortfalls of federal
SCHIP funds have largely been avoided through congressional and administrative
actions. These past actions highlight the tensions in a program that is popular
because it provides health insurance to children, yet was not originally structured as
an open-ended entitlement to states (or individuals). Comparing the experience of
SCHIP in Rhode Island and Texas illustrates these tensions.
In FY2005, Rhode Island spent $56 million in federal SCHIP funds but had only
$9 million available from its own available original allotments.29 Redistributed
unspent funds from other states covered the $47 million difference. As previously
mentioned, Rhode Island’s SCHIP program covers children in families with income
up to 250% FPL and parents or adult caretakers of Medicaid/SCHIP-enrolled
children with income up to 185% FPL. In fact, the state’s SCHIP program had nearly
as many adult enrollees as child enrollees.30 Families with incomes between 150%
and 250% of the FPL pay a monthly premium of $61, $77, or $92 per month,
depending on their income.31 Enrollees face no cost-sharing (e.g., copayments) for
services.32 Rhode Island has one of the lowest rates of uninsured children in the
country, at 6.1%.33
29 In fact, the $9 million was entirely from its FY2005 original allotment, since the state had
already depleted the balances in its FY2003 and FY2004 original allotments.
30 Table 1 of CRS Report RL30473, State Children’s Health Insurance Program (SCHIP):
A Brief Overview, by Elicia J. Herz, et al.
31 State of Rhode Island “RIte Care/RIte Share Fact Sheet,” at [http://www.dhs.state.ri.us/
dhs/reports/rc_rs_fact_sheet_eng.pdf].
32 CRS Report RL32389, A State-by-State Compilation of Key State Children’s Health
Insurance Program (SCHIP) Characteristics, by Elicia J. Herz, et al.
33 CRS Report 97-310, Health Insurance: Uninsured Children by State, by Chris L.
Peterson. (Hereafter cited as CRS Report 97-310.)

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CRS-17
On the other hand, Texas has the highest rate of uninsured children in the
country, at 21.7%.34 After three years’ access to its FY2002 original allotment of
$302 million, $105 million was unspent and redistributed to states like Rhode Island.
Texas does not cover adults in its SCHIP program. Texas’s SCHIP covers children
in families with income up to 200% FPL. All of these enrollees face cost-sharing
(i.e., copayments charged when receiving services). Families with incomes between
101% and 200% of the FPL pay a monthly premium of $15, $20, or $25 per month,
depending on their income.35
Although the SCHIP programs in these two states vary along several
dimensions, the biggest difference is Rhode Island’s adult enrollment, which
comprises a substantial portion of its SCHIP enrollees, while Texas reports no adult
enrollees. If the goal is to reach as many children as possible, research has shown
that extending coverage to parents is effective.36 But in a program with capped
federal funding, covering adults raises questions about the appropriate level of funds
to be provided to each state. This is one example of the state-level differences in
SCHIP that affect states’ spending and could be used as factors for calculating future
allotments.
One option for reauthorization is for Congress to continue with current
appropriation levels and original allotment formula. Despite the variation in what
states have been allotted, the same criteria have been in place for nearly a decade.
Many states have expanded beyond the original populations targeted by the
authorizing SCHIP language. To the extent that they have done so and this has led
to potential shortfalls of federal SCHIP funds, Congress is not obliged to devise ways
to prevent such shortfalls, even if some congressional action has been taken in the
past. There has never been a guarantee that states would not face shortfalls. In fact,
Rhode Island in particular is a state that has experienced shortfalls in years past. One
may argue that the original allotment levels and formula are adequate, and states are
ultimately responsible to deal with the consequences of their decisions to expand
eligibility, covered benefits, and the like.
An opposing argument is that the appropriation levels and formula have been
an inefficient way for Congress to allocate money among states, particularly when
its attempts historically have demonstrated a desire to prevent any shortfalls of
34 Ibid.
35 Centers for Medicare and Medicaid Services (CMS), “Texas Title XXI Fact Sheet,”
available at [http://www.cms.hhs.gov/LowCostHealthInsFamChild/SCHIPASPI/list.asp].
36 See, for example, Lisa Dubay and Genevieve Kenney, “Expanding Public Health
Insurance to Parents: Effects on Children’s Coverage under Medicaid,” Health Services
Research, vol. 38, no. 5, Oct. 2003, p. 1283. The article states, “Children who reside in
states that expanded public health insurance programs to parents participate in Medicaid at
a rate that is 20 percentage points higher than of those who live in states with no expansions.
