Medicaid and the State Children’s Health Insurance Program (SCHIP): Provisions in the Consolidated Appropriations Act for FY2000

Medicaid and the State Children’s Health Insurance Program (SCHIP): Provisions in the Consolidated Appropriations Act for FY2000

Order Code RL30400
CRS Report for Congress
Received through the CRS Web
Medicaid and the State Children’s Health
Insurance Program (SCHIP): Provisions in the
Consolidated Appropriations Act for FY2000
January 5, 2000
Jean Hearne
Elicia Herz
Specialists in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
This report summarizes the Medicaid and SCHIP provisions of H.R. 3426, the Medicare,
Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA 99) that was
incorporated by reference into the conference agreement (H.R. 3194) on the Consolidated
Appropriations Act for FY2000 (P.L. 106-113). While the majority of the provisions of
BBRA 99 are intended to mitigate the impact of Medicare provisions in the Balanced Budget
Act of 1997 (BBA 97) on health care providers, the new law includes a number of changes
to Medicaid and SCHIP. For more information on the Medicare provisions of BBRA 99 see
CRS Report (RL30347) Medicare, Medicaid, and State Children’s Health Insurance Program
(SCHIP): Changes to Balanced Budget Act of 1997 (BBA 97, P.L. 105-33).

Medicaid and the State Children’s Health Insurance Program
(SCHIP): Provisions in the Consolidated Appropriations Act
for FY2000
Summary
On November 19, 1999, the Senate voted to pass the Consolidated
Appropriations Act for FY2000 (H.R. 3194) that includes by reference the Medicare,
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA 99; H.R.
3426). The House passed the same bill on November 18, 1999 and the President
signed the measure on November 29, 1999 (P.L. 106-113). While BBRA 99 is
largely comprised of Medicare provisions, the new law includes a number of changes
to Medicaid and the State Children’s Health Insurance Program (SCHIP).
In addition to technical amendments to the Balanced Budget Act of 1997, the
Medicaid changes include provisions allowing for increased disproportionate share
payments to hospitals for certain states and the District of Columbia, and for extended
access to a special $500 million fund to pay for Medicaid eligibility determinations
resulting from welfare reform for a longer period of time than allowed under previous
law. BBRA 99 also modifies the schedule for phasing out cost-based reimbursement
for Federally Qualified Health Centers and Rural Health Clinics that had been included
in the Balanced Budget Act of 1997.
Included among the SCHIP changes are provisions to improve state-level data
collection; to evaluate the SCHIP (and Medicaid) programs with respect to outreach
and enrollment practices; and to create a clearinghouse to coordinate and consolidate
federal databases and reports on children’s health. In addition, BBRA 99 includes a
number of changes to the formula used to distribute federal SCHIP funds among the
states, increases in the amounts available for U.S. territories, and minor technical
changes.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Legislative Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Changes Made to Medicaid and SCHIP by BBRA 99
(as incorporated in the Consolidated Appropriations Act for FY2000) . . . . 4
Title VI —Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Title VII —State Children’s Health Insurance Program . . . . . . . . . . . . . . . 6

