SCHIP Financing Issues for the 108th Congress

SCHIP Financing Issues for the 108th Congress

Order Code RL31977
CRS Report for Congress
Received through the CRS Web
SCHIP Financing Issues for the 108th Congress
Updated August 15, 2003
Evelyne P. Baumrucker
Analyst in Social Legislation
Domestic Social Policy Division
Peter Kraut
Contractor
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

SCHIP Financing Issues for the 108th Congress
Summary
The State Children’s Health Insurance Program (SCHIP) offers federal matching
funds for states and territories to provide health insurance to uninsured, low-income
children in families whose annual incomes are too high to qualify for Medicaid.
Unlike Medicaid, which operates as an individual entitlement, SCHIP operates as a
capped grant program. Allotment of funds among states is determined by a formula
set in law. Once a state depletes a given year’s original allotment, other than funds
from prior years made available through redistribution, no additional federal funds
will be made available to that state for that year. States have the flexibility to design
their programs to operate within these funding constraints.
The allotment and redistribution methods under current law have been
incompatible with state spending patterns to date. Spending in the first several years
of the program was well below appropriations — cumulative expenditure data
through the end of FY2002 show that states spent approximately 46.9% of all federal
funds available since the start of the program. Relative to state spending, the
appropriation levels were high early on as it took time for states to set up their
programs and build enrollment. Once programs are established, states differ in the
extent to which they utilize their allotment.
FY2002 is the first fiscal year in which total spending exceeded that year’s
appropriations. This trend is likely to continue as additional states spend all of their
available funds and are eligible for redistributions. Further, FY2002 is the first of 3
years in which the total federal appropriation is 26% less than it was for each of
FY1998-FY2001. At the end of FY2002 $1.3 billion of the FY1998 and FY1999
reallocations expired from the program and CBO predicts an additional $1.4 billion
to expire at the close of FY2003. While more states will be eligible for
redistributions, there will be fewer funds available for redistribution to such states.
In fact, the Centers for Medicare and Medicaid Services (CMS) projects shortfalls for
some states over the second half of the program, (FY2003-FY2006).
SCHIP financing issues are being addressed by the 108th Congress because
states with unspent funds from the FY1998 and FY1999 reallocations are interested
in recouping those expired amounts and all states want to make sure that other
unspent amounts from subsequent years remain available to their programs. On June
26, 2003, the Senate passed legislation, S. 312, which would extend the availability
of expired funds and establish a new method for redistributing unspent FY2000 and
FY2001 allotments among all states. For specified years, S. 312 would also allow
“qualifying states” to use up to 20% of their available SCHIP funds for certain
Medicaid medical assistance payments. The House-passed bill, H.R. 531, is identical
to S. 312 except that it does not include the latter provision. On July 25, 2003, the
House passed a new version of the bill, H.R. 2854, to restore unspent SCHIP funds
to all states according to the method described in S. 312. H.R. 2854 also establishes
alternative criteria for states that would qualify to use up to 20% of their available
SCHIP funds for certain Medicaid medical assistance payments. On July 31, 2003
the Senate passed H.R. 2854; the bill was signed into law on August 15, 2003 as P.L.
108-74. This report will be updated as legislative activity occurs.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SCHIP Program Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SCHIP Section 1115 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Current Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SCHIP Expenditure Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SCHIP Program Expenditures and Enrollment Start Slowly . . . . . . . . . . . . . 7
State Spending Against FY1998 - FY2000 Original Allotments . . . . . . . . 7
Congress Reacts to Early Program Expenditure Trends Through
Enactment of the BIPA-2000 Reallocation . . . . . . . . . . . . . . . . . . . . . 10
State Spending Against All Available Funds, FY1998-FY2002 . . . . . . . . . 11
Spending Trends Over the Life of the Program May Shape the Future
of SCHIP Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FY1998-FY2001: New Allotments Exceed Spending . . . . . . . . . . . . 17
FY2002 through FY2007: State Expenditures Exceed
Annual Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Variation in SCHIP Spending Among States . . . . . . . . . . . . . . . . . . . . . . . 21
Shortfalls Projected for Some States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Legislative Activity in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix 1. Share of Original FY1998, FY1999, and FY2000 Allotments
Expended by Deadlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix 2. Share of FY1998 and FY1999 BIPA-2000 Reallocations Expended
by Deadline and Interim FY2000 Reallocation Payment Amounts
for Unexpended FY2000 SCHIP Allotments . . . . . . . . . . . . . . . . . . . . . . . . 32
List of Figures
Figure 1. FY1998-2002 Spending as a Percentage of FY1998-2002
Available (Adjusted)* Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 2. Actual and Projected Available Funds and Spending, FY1998-2007 . 20
List of Tables
Table 1. Redistribution States for Each of FY1998 through FY2000 . . . . . . . . . . 9
Table 2. SCHIP Program Allotments and Expenditures by State,
FY1998-FY2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 3. Allotments and Actual and Projected Available Funds and
Spending, FY1998-2007(in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 4. States Expected to Use All of Their Available SCHIP Funds by
FY2006 (CMS and CBPP Projections) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SCHIP Financing Issues
for the 108th Congress
Background
The State Children’s Health Insurance Program (SCHIP), created under the
Balanced Budget Act of 1997, is the largest publicly funded effort to provide health
insurance to children since Medicaid was enacted in 1965. The program offers
capped allotments of federal matching funds for states and territories to provide
health insurance to uninsured, low-income children in families whose annual
incomes are too high to qualify for Medicaid.
Unlike Medicaid which operates as an individual entitlement, SCHIP operates
as a capped grant program to the states.1 States have the flexibility to design their
SCHIP programs to operate within the program’s funding constraints. States may
choose from three options when designing their SCHIP programs. They may expand
Medicaid, create a new “separate state” insurance program, or devise a combination
of both approaches.2 Within broad federal guidelines, each state can define the group
1 Medicaid, authorized under Title XIX of the Social Security Act, is a joint federal state
entitlement program that pays for Medicaid assistance primarily for low-income persons
who are aged, blind, disabled, members of families with dependent children as well as
certain other pregnant women and children. States are required to provide Medicaid benefits
to all individuals who meet the state-specific eligibility criteria and apply. As an open-
ended entitlement there are no limits on the federal payments for Medicaid; however, the
state must contribute its share of the matching funds in order to continue receiving federal
payments.
2 Services for targeted low-income children who are enrolled in Medicaid are paid from
SCHIP allotments at the enhanced matching rate. If SCHIP funds are no longer available,
services for these children are paid for under Medicaid at the regular matching rate. These
children retain their entitlement to Medicaid benefits (even if SCHIP itself terminates)
unless the state changes its eligibility requirements so that they no longer meet the state-
specific income, resource and categorical eligibility criteria. States operating separate state
programs under SCHIP may cap their enrollment or otherwise restrict participation to limit
spending and stay within their capped allotment.