The Massachusetts expansion in coverage to parents led to a 14 percentage point increase
in Medicaid coverage among children due principally to reductions in uninsurance among
already eligible children.”

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CRS-18
federal SCHIP funds, with some exceptions.37 If the goal is to expand coverage to
as many children as possible, then some may argue that turning SCHIP into an open-
ended entitlement, like Medicaid, would be most beneficial, as states would not fear
the prospect of exhausting their federal funds for the program. If this were the case,
one could argue, the only limitation to states expanding coverage to children would
be each state’s ability to pony up the state share of the costs of coverage. However,
with a marked expansion of covered individuals on an open-ended basis, one might
also expect a marked expansion in federal outlays.
Because the current levels of state spending reflect state-level decisions about
their willingness to cover individuals in what are now relatively mature SCHIP
programs, some may contend that original allotment levels in reauthorization should
be set according to states’ spending. This approach could be used rather than using
the levels and formula that were originally created without the benefit of any SCHIP
experience. Under such an approach, there would likely be a 25% or more increase
in the national SCHIP appropriation compared to the last one slated to occur under
the current authorization, in FY2007.38
Of course, this does not mean that every state would receive a 25% increase in
its original allotment. An approach linking original allotments to actual spending
would mean that some states would get markedly smaller original allotments
compared to previous years, and other states would receive much larger ones. For
example, CRS projects that under current law, Texas will receive an FY2007 original
allotment of approximately $560 million but is projected to spend only $409 million
that year. If its FY2008 original allotment were linked to its FY2007 expenditures,
that allotment would be approximately $150 million less than the FY2007 one.
States that have annual spending less than their original allotments may argue
that such an approach for original allotments would penalize them and make it more
difficult for them to expand coverage or benefits in the future. Alternatively, there
could be some blend between current allotment levels and states’ recent expenditures,
with some adjustments built in depending on Congress’s willingness to cover
populations not defined as SCHIP’s targeted low-income children. In addition,
flexibility could be built in to accommodate new expansions in some states,
particularly those that had historically spent relatively smaller portions of their
available funds, as well as other factors.
37 One exception is the possible impact of a provision in the Deficit Reduction Act of 2005
(DRA, P.L. 109-171). The administration projected an FY2006 shortfall of federal SCHIP
funds amounting to $283 million, based on states’ own projections of their FY2006
spending. DRA included a $283 million appropriation for shortfall states (and 1.05% of the
appropriation for the territories). However, DRA specified that the funds could not be used
for coverage of non-pregnant adults. Previously cited CRS projections find that two states,
Minnesota and Rhode Island, will likely experience a shortfall because of this provision,
totaling approximately $20 million. This is still a much smaller shortfall than these states
would otherwise have experienced.
38 As previously mentioned, in FY2007 the appropriation to states will rise to $4.9 billion,
but states’ demand for federal SCHIP funds is projected to be approximately $6.3 billion,
26% greater than the year’s original allotments.

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CRS-19
Another issue is the period of availability of the original allotment. Under
current law, original allotments are available to states for three years.39 The first
Senate-passed version of DRA would have reduced the period of availability to two
years for the FY2004 and FY2005 original allotments. The shortened period of
availability of the FY2004 original allotment would have helped close projected
shortfalls in FY2006; the redistribution of FY2005 original allotment funds would
have occurred in FY2007. The enacted version of DRA dropped those provisions,
instead appropriating an additional $283 million for FY2006. DRA did not address
the projected shortfalls of federal SCHIP funds in FY2007. The President’s FY2007
budget calls for shortening the period of availability of the FY2005 original allotment
to two years to address the projected FY2007 shortfall.
Part of the rationale for shortening the period of availability of original
allotments hearkens back to BBA 97. When SCHIP was first created, original
allotments far outpaced states’ spending, since they were still trying to get their
programs started. After a decade, however, the states’ SCHIP programs are arguably
mature, and three years of availability is no longer necessary. Congress has yet to
enact any legislation shortening the period of availability of original allotments. If,
however, the period is shortened for the FY2005 original allotment for the benefit of
shortfall states in FY2007, as proposed by the President, then a reversion back to the
three-year period beginning with the FY2006 original allotment means that no
redistribution of unspent funds would occur in FY2008.