Medicaid and the State Children’s Health
Insurance Program (SCHIP): Provisions in the
Consolidated Appropriations Act for FY2000
Introduction
Medicaid is a joint federal-state entitlement program that pays for medical
assistance primarily for low-income persons who are aged, blind, disabled, members
of families with dependent children, and certain other pregnant women and children.
Within broad federal guidelines, each state designs and administers its own program.
Total program outlays in FY1998 were $177.4 billion. Federal outlays were $100.2
billion and state outlays were approximately $77.2 billion. The federal government
shares in a state’s Medicaid costs by means of a statutory formula based on a state’s
per capita income, adjusted annually. In FY1998, federal matching rates ranged from
50% to 77% of a state’s expenditures for Medicaid items and services. Overall, the
federal government finances about 57% of all Medicaid costs.
The 105th Congress made important changes to the Medicaid program through
the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33).1 BBA 97 included
provisions to achieve net Medicaid savings of about $13 billion between FY1998 and
FY2002, largely from reductions in supplemental payments to hospitals that serve a
disproportionate share of Medicaid and low-income patients. BBA 97 also
significantly increased the flexibility that states have to manage their Medicaid
programs. In particular, it gave states the option of requiring most beneficiaries to
enroll in managed care plans without seeking a federal waiver, and replaced federal
reimbursement requirements imposed by the Boren amendments with a public notice
process for setting payment rates for institutional services. The Act also required that
the previously existing cost-based reimbursement system for Federally Qualified
Health Centers and Rural Health Clinics be phased out over a 6-year period.
Spending items in the Act included Medicaid coverage for additional children, and
increased assistance for low-income individuals to pay Medicare Part B premiums.
BBA 97 also included provisions establishing SCHIP under a new Title XXI of
the Social Security Act. SCHIP represents the second largest federal effort to provide
health insurance coverage to uninsured, low-income children since the enactment of
Medicaid in 1965. The program began in October 1997 with total federal funding
authorization of $39.7 billion for the period FY1998 through FY2007.
1 For a detailed description of the changes to Medicaid under BBA 97, see CRS Report 98-
132, Medicaid: 105th Congress, by Melvina Ford and Richard Price.

CRS-2
Generally, SCHIP is targeted at uninsured children who live in families with
income below twice the federal poverty level. States may use SCHIP funds to
provide coverage through health insurance that meets specific standards for benefits
and cost-sharing (known as separate state programs), or through expansions of
eligibility under Medicaid, or through a combination of both options.
Not all targeted low-income children will necessarily receive medical assistance
under SCHIP for two reasons. First, the law does not establish an individual’s
entitlement to the benefits of SCHIP. Instead it entitles states with approved SCHIP
plans to pre-determined, annual federal allotments based on a distribution formula set
in law. Second, each state has flexibility to define the group of targeted, low-income
children who are eligible for its SCHIP. Eligibility criteria may include, for example,
geography, age, income and resources, residency, disability status, access to other
health insurance, and duration of eligibility for other health insurance.
As of December 1, 1999, all 50 states, the District of Columbia and all five
territories had approved SCHIP plans. Among these, 25 are Medicaid expansions,
16 are new or expanded separate state programs, and 15 will use both a Medicaid
expansion and a separate state program. Federal spending in FY1998 totaled less
than $500 million. Recently, the Congressional Budget Office (CBO)2 estimated that
federal SCHIP spending will total approximately $1 billion for FY1999. These
spending projections fall well below total annual federal authorization levels of $4.3
billion for each fiscal year. However, since annual state allotments are available for
a period of 3 years, states may eventually claim their full FY1998 and FY1999 federal
SCHIP funding. These initial spending projections are consistent with preliminary
enrollment estimates of 1.3 million children nationwide through June of 1999.
Subsequent to enactment of BBA 97, CBO estimated that SCHIP would cover an
average of 2.3 million children per year after 1999.3 The Administration’s goal is to
enroll 5 million children by FY2002.
Recent Legislative Activity
On October 26, 1999, the Senate Finance Committee ordered reported the
Medicare, Medicaid and SCHIP Adjustment Act of 1999 (S. 1788). On November
5, 1999, the House passed an expanded version of a bill originally introduced with
changes to Medicare only. The expanded version, retitled the Medicare, Medicaid
and SCHIP Balanced Budget Refinement Act of 1999 (H.R. 3075), added provisions
modifying Medicaid and SCHIP.
On November 17, 1999, House and Senate negotiators reached agreement on
the Medicare, Medicaid and SCHIP provisions. The agreement was introduced as
H.R. 3426, the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of
1999. It was incorporated by reference into the conference agreement (H.R. 3194)
2 U.S. Congressional Budget Office. The Economic and Budget Outlook: An Update. July
1, 1999. Washington, GPO, 1999.
3 U.S. Congressional Budget Office. Expanding Health Insurance Coverage for Children
Under Title XXI of the Social Security Act (CBO Memorandum), February 1998.
Washington, GPO, 1998.