CRS-2
of targeted low-income children who may enroll in SCHIP.3 In addition, states can
apply to waive program requirements to cover other groups.
SCHIP Program Financing
The original enactment appropriated federal matching grants totaling $39.7
billion for SCHIP for FY1998 through FY2007. The Department of Health and
Human Services (DHHS) and the Centers for Medicare and Medicaid Services
(CMS), as the administering agencies for SCHIP, have no discretion over SCHIP
spending levels and initial annual allocations of funds across states. Allotment of
funds among the states is determined by a formula set in law. This grant allotment
formula is based on a combination of factors that include the number of low-income
children and low-income, uninsured children in the state, and a cost factor that
represents average health service industry wages in the state compared to the national
average.4
These allotments represent federal matching grants available to each state. Like
Medicaid, SCHIP is a federal-state matching program. For each dollar of state
spending, the federal government will make a matching payment. The SCHIP
matching formula is based on the Medicaid matching formula, but results in higher
federal matching rates that ranged from 65% to 83.26% in FY2002. FY2002 federal
matching rates in Medicaid ranged from 50% to 76.09% of the federal poverty level
(FPL).
Funds not drawn down from a state’s federal allotment by the end of each fiscal
year continue to be available for 2 additional fiscal years, providing each state a total
of 3 years to draw down its allotment of federal matching funds for a given fiscal
year. For example, FY2003 allotments are available through FY2005. A state must
draw down its entire allotment from a given fiscal year before it may access the next
year’s funding. Under SCHIP law as enacted in 1997, allotments not spent by the
end of the applicable 3-year period will be redistributed — by a method to be
determined by the Secretary of Health and Human Services (HHS) — to states that
have fully spent their original allotments for that year. Redistributed funds not spent
by the end of the fiscal year in which they are reallocated will officially expire.5
3 Title XXI of the Social Security Act allows states to use the following factors in
determining eligibility: geography, age, income and resources, residency, disability status
(so long as any standard relating to that status does not restrict eligibility), access to other
health insurance, and duration of SCHIP enrollment. Title XXI funds cannot be used for
children who would have been eligible for the state’s Medicaid plan under the eligibility
standards that were in effect prior to June 1, 1997 or for children covered by a group health
plan or other insurance. Under limited circumstances, states have the option to purchase a
health benefits plan that is provided by a community-based health delivery system, or to
purchase family coverage under a group health plan as long as it is cost-effective to do so.
4 For a more detailed description of the SCHIP funding process see CRS Report RL30642,
The State Children’s Health Insurance Program: Eligibility, Enrollment, and Program
Funding, by Evelyne Baumrucker.
5 SCHIP law requires that unspent funds remaining at the end the year in which they are
(continued...)