Finally, SCHIP has been responsible for decreases in the percentage of children
who are uninsured. This occurred in the face of significant drops in employer-
sponsored coverage for both children and adults (and significant increases in
uninsurance among adults). In FY1998 and FY1999, the original allotment formula’s
number of children relied totally on the number of uninsured low-income children,
to provide funding for states’ new SCHIP programs consistent with the number of
children potentially eligible for SCHIP. Beginning in FY2001, the formula’s number
of children has relied equally on the number of uninsured low-income children and
the number of all low-income children. Retaining the uninsured children as a factor
gives states a somewhat perverse incentive — that as they increase coverage of
children through SCHIP, their original allotments drop, all else being equal. The
declining reliance on the uninsured factor between FY1999 and FY2001 was
intended to ameliorate this perverse incentive. Whether Congress decides to continue
that decline as part of reauthorization or leave it as it has been for several years is one
of many questions to be answered.
39 §2104(e).

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CRS-20
Technical Appendix: Sources of Data
for Current Original Allotment Formula
If the components of the current original allotment formula are retained in
reauthorization, the sources of data may merit some additional consideration. As
previously mentioned, the SIC industry code used for the health services industry is
no longer in use, and has been replaced by codes using NAICS. CMS has simply
adopted the NAICS standard, but this could be updated in reauthorization.
Additionally, because this data source for the state cost factor does not include the
self-employed, some have argued that high rates of self-employment among
physicians in some states artificially depresses their state-level factor in the allotment
formula.
The other source of data in the formula is the Census Bureau’s Current
Population Survey (CPS), used for estimating the number of low-income children
(below 200% FPL) and the number of those children who are uninsured. A three-
year average is used in the formula to reduce the sampling error, as previously
discussed. Even with that, however, there can be marked variation, raising questions
about the reliability of the CPS estimates for purposes of calculating the original
allotments. To address some of these concerns, BBRA appropriated an additional $10
million annually, beginning in FY2000, for the CPS to boost its sample size of
children.
Even with the sample-size increase, the variation from year to year that may be
attributable simply to small sample sizes is sometimes quite large. For example,
Rhode Island has one of the lowest rates of uninsurance among children (6.1%),
using a three-year average of the most recently available data. Taking into account
the small sample size, there is in fact no significant difference, statistically speaking,
between that rate and the lowest rate in the country, 5.5% in Vermont.40
Table 8. Estimated Percentage of Uninsured Children
in Rhode Island and Vermont, 2002-2004
Year
Rhode Island
Vermont
2002
5.3%
5.8%
2003
5.8%
5.2%
2004
7.3%
5.5%
2002-2004 average
6.1%
5.5%
Source: Congressional Research Service (CRS) analysis of the Annual Social and Economic (ASEC)
Supplement of the Current Population Survey (CPS). See also CRS Report 97-310, Health Insurance:
Uninsured Children by State, by Chris L. Peterson.
40 CRS Report 97-310, which includes confidence intervals around each state’s three-year
average uninsurance rate.

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CRS-21
As shown in Table 8, Vermont’s 5.5% average is based on the estimate of 5.8%
for 2002, 5.2% for 2003, and 5.5% for 2004. For Rhode Island, its 6.1% average was
based on 5.3% in 2002 (less than the Vermont estimate for that year), 5.8% for 2003,
and 7.3% for 2004. In the 2005 CPS (providing data on 2004), the number of
children represented in the sample for Vermont was 848; for Rhode Island the
number was 1,198. Looking at children specifically under 200% FPL, the sample
size falls to 607 in Vermont and 750 in Rhode Island.
The Census Bureau’s American Community Survey (ACS) is a new alternative
data source not available when SCHIP was initially authorized. The ACS is an
annual survey that replaces the decennial census’s long form. Like the census,
response to the ACS is mandatory. The CPS is a voluntary survey. The ACS has
several times more households in the sample than the CPS.
The Census Bureau has also acknowledged that the CPS produces estimates of
the uninsured that differ substantially from other nationally representative surveys.41
Those other surveys have smaller sample sizes than the CPS, and are therefore not
able to produce estimates for all the states. The ACS is also not presently an
alternative for estimates of the uninsured because it does not include a question on
health insurance coverage. A health insurance question is being tested in the ACS.