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on the Consolidated Appropriations Act for FY2000. The House passed the measure
on November 18, 1999. The Senate also passed the bill on the following day. The
President signed this legislation on November 29, 1999 (P.L. 106-113).
CBO has estimated the cost of BBRA 99 at $16 billion over the FY2000-
FY2004 period and $27 billion over the FY2000-FY2009 period.4 Taken together,
the Medicaid and SCHIP provisions account for a small fraction of the total cost of
this package. The Medicaid subtotal is $700 million over 5 years and $1.2 billion over
10 years. Nearly one-half of these Medicaid expenditures (43% over 5 years and 50%
over 10 years) represent interactions with Part B premiums under Medicare and cost
sharing.5 The remaining costs are primarily associated with increased DSH payments
to certain states, extension of the availability of the $500 million fund for Medicaid
eligibility determinations due to welfare reform, and delays in the phase-out of cost-
based reimbursement for Federally Qualified Health Centers and Rural Health Clinics.
The SCHIP subtotal is $200 million over 5 years and $400 million over 10 years.
Nearly all of these SCHIP expenditures are due to the increased allotments for
territories and new data collection and evaluation provisions.
The following side-by-side comparison provides a brief description of prior law
and the changes to Medicaid and SCHIP under the BBRA 99.6 Unless otherwise
specified, the Medicaid and SCHIP provisions became effective upon enactment.
4 U.S. Congressional Budget Office. CBO Pay-As-You-Go Estimate: H.R. 3194, An Act
Making Consolidated Appropriations for the Fiscal Year Ending September 30, 2000, and
for Other Purposes. December 8, 1999. Washington, GPO, 1999.
5 BBRA 99 includes higher payments to Medicare providers, resulting in higher Part B
premiums and cost-sharing for beneficiaries. Because Medicaid covers Medicare premiums
and cost-sharing for certain low-income persons eligible for both programs, Medicaid
expenditures will also increase.
6 Additional changes to the Medicaid program enacted during the first session of the 106th
Congress are described in the CRS Report RS20406, Work Incentives for the Disabled: A
Summary of H.R. 1180, by Celinda Franco, Carol O’Shaughnessy and Carmen Solomon-
Fears.

CRS-4
Changes Made to Medicaid and SCHIP by BBRA 99
(as incorporated in the Consolidated Appropriations Act for FY2000)
Title VI —Medicaid
Provision
Prior law
BBRA 99
Increase in DSH
The federal share of Medicaid disproportionate share (DSH)
For each of fiscal years 2000 through 2002, increases the ceiling
Allotment for Certain
payments, payments for hospitals that treat a disproportionate
on the federal share of DSH payments for the District of Columbia,
States and the District of
share of uninsured and Medicaid enrollees, is capped at specified
from $23 million to $32 million; for Minnesota, from $16 million
Columbia (Sec. 601)
amounts for each state.
to $33 million; for New Mexico, from $5 million to $9 million; and
for Wyoming, from 0 to $.1 million.
Removal of Fiscal Year
A fund of $500 million was created by Congress in 1996 to assist
Extends the availability of the transitional increased federal
Limitation on Certain
states with the transitional costs of the new Medicaid eligibility
matching funds beyond fiscal year 2000 and allows costs for which
Transitional
activities resulting from welfare reform. The funds are available at
the increased matching funds are claimed to relate to costs incurred
Administrative Costs
an increased federal matching rate for states that can demonstrate
for the calender quarters beyond the first 12 following the effective
Assistance (Sec. 602)
that such administrative costs are attributable to welfare reform.
date of welfare reform.
The increased matching funds were available for the period
beginning with FY1997 and ending with FY2000 and had to be
related to costs incurred during the first 12 quarters following the
welfare reform effective date.
Modification of the Phase-
States pay FQHCs and RHCs a percentage of the facilities’
Imposes a 2-year moratorium on the phase-down of the cost-based
out of Payment for
reasonable costs for providing services. This percentage decreased
reimbursement system, freezing the phase-down at 95% for fiscal
Federally Qualified Health
for specified fiscal years — 100% of costs for services furnished
years 2001 and 2002. The phase-down will resume at 90% in
Center (FQHC) Services
during FY1998 and FY1999; 95% for FY2000; 90% for FY2001;
2003, 85% in 2004 and cost-based reimbursement will be repealed
and Rural Health Clinic
85% for FY2002; and 70% for FY2003. For services furnished
in 2005. The General Accounting Office (GAO) will conduct an
(RHC) Services Based on
on or after October 1, 2003, no required payment percentage would
analysis of the impact of reducing or modifying payments based on
Reasonable Costs (Sec.
apply.
the reasonable cost standard for FQHCs and RHCs and the
603)
populations they serve. The GAO shall report back to Congress
within 12 months with their findings and recommendations.