CRS-3
During the 106th Congress, some Members argued that unspent SCHIP funds
should be redirected toward other needs. Based on actual and projected spending
through February 2000, CMS estimated that $1.9 billion would remain unspent from
states’ FY1998 allotments. At that time it was too early to tell how much of the
FY1999 allotments would also go unspent. Pressures to remain within discretionary
spending caps established in the Balanced Budget Act of 1997 (BBA 97) led to
proposals during 2000 to use unspent SCHIP funds for other purposes. Late in the
second session of the 106th Congress (2000), however, it became clear that Congress
would not redirect unspent SCHIP funds to other discretionary spending programs.
Instead, legislation was enacted that created a special rule for the redistribution of
unused FY1998 and FY1999 SCHIP allotments.6
The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA-2000), incorporated by reference into P.L. 106-554, created a special
rule for the redistribution and availability of unused FY1998 and FY1999 SCHIP
allotments. The rule decreased the amount available for redistribution to states that
had spent all of their allotments by allowing states that had not spent all of their
allotments to retain some of their unspent funds.
States that did use all their SCHIP FY1998 and FY1999 allotments by the
applicable 3-year deadline received an amount equal to their actual spending over
that 3-year period in excess of their original exhausted allotment. From remaining
unspent funds, states that did not use all their SCHIP allotments by the applicable 3-
year deadline received an amount equal to their proportional contribution to the total
pool of unspent funds. Redistributed and retained funds from FY1998 and FY1999
were made available through the end of FY2002.7
At the close of FY2002, unspent FY2000 original allotments were subject to
redistribution and unspent BIPA-2000 reallocations (i.e., unspent FY1998 and
FY1999 allotments) expired. In reaction to these events, during the 107th Congress,
the Senate passed legislation (The Beneficiary Access to Care and Medicare Equity
Act of 2002, S. 3018) to change the method by which unspent federal funds would
be redistributed among states. This legislation would have established a method for
5 (...continued)
redistributed are no longer available for expenditure by states in the SCHIP program. In
generating its baseline estimates, CBO treats unspent redistributions as funds that have
reverted to the Treasury. For example, if Congress were to act to continue the availability
of expired FY1998 and FY1999 reallocated funds, regardless of whether they legislate on,
or after Sept. 30, 2002 (the expiration date of such funds), restoring unspent reallocated
funds to the SCHIP program would be treated as a “cost” for the purpose of generating the
CBO baseline.
6 For more information on SCHIP funding issues in the 106th Congress, see CRS Report
RS20628, The State Children’s Health Insurance Program (SCHIP): Funding Changes in
the 106th Congress, by Evelyne P. Baumrucker.
7 For more detail on changes to SCHIP made by BIPA-2000 see CRS Report RL30718,
Medicaid, SCHIP, and Other Health Provisions in H.R. 5661: Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act of 2000, by Jean Hearne, Lisa Herz, and
Evelyne Baumrucker.