However, if it were decided to add such a question to the survey, it would not be
added until at least 2008.
FY2001 was the first year in which the original allotment formula is the same
as the current one (i.e., the number of children is weighted evenly between the
number of low-income children and the number of those children without health
insurance). For reference purposes, Table 9 shows the number of children based on
the factors previously discussed for FY2001 and FY2006 (columns A and B), with
the percentage difference between them (column C). The decrease in the total
number reflects, among other factors, the decreasing rates of uninsurance partly due
to SCHIP. For assessing the impact of these changes in the “number of children” on
states’ original allotments, the change in the number is not as important as the change
in each state’s share of the total, shown in column D. The state cost factors for
FY2001 and FY2006, along with the percentage difference between them, are also
shown in Table 9 (columns E through F, respectively). The impact of these changes
in the factors is mitigated by the applicable floors and ceilings.
As described in §2104(b)(2)(B), the number of low-income children and the
number of uninsured low-income children are reported as defined in the CPS. The
poverty line used by the Census Bureau, the poverty thresholds, is not the same
typically used by the federal government for determining income-related program
eligibility, the poverty guidelines. Except for the CPS estimates, SCHIP’s targeted
low-income children are those below 200% of the poverty guidelines (§2110(c)(5)).
Table 10 shows the 2005 poverty thresholds, and Table 11 shows the poverty
guidelines. If the poverty guidelines were used for the CPS estimates, the resulting
changes in the number of children could affect states’ original allotments.
41 U.S. Census Bureau, “Income, Poverty, and Health Insurance Coverage in the United
States: 2004,” p. 16, at [http://www.census.gov/prod/2005pubs/p60-229.pdf].

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CRS-22
Table 9. Number of Children and State Cost Factor for
SCHIP Original Allotment Formula, FY2001 and FY2006
Number of children (in thousands)
State cost factor
A
B
C
D
E
F
G
Change in
proportion
State
2001
2006
Change
of total
2001
2006
Change
Alabama 302
289
-4.3%
4.1%
0.9659
0.9793
1.4%
Alaska 41
38
-8.5%
-0.5%
1.0392
1.0701
3.0%
Arizona 542
434
-19.9%
-12.9%
1.0514
1.0909
3.8%
Arkansas 277
210
-24.2%
-17.5%
0.8931
0.9178
2.8%
California 2,905
2,531
-12.9%
-5.2%
1.1108
1.1267
1.4%
Colorado 204
248
21.3%
32.0%
1.0017
1.0678
6.6%
Connecticut 162
134
-17.3%
-10.0%
1.1165
1.1365
1.8%
Delaware 51
35
-31.4%
-25.4%
1.0889
1.1396
4.7%
D.C.
42
34
-19.0%
-11.9%
1.296
1.2395
-4.4%
Florida 978
1,062
8.6%
18.1%
1.0305
1.0353
0.5%
Georgia 621
555
-10.7%
-2.9%
0.9953
1.0295
3.4%
Hawaii 74
64
-13.5%
-5.9%
1.169
1.1167
-4.5%
Idaho 110
102
-7.3%
0.9%
0.8893
0.8911
0.2%
Illinois 787
719
-8.7%
-0.7%
0.9966
1.0384
4.2%
Indiana 298
333
11.7%
21.5%
0.9234
0.9667
4.7%
Iowa 178
133
-25.3%
-18.7%
0.8469
0.8948
5.7%
Kansas 154
134
-13.3%
-5.7%
0.8719
0.9080
4.1%
Kentucky 276
267
-3.3%
5.2%
0.9276
0.9540
2.8%
Louisiana 396
366
-7.7%
0.4%
0.8876
0.9306
4.8%
Maine 68
59
-13.2%
-5.6%
0.9049
0.8915
-1.5%