CRS-5
Provision
Prior law
BBRA 99
Parity in Reimbursement
a. Parity in Reimbursement for Certain Utilization and Quality
a. Parity in Reimbursement for Certain Utilization and Quality
for Certain Utilization and
Control Services
Control Services
Quality Control Services;
Elimination of Duplicative
Under current law, states receive federal funds at a 75% matching
States will receive 75% in federal matching when PRO-like entities
Requirements for External
rate when contracting with a Peer Review Organization (PRO) for
conduct medical and utilization reviews for fee-for-service
Quality Review of
medical and utilization reviews and for quality reviews. Under
Medicaid, and quality reviews for Medicaid managed care.
Medicaid Managed Care
prior law, states could also receive a 75% federal matching rate
Organizations (Sec. 604)
when they contracted with a PRO-like entity but only for external
quality reviews of Medicaid managed care. For all other reviews
and entities, the standard 50% federal matching rate applied.
A PRO is an entity that has a Medicare contract to perform
medical and utilization reviews. A PRO-like entity is one that is
certified by the Secretary as meeting the requirements of Section
1152 which defines standards for PROs under Medicare.
b. Elimination of Duplicative Requirements for External Quality
b. Elimination of Duplicative Requirements for External Quality
Review of Medicaid Managed Care Organizations:
Review of Medicaid Managed Care Organizations
The requirement that Medicaid managed care organizations obtain
Deletes the external review requirements in two of three sections of
annual independent, external reviews using either a utilization and
Medicaid law.
quality control peer review organization, a PRO defined under
Section 1152, or a private accreditation body was contained in
The parity provisions and the provisions regarding the elimination
three different sections of Medicaid law.
of duplicative requirements become fully effective after the
Secretary of HHS certifies to Congress that the external review
requirement for Medicaid managed care is implemented.
Inapplicability of
Medicaid DSH payments are matched by the federal government
Clarifies that Medicaid DSH payments are matched at the FMAP
Enhanced Match Under
at the federal medical assistance percentage (FMAP), the same
and not at the enhanced federal matching percentage authorized
the State Children’s
percentage that applies to most other Medicaid payments for
under Title XXI.
Health Insurance Program
benefits. Medicaid payments for children who are eligible as
to Medicaid DSH
targeted low-income children under Title XXI are matched at a
This amendment applies to expenditures made on or after October
Payments (Sec. 605)
considerably higher enhanced FMAP.
1, 1999.