CRS-4
redistributing unspent allotments for FY2000 forward for both those states spending
all of their allotments and those that have not. In addition, for FY2004 forward, S.
3018 would have established a caseload stabilization pool to provide certain
qualifying states — those whose total cumulative spending through the end of the
previous fiscal year exceeded their cumulative original allotments for the same time
period — with additional SCHIP funding. Any remaining unspent reallocated dollars
beginning with the FY1998 reallocation would have become a part of this pool. In
addition, the bill specified that unspent funds in the pool would have remained in the
pool (i.e., they would never expire) and would be available for future redistribution
to qualifying states. Although bills were introduced in the House regarding SCHIP
financing, no further action occurred.
On March 27, 2003, CMS published an interim policy for a partial redistribution
of unused FY2000 allotments (available for redistribution after September 30, 2002).
The interim redistribution was limited to approximately one-half of the unexpended
FY2000 allotments ($1.03 billion) and was targeted to states, commonwealths, and
territories that fully spent such allotments by the end of FY2002. Absent a statutory
change, the Secretary of HHS is required to redistribute unspent funds only to states
that exhausted their FY2000 allotments by the required deadline. CMS intended to
issue a final redistribution methodology (as determined by the Secretary) in the
Federal Register by June 30, 2003, unless Congress passed legislation for the
redistribution of unspent FY2000 allotments.8 CMS did not follow through with the
publication of a final redistribution methodology when it became clear that SCHIP
financing issues were being addressed by the 108th Congress.
SCHIP Section 1115 Waivers. In the meantime, several states have sought
approval for special waivers of SCHIP rules to create additional opportunities to fully
spend their SCHIP allotments. Under Section 1115 of the Social Security Act, the
Secretary of HHS has broad statutory authority to conduct research and
demonstration projects under six programs, including Medicaid and SCHIP. On
August 4, 2001 the Bush Administration announced the Health Insurance Flexibility
and Accountability (HIFA)1115 Waiver Initiative. This initiative encourages states
to develop statewide projects that coordinate Medicaid and SCHIP with private
health insurance coverage and target uninsured individuals with income below 200%
of the federal poverty level, just as SCHIP does. Later, President Bush indicated that
unspent SCHIP funds could be used to finance the HIFA initiative.9 SCHIP funds
are a major source of funding for the approved HIFA waiver projects.
As of May 22, 2003, CMS approved 14 SCHIP 1115 waivers (four others are
in review).10 Seven of the 14 approved waivers are SCHIP HIFA demonstrations.
8 Centers for Medicare and Medicaid Services (CMS) Letter to State Medicaid Directors and
State Health Officials (SMDL #03-003), Mar. 27, 2003. (See Appendix 2 for interim
redistribution payment amounts for unexpended FY2000 SCHIP allotments.)
9 Department of Health and Human Services, Centers For Medicare and Medicaid Services.
Report on the Health Insurance Flexibility and Accountability (HIFA) Initiative: State
Accessibility to Funding for Coverage Expansions, Oct. 4, 2001.
10 As of May 22, 2003, 11 states had implemented their SCHIP and HIFA Section 1115
(continued...)

CRS-5
Several of the approvals allow states to use SCHIP funds to cover new groups of
individuals such as: pregnant women; parents of SCHIP and Medicaid-eligible
children; and childless adults. In three states, Wisconsin, Minnesota, and Rhode
Island, the Administration approved a “buy out” of these states’ existing Medicaid
Section 1115 waivers. That is, in these states certain adult populations that were
initially covered under the state’s existing Medicaid Section 1115 demonstrations are
now covered by SCHIP Section 1115 waiver programs. The approval of these
projects as SCHIP demonstrations shifted the funding source from Title XIX funds
matched at the regular federal medical assistance percentage (FMAP), to Title XXI
allotments matched at the enhanced FMAP. Furthermore, in the case of Arizona and
Rhode Island, HHS approved use of SCHIP reallocated funds for coverage of certain
adult groups under its SCHIP Section 1115 waiver. All of these waiver approvals
have implications for SCHIP financing as they expand the categories of eligibles and
circumstances under which capped SCHIP funds may be used.
In a July 2002 report to Congress titled, Medicaid and SCHIP: Recent HHS
Approvals of Demonstration Waiver Projects Raise Concerns, the General
Accounting Office (GAO) expressed concerns that HHS’ use of Section 1115 waiver
authority to use SCHIP funds to cover childless adults is not consistent with the
program’s statutory objectives. On August 6, 2002 Senators Baucus and Grassley of
the Senate Finance Committee responded to the GAO report by sending a letter to the
Secretary of HHS. The Members were concerned that the states’ use of SCHIP funds
to cover childless adults would result in less money being available for redistribution
to states with programs for children.
The Current Debate
SCHIP financing is being revisited by the 108th Congress for a number of
reasons. First, 37 states have failed to use all available FY2000 allotments within the
3 years states had to spend that year’s funds. These states want continued access to
funds that the law requires to be redistributed to states that were able to spend all of
their available funds in the given time frame.
Second, 14 states depleted their FY2000 original allotments in the given time
frame. Seven of those 14 states spent more than their FY2000 original allotments
(state spending for FY2000 may exceed allotments as a result of redistribution of
unused FY1998 and FY1999 funds from prior years). These states would like access
to unused state allotments, subject to redistribution as required by statute. Absent
legislation to redistribute unspent FY2000 allotments, the Secretary would be
required to issue a final redistribution methodology that would only benefit this
group of states.11 (See below for a discussion of recent legislative action.)
Third, the Beneficiary Improvement and Protection Act of 2000 (BIPA-2000)
provided access to approximately $4.9 million in unspent redistributed amounts to
10 (...continued)
waivers. These states include: Arizona; Colorado; Illinois; Maryland; Minnesota; New
Jersey; New Mexico; New York; Oregon; Rhode Island; and Wisconsin.
11 [http://www.cms.gov/states/letters/smd032703.pdf]