Maryland 225
201
-10.9%
-3.1%
1.046
1.0713
2.4%
Massachusetts 292
246
-15.8%
-8.4%
1.0495
1.1072
5.5%
Michigan 573
506
-11.7%
-3.9%
1.0074
1.0211
1.4%
Minnesota 255
177
-30.6%
-24.5%
0.9824
1.0242
4.3%
Mississippi 289
243
-15.9%
-8.5%
0.8882
0.9058
2.0%
Missouri 326
264
-19.2%
-12.1%
0.9204
0.9420
2.3%
Montana 83
63
-24.7%
-18.1%
0.8415
0.8860
5.3%
Nebraska 102
82
-20.1%
-13.1%
0.8563
0.9116
6.5%
Nevada 120
155
29.2%
40.5%
1.1954
1.1919
-0.3%
New Hampshire
58
39
-33.6%
-27.8%
0.9826
1.0529
7.2%
New Jersey
403
346
-14.3%
-6.8%
1.1237
1.1420
1.6%
New Mexico
219
166
-24.4%
-17.8%
0.9225
0.9561
3.6%
New York
1,360
1,111
-18.3%
-11.1%
1.0841
1.0814
-0.2%
North Carolina
501
559
11.6%
21.4%
0.9899
0.9900
0.0%
North Dakota
48
32
-33.3%
-27.5%
0.8697
0.8745
0.6%
Ohio 675
568
-15.9%
-8.5%
0.965
0.9676
0.3%
Oklahoma 262
258
-1.7%
6.9%
0.8523
0.8818
3.5%
Oregon 228
205
-10.3%
-2.4%
1.0063
1.0110
0.5%
Pennsylvania 638
594
-6.9%
1.3%
0.9969
0.9955
-0.1%
Rhode Island
44
44
0.0%
8.8%
0.9785
0.9803
0.2%
South Carolina
294
247
-16.0%
-8.6%
1.0055
0.9917
-1.4%
South Dakota
43
38
-12.8%
-5.1%
0.8703
0.9205
5.8%
Tennessee 446
348
-22.0%
-15.1%
0.9991
1.0189
2.0%
Texas 2,028
2,055
1.3%
10.2%
0.9277
0.9758
5.2%
Utah 153
160
4.2%
13.4%
0.9059
0.8905
-1.7%
Vermont 29
23
-20.7%
-13.7%
0.8696
0.9236
6.2%
Virginia 350
315
-10.0%
-2.1%
0.9885
1.0122
2.4%
Washington 314
327
4.1%
13.3%
0.9467
0.9914
4.7%
West Virginia
108
114
5.1%
14.3%
0.8961
0.9072
1.2%

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CRS-23
Number of children (in thousands)
State cost factor
A
B
C
D
E
F
G
Change in
proportion
State
2001
2006
Change
of total
2001
2006
Change
Wisconsin 241
245
1.5%
10.3%
0.9438
1.0057
6.6%
Wyoming 38
28
-27.6%
-21.3%
0.8779
0.9430
7.4%
21,212
19,502
-11.0%
-3.1%
Not
Not
2.6%
All states
total
total
average
average
applicable applicable average
Source: Congressional Research Service (CRS) analysis of “Corrected SCHIP Allotments for Federal
Fiscal Year 2001,” 66 Federal Register 6631, Jan. 22, 2001, and “State Children’s Health Insurance
Program Allotments for Federal Fiscal Year 2006,” 70 Federal Register 36619, June 24, 2005.
Table 10. U.S. Census Bureau Poverty Thresholds, 2005
Number of related children (under 18)
Size of family unit
0
1
2
3
4
5
6
7
8+
One person
Under 65 years $10,160
65+ years
9,367
Two persons
Householder
13,078 13,461
under 65 years
Householder 65
11,805 13,410
years and over
Three persons
15,277 15,720 15,735
Four persons
20,144 20,474 19,806 19,874
Five persons
24,293 24,646 23,891 23,307 22,951
Six persons
27,941 28,052 27,474 26,920 26,096 25,608
Seven persons
32,150 32,350 31,658 31,176 30,277 29,229 28,079
Eight persons
35,957 36,274 35,621 35,049 34,237 33,207 32,135
31,862
Nine+
43,254 43,463 42,885 42,400 41,603 40,507 39,515
39,270 37,757
Source: U.S. Census Bureau.
Table 11. U.S. Health and Human Services Poverty Guidelines,
2005
48 contiguous states
Persons in family unit
and D.C.
Alaska
Hawaii
1
$9,570
$11,950
$11,010
2
12,830
16,030
14,760
3
16,090
20,110
18,510
4
19,350
24,190
22,260
5
22,610
28,270
26,010
6
25,870
32,350
29,760
7
29,130
36,430
33,510
8
32,390
40,510
37,260
For each additional
3,260
4,080
3,750
person, add
Source: U.S. Health and Human Services

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