CRS-6
Provision
Prior law
BBRA 99
Optional Deferment of the
Medicaid law required that rebate agreements between the
Allows rebate agreements entered into after the date of enactment
Effective Date for
Secretary (or, if authorized by the Secretary, with the states) and
of this Act to become effective on the date on which the agreement
Outpatient Drug
drug manufacturers that were not in effect before March 1, 1991
is entered into, or at state option, any date before or after the date
Agreements (Sec. 606 )
become effective the first day of the calendar quarter that begins
on which the agreement is entered into.
more than 60 days after the date the agreement is entered into.
Making Medicaid DSH
For the period July 1, 1997 through July 1, 1999, hospital-specific
Removes the July 1, 1999, end date for increased hospital-specific
Transition Rule Permanent
disproportionate share payments for the state of California were
disproportionate share payments for the state of California,
(Sec. 607)
capped at 175% of the cost of care provided to Medicaid recipients
extending the transition period indefinitely.
and individuals who have no health insurance or other third-party
coverage for services during the year (net of non-disproportionate
share Medicaid payments and other payments by uninsured
individuals).
Medicaid Technical
No provision.
Makes technical corrections to selected sections of Title XIX.
Corrections (Sec. 608)
Title VII —State Children’s Health Insurance Program
Provision
Prior law
BBRA 99
Stabilizing the State
States and the District of Columbia are allotted funds for SCHIP
Accelerates by one fiscal year the phase-in of the use of
Children’s Health
using a distribution formula based on the product of the “number
low-income children in calculating the “number of children” in the
Insurance Program
of children” and a “state cost factor.” Under prior law for FY1998
allotment distribution formula (e.g., references to FY2000 are
Allocation Formula (Sec.
through FY2000, the number of children was equal to the 3-year
changed to FY1999, etc.). Changes the data set to be used to
701)
average of uninsured children in families with income below 200%
estimate the number of children for a fiscal year from the three
FPL (federal poverty level), using the three most recent March
most recent March supplements of the CPS to the three most recent
supplements of the Current Population Survey (CPS). For
supplements available before the calendar year in which the fiscal
subsequent fiscal years, the number of children was a combination
year begins. Similarly, changes the data set used to estimate
of low-income uninsured children and low-income children (75/25
annual average wages for a given fiscal year to the three most
percent split for FY2001 and a 50/50 percent split for FY2002 and
recent years before the beginning of the calendar year in which
thereafter). The state cost factor for a fiscal year equals the sum
such fiscal year begins. Specifies new methods for determining
of .85 multiplied by the ratio of the annual average wages per
floors and ceilings on allotments for the states and the District of

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Provision
Prior law
BBRA 99
employee to the national average wages per employee and .15. The
Columbia for FY2000 and beyond. The floor remains $2 million.
measure for the annual average wages per employee was based on
For each fiscal year, the floor will not be less than 90% of a state’s
the three most recent years for employees in the health services
allotment proportion for the preceding year. The cumulative floor
industry as reported by the Bureau of Labor Statistics. SCHIP
is set at 70% of the proportion for FY1999. The cumulative ceiling
allotments are subject to a floor of $2 million.
is capped at 145% of a state’s allotment proportion for FY1999. If
these methods create a deficit in a given year, there will be a ceiling
on the maximum increase permitted in that year to ensure budget
neutrality; if these methods create a surplus in a given year, there
will be a pro-rata increase for all states below the ceiling. These
new methods do not apply to unspent allotments that are
redistributed to states as specified in Section 2104(f) of Title XXI.
Increased Allotments for
Of the total amount available for allotment for SCHIP,
Requires additional allotments for the commonwealths and
Territories Under the State
commonwealths and territories are allotted .25%, to be divided
territories of $34.2 million for each of fiscal years 2000 and 2001,
Children’s Health
among them based on specified percentages. In addition, for
$25.2 million for each of fiscal years 2002 through 2004, $32.4
Insurance Program (Sec.
FY1999, commonwealths and territories were allotted $32 million,
million for each of fiscal years 2005 and 2006, and $40 million for
702)
also divided among them based on the same specified percentages
FY2007.
as the basic allotment.
Improved Data Collection
a. Funding for Reliable Annual State-by-State Estimates on the
a. Funding for Reliable Annual State-by-State Estimates on the
and Evaluations of the
Number of Children Who Do Not Have Health Insurance
Number of Children Who Do Not Have Health Insurance
State Children’s Health
Coverage: No provision.
Coverage: Requires that the Secretary of Commerce make
Insurance Program (Sec.
appropriate adjustments to the annual CPS to produce statistically
703)
reliable annual state-level data on the number of uninsured
low-income children. Requires that $10 million be appropriated
for FY2000 for this purpose, and for each year thereafter. These
changes to the CPS will improve critical data for evaluation
purposes. They will also affect state-specific counts of number of
low-income children and the number of such children who are
uninsured that feed into the formula that determines annual
state-specific allotments from federal SCHIP appropriations.