CRS-6
both groups of states mentioned above. BIPA-2000 decreased the redistribution
amount available to states that had exhausted their original allotments for specific
years by allowing states that had not spent their full allotments to retain a portion of
their unused funds. Even with the continued availability of funds provided by BIPA-
2000, in the aggregate, both groups of states did not manage to spend all the available
reallocated funds within the required time periods. State-reported expenditure data
through the end of FY2002 show that a majority of states used their redistributed
funds, with 19 states failing to do so. Without addressing any additional
redistribution of funds, only these 19 states would benefit from the continued
availability of the FY1998 and FY1999 reallocated funds. However, most states
(above and beyond the 19 states that were unable to deplete their funds) are interested
in recouping the $1.3 billion in expired unused FY1998 and FY1999 funding as well
as $1.4 billion in unspent funds from the FY2000 redistributions that are projected
to expire at the close of FY2003.12
Finally, over time, additional states are likely to spend all of their available
funds and thus will be eligible for redistributions. FY2002 is the first of 3 years in
which the total federal appropriation is 26% less than it was for each of FY1998-
FY2001. All states have a vested interest in legislative changes that would increase
annual SCHIP appropriations because while more states will be eligible for
redistributions, there will be fewer funds available for redistribution to such states.
In fact, CMS projects that 15 states will deplete all available SCHIP funds (original
and redistributed) over the second half of the program (FY2003-FY2007). States are
currently experiencing a period of fiscal distress due to the downturn in the economy
since 2000, and they want to be able to sustain the income eligibility limits for their
SCHIP programs as the number of uninsured individuals increases.
The 108th Congress has passed redistribution legislation that was signed into law
as P.L. 108-74 on August 15, 2003 that attempts to strike a balance between policies
to reward fast spending states with the underlying program tenet that SCHIP is a
capped grant program under which states must design their programs to stay within
budgetary limitations.
12 Congressional Budget Office (CBO) Mar. 2003 Baseline, Medicaid and the State
Children’s Health Insurance Program. Mar. 11, 2003.

CRS-7
SCHIP Expenditure Trends
SCHIP Program Expenditures and Enrollment Start Slowly
SCHIP state spending during the first 4 years of the program (FY1998- FY2001)
was well below federal appropriations, but has increased over time.13 For FY1998,
SCHIP program federal expenditures totaled $122 million; for FY1999, $922
million; for FY2000, $1.93 billion, and for FY2001 federal expenditures increased
to $2.62 billion. This spending trend coincides with enrollment growth. Early
enrollment estimates indicated that nearly 1 million children (982,000) were enrolled
in SCHIP under 43 operational state programs as of December 1998.14 SCHIP
enrollment grew to nearly 2 million children (1,979,450) under 53 operational
programs (in the states, the District of Columbia, and the Outlying Areas) during
FY1999.15 The latest official numbers show that total SCHIP enrollment reached 5.3
million children in FY2002. Of this total, 1.3 million participated in SCHIP
Medicaid expansions, and 4.0 million children were covered in separate state
programs.16
FY2002 federal SCHIP expenditures equaled $3.78 billion. This is the first
fiscal year in which state spending of available SCHIP funds exceeded the SCHIP
program appropriations for that year. In its March 2003 baseline, CBO projected that
total federal SCHIP spending will grow to $5.0 billion by FY2007.
State Spending Against FY1998 - FY2000 Original Allotments
Nationwide, fiscal year account activity across states shows states spent only
52% of the FY1998 original allotments, 34% of the FY1999 original allotments, and
48% of the FY2000 original allotments by their respective deadlines. While most
states (including the District of Columbia) failed to spend their original allotments
as required within applicable time periods, these states want continued access to
funds that the law requires be redistributed to states that were able to spend all of
their available funds in the given time frame. (See Appendix 1 for the state share of
original FY1998, FY1999, and FY2000 allotments expended by applicable
deadlines.)
As previously described, states and territories are provided annual federal
allotments based on a distribution formula set in law. These annual allotments are
13 For each of FY1998 through FY2001, total federal funding available to states and
territories was approximately $4.3 billion. For each of FY2002, FY2003, and FY2004,
federal funding available to states and territories equals $3.2 billion.
14 U.S. Health Care Financing Administration, A Preliminary Estimate of the Children’s
Health Insurance Program Aggregate Enrollment Numbers Through Dec. 31, 1998
(background only), Apr. 20, 1999.
15 U.S. Health Care Financing Administration, The State Children’s Health Insurance
Program, Annual Enrollment Report, Oct. 1, 1998- Sept. 30, 1999 (no date).
16 Centers for Medicare and Medicaid Services, Fiscal Year 2002 Number of Children Ever
Enrolled in SCHIP — Preliminary Data Summary, Jan. 30, 2003.

CRS-8
basically separate, sequential funding accounts. For each state and territory, the
account for a given fiscal year is made available at the beginning of that year, and
remains available for up to 3 years. SCHIP payments are taken out of the earliest
active account. Once that fiscal year allotment is fully expended states can begin to
access the next year’s allotment, and so forth. Funds remaining in an annual
allotment account that was once active for a state, but are no longer available due to
the passing of the deadline for availability of such funds, are only available again
through the redistribution process.
As shown in Appendix 1, some states (e.g., Arizona and California) never
accessed their FY1999 annual allotments, but did claim against their FY2000
accounts. This was possible because claims against the FY1999 allotments were not
made during the 3-year period of availability for such funds. After the deadline for
the availability of the FY1999 original allotments (end of FY2001), these states
began claiming against the next available account (i.e., FY2000 annual allotments).
The same logic applies for states that claimed partial amounts out of a given year’s
allotment (e.g., Colorado and Connecticut). Such states left a portion of their
FY1999 funds unspent at the 3-year deadline (end of FY2001). States are not
permitted to access the succeeding year’s allotment (in this case, FY2000 funds) until
the prior year’s allotment (in this case, FY1999 funds) is fully expended, or the
deadline for availability of the prior year’s funds has passed. In both of the examples
above, these states could not begin accessing their FY2000 allotments until FY2002,
the final year of availability for FY2000 allotments.
Table 1 illustrates that only a few states spent their original allotments by the
relevant deadlines. Before BIPA changes, 12 states would have qualified for
redistributions in 1998 and 13 states in 1999. In FY2000, state-reported expenditures
through the 4th quarter of FY2002 show that 14 states spent all of their FY2000
allotments by the end of FY2002, as required.17 These states qualify for the FY2003
redistribution.
Looking at only those 18 states which spent all of their allotments in at least one
year during FY1998 through FY2000, eight states qualified for redistributions for
each of fiscal years 1998, 1999, and 2000; three states qualified for FY1998 and
FY1999 redistributions only; and two states qualified for FY1999 and FY2000
redistributions only. Of the remaining states one additional state received
redistributed funds from the FY1998 account only; and state-reported expenditures
through the fourth quarter of FY2002 show that four new states will qualify for the
FY2000 redistributions only (see Table 1).
There are many factors that affect state spending (e.g., state-specific eligibility
criteria, outreach and enrollment initiatives, the delivery system used to provide
beneficiaries with coverage, or the composition of the benefit package available to
beneficiaries). These differences help to explain the variation in spending among
states.
17 For each of FY1998, FY1999, and FY2000 all five territories also spent all of their
allotments by the given deadlines. They qualified for the redistribution of unspent funds
from these accounts.

CRS-9
Table 1. Redistribution States for Each of FY1998 through FY2000
State
FY1998 FY1999
FY2000
Alaska
x
x
x
Indiana
x
x
Kansas
x
Kentucky
x
x
x
Maine
x
x
x
Maryland
x
x
x
Massachusetts
x
x
x
Minnesota
x
Mississippi
x
Missouri
x
x
New Jersey
x
x
New York
x
x
x
North Carolina
x
x
Pennsylvania
x
Rhode Island
x
x
x
South Carolina
x
x
x
West Virginia
x
Wisconsin
x
x
Five Territories
x
x
x
Total States Only
12
13
14
Source: Federal Register, vol. 66, no. 120, June 21, 2001, p. 33263 and Federal Register, vol. 67,
no. 81, Apr. 26, 2002, p. 20799, and Centers for Medicare and Medicaid Services, 4th quarter FY2002
state-reported expenditure data.
Note: Shaded cells with an “x” represent states that spent their original allotments by the relevant
deadlines and thus qualified for a redistribution of unused funds from prior years. All five territories
(Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern Mariana Islands) also received
redistributed funds in each of FY1998 through FY2000.

CRS-10
Congress Reacts to Early Program Expenditure Trends
Through Enactment of the BIPA-2000 Reallocation
The Beneficiary Improvement and Protection Act of 2000 (BIPA-2000)
provided access to unspent reallocated amounts for both groups of states mentioned
above (i.e., states that spent more than their original allotments in the given time
period and states that were not able to use all available allotments within applicable
time periods). BIPA-2000 decreased the amount available for redistribution to states
that had exhausted their original allotments for specific years by allowing states that
had not spent their full allotments to retain a portion of their unused funds.
The method for providing access to BIPA-2000 reallocated funds is different
from that used for original allotments. CMS permitted states to access reallocated
funds from FY1998 during FY2001 and FY2002, and reallocated funds from FY1999
during FY2002 (at which point remaining unused funds reverted to the Treasury).
These reallocated funds became additional active accounts whose availability
overlapped with other original allotments. Thus, during FY2001 and FY2002 only,
states could draw federal matching funds from more than one active account (for
example, FY2001 original allotments and FY1998 reallocated funds).
Table 2 shows SCHIP expenditures against open allotments through September
2002. During this reporting period, 5 fiscal year accounts — FY1998 through
FY2002 — were available to states.18 These accounts include: (1) FY1998
reallocated funds; (2) FY1999 reallocated funds; (3) FY2000 original allotments; (4)
FY2001 original allotments; and (5) FY2002 original allotments. During FY2001
and FY2002 only, two of the above-listed accounts could be active simultaneously
(one original allotment and one account containing reallocated funds).
The first five columns of Table 2 show the percentage of each of the available
active accounts that states spent by the end of FY2002 (shaded cells containing “ —
“ indicate a depleted account; blank cells indicate that the fiscal year account was not
accessed). FY2002 expenditure data show that 47 states (including the District of
Columbia) depleted their FY1998 reallocated funds. Only 5% ($102.2 million) of
the FY1998 reallocated funds remained at the close of FY2002. By contrast, for the
FY1999 reallocations, 32 states (including the District of Columbia) depleted their
available funds leaving an unspent balance of 41% ($1.2 billion) of available funds
by the deadline. In total, states spent 74% of the $4.9 billion available through the
BIPA-2000 reallocations, leaving an unspent balance of $1.3 billion by the close of
FY2002 (see Appendix 2).
18 Federal fiscal years run from Oct. 1 through Sept. 30 and are labeled according to the
calendar year in which they end. So for example, FY2002 began on Oct. 1, 2001 and ended
on Sept. 30, 2002. Under SCHIP, FY1998 funds were available through the end of FY2000
(Sept. 30, 2000). FY1999 funds were available through the end of FY2001 (Sept. 30, 2001).
Unspent funds for these 2 fiscal years were redistributed as authorized under BIPA
(described above). FY2000 funds were available through FY2002, and FY2001 funds are
available through FY2003.

CRS-11
Like state spending against original allotments, the BIPA-2000 reallocations
continued the availability of unused prior year funding at levels higher than many
states were able to spend (in the allowable time periods). In fact, during this 5-year
reporting period only five of the 14 states that spent all of their FY1998 and/or
FY1999 allotments had cumulative expenditures that exceeded their cumulative
original allotments and thus, were required to rely on BIPA-2000 redistributed funds
as allowed in statute to finance their program expenditures.19 However, with the
addition of the BIPA-2000 redistributed funds to their available original allotments,
these five states also have unspent funds remaining at the end of FY2002 (Table 2
last column). Expenditure data through the end of FY2002 show that without a
legislative change to require an additional re-allotment of the BIPA-2000 reallocated
funds, only 19 states would benefit from a proposal to continue the availability of
unspent funds (See Table 2).
Most states (above and beyond the 19 states that were unable to deplete their
funds) are also interested in recouping BIPA-2000 funds as well as approximately
$1.4 billion that are expected to expire at the end of FY2003. These states would
prefer to see redistribution legislation that would channel unused prior year program
funding to states whose expenditure and enrollment data show that such states could
make use of prior year program funds. While the continued availability of unused
prior year funds and an additional redistribution process may better direct existing
SCHIP resources to states that choose to expand their SCHIP programs to maximize
coverage to new (or existing) groups of uninsured individuals, a recycling of unused
SCHIP program funds in this way may be perceived as creating an incentive for states
to capture additional federal dollars by spending more than is available through their
original allotments. However, states relying on redistributed funds to finance their
SCHIP programs may not be able to sustain their programs in future years when less
funds are available for redistribution to qualifying states.
State Spending Against All Available Funds, FY1998-FY2002
In addition to state spending against the BIPA-2000 reallocated funds, the last
four columns of Table 2 map state spending against all available funds during this
5-year reporting period, FY1998 through FY2002. The second to last column of
Table 2 shows the percentage of all available funds each state spent by the end of
FY2002. Figure 1 displays these percentages graphically and ranks states according
to their spending of all available allotments (original and reallocated). States that
appear on the right hand side of this figure were more likely to qualify for
redistributions in each of FY1998-FY2000. While redistributed funds are available,
assuming current expenditure trends, these “high spending” states may begin to rely
on redistributed funds to finance their programs in future years.
By the end of FY2002, expenditure data indicates that 29 states (including the
District of Columbia) spent less than half of their available funds. Of those 29 states,
eight spent less than 25% of their available cumulative funds and 21 states (including
the District of Columbia) spent between 25% and 50% of their available funds.
19 These states include: (1) Alaska; (2) Maryland; (3) New Jersey; (4) New York; and (5)
Rhode Island.

CRS-12
Table 2. SCHIP Program Allotments and Expenditures by State, FY1998-FY2002
(in thousands)
Percent of each active available account spent
Total available
Total
Percent of
(through 9/30/02)
(adjusted)a
expenditures
available
State
allotment
applied against
(adjusted)a
Allotment

1998
1999
amounts for
allotments
allotments spent balance at end of
reallocated reallocated
2000
2001
2002
FY1998-FY2002 (through 9/30/02) (through 9/30/02)
FY2002b
Alabama
—
—
37.4%
$
320,043 $
153,953
48.1% $
166,090
Alaska # † %
—
54.4%
—
—
$
91,051 $
66,482
73.0% $
24,569
Arizona
—
—
57.8%
$
479,610 $
213,005
44.4% $
266,605
Arkansas
13.6%
$
195,714 $
6,213
3.2% $
189,501
California
—
—
3.0%
$
2,998,522 $
1,022,659
34.1% $
1,975,864
Colorado
—
—
37.7%
$
184,182 $
76,067
41.3% $
108,115
Connecticut
—
—
11.3%
$
154,601 $
54,410
35.2% $
100,191
Delaware
—
35.0%
$
37,435 $
7,190
19.2% $
30,245
District of Columbia
—
—
9.9%
$
46,358 $
17,008
36.7% $
29,349
Florida
—
—
89.0%
$
1,059,194 $
648,261
61.2% $
410,933
Georgia
—
—
51.1%
$
543,921 $
239,137
44.0% $
304,784
Hawaii
—
38.5%
$
40,828 $
7,363
18.0% $
33,465
Idaho
—
—
69.2%
$
83,117 $
40,113
48.3% $
43,005
Illinois
—
60.3%
$
573,738 $
128,896
22.5% $
444,842
Indiana # †
—
79.5%
$
461,019 $
235,787
51.1% $
225,232
Iowa
—
—
73.9%
$
143,700 $
79,904
55.6% $
63,797
Kansas %
—
—
—
2.3%
$
132,745 $
82,104
61.9% $
50,641
Kentucky # † %
—
35.7%
—
$
374,247 $
217,915
58.2% $
156,333
Louisiana
—
—
21.6%
$
351,625 $
140,437
39.9% $
211,188
Maine # † %
—
29.5%
—
$
85,592 $
48,956
57.2% $
36,636
Maryland # † %
—
68.5%
—
$
446,975 $
318,362
71.2% $
128,613
Massachusetts # † %
—
22.3%
—
$
358,621 $
189,717
52.9% $
168,904
Michigan
—
—
6.1%
$
441,650 $
128,810
29.2% $
312,840

CRS-13
Percent of each active available account spent
Total available
Total
Percent of
(through 9/30/02)
(adjusted)a
expenditures
available
State
allotment
applied against
(adjusted)a
Allotment

1998
1999
amounts for
allotments
allotments spent balance at end of
reallocated reallocated
2000
2001
2002
FY1998-FY2002 (through 9/30/02) (through 9/30/02)
FY2002b
Minnesota %
—
—
—
9.1%
$
129,139 $
65,423
50.7% $
63,716
Mississippi %
—
—
—
2.9%
$
240,217 $
147,912
61.6% $
92,305
Missouri # †
—
—
2.2%
$
343,483 $
175,404
51.1% $
168,080
Montana
—
—
84.6%
$
58,964 $
30,839
52.3% $
28,125
Nebraska
—
—
49.6%
$
72,741 $
31,138
42.8% $
41,603
Nevada
—
—
29.9%
$
128,342 $
47,977
37.4% $
80,365
New Hampshire
—
23.3%
$
44,369 $
9,413
21.2% $
34,956
New Jersey † %
—
—
—
78.2%
$
542,408 $
451,398
83.2% $
91,009
New Mexico
57.8%
$
209,107 $
26,128
12.5% $
182,979
New York # † %