CRS-8
Provision
Prior law
BBRA 99
Improved Data Collection
b. Federal Evaluation of State Children’s Health Insurance
b. Federal Evaluation of State Children’s Health Insurance
and Evaluations of the
Programs: The Secretary is required to submit to Congress by
Programs: Adds a new federal evaluation to prior law. The
State Children’s Health
December 31, 2001, a report based on the annual evaluations
Secretary of HHS is required to conduct an independent evaluation
Insurance Program (Sec.
submitted by states, with conclusions and recommendations, as
of 10 states with approved SCHIP plans. The selected states must
703) (continued)
appropriate.
represent diverse approaches to providing child health assistance,
a mix of geographic areas, and a significant portion of uninsured
children. The federal evaluation will include, but not be limited to:
(1) a survey of the target population, (2) an assessment of effective
and ineffective outreach and enrollment practices for both SCHIP
and Medicaid, (3) an analysis of Medicaid eligibility rules and
procedures that are a barrier to enrollment in Medicaid, and how
coordination between Medicaid and SCHIP has affected enrollment
under both programs, (4) an assessment of the effects of
cost-sharing policies on enrollment, utilization and retention, and
(5) an analysis of disenrollment patterns and factors influencing
this process. The Secretary must submit the results of the federal
evaluation to Congress no later than December 31, 2001. Requires
that $10 million be appropriated for this purpose for FY2000.
This appropriation shall remain available through FY2002.
c. Inspector General Audit and GAO Report on Enrollees Eligible
c. Inspector General Audit and GAO Report on Enrollees Eligible
for Medicaid: No provision.
for Medicaid: Requires that the Inspector General of HHS conduct
an audit to determine how many Medicaid-eligible children are
incorrectly enrolled in SCHIP among a sample of states that
provide child health assistance through separate programs only (not
via a Medicaid expansion). This audit will also assess progress in
reducing the number of uninsured children relative to the goals
stated in approved SCHIP plans. The first such audit will be
conducted in FY2000, and will be repeated every third fiscal year
thereafter. Requires the GAO to monitor these audits and report
their results to Congress within 6 months of audit completion (i.e.,
by March 1 of the fiscal year following each audit).

CRS-9
Provision
Prior law
BBRA 99
Improved Data Collection
d. Coordination of Data Collection with Data Requirements Under
d. Coordination of Data Collection with Data Requirements Under
and Evaluations of the
the Maternal and Child Health Services Block Grant: States are
the Maternal and Child Health Services Block Grant: Adds to the
State Children’s Health
required to submit annual reports detailing their activities under the
existing reporting requirement under the MCH Block Grant
Insurance Program (Sec.
Maternal and Child Health (MCH) Services Block Grant. These
authority inclusion of information (by racial and ethnic group) on
703) (continued)
reports must include, among other items, information (by racial and
the number of deliveries to pregnant women, and the number of
ethnic group) on: (1) the number of deliveries to pregnant women
infants, entitled to benefits under SCHIP.
who were provided prenatal, delivery or postpartum care under the
block grant or who were entitled to benefits with respect to such
deliveries under Medicaid, and (2) the number of infants under one
year of age who were provided services under the block grant or
were entitled to benefits under Medicaid.
e. Coordination of Data Surveys and Reports: No provision.
e. Coordination of Data Surveys and Reports: Requires that the
Secretary of HHS establish a clearinghouse for the consolidation
and coordination of all federal data bases and reports regarding
children’s health.
References to SCHIP and
No provision.
Directs the Secretary of Health and Human Services or any other
State Children’s Health
Federal officer or employee, with respect to references to the
Insurance Program (Sec.
program under Title XXI of the Social Security Act, in any
704)
publication or official communication to use the term “SCHIP”
instead of “CHIP” and to use the term “State children’s health
insurance program” instead of “children’s health insurance
program.”
SCHIP Technical
No provision.
Makes technical corrections to selected sections of Title XXI.
Corrections (Sec. 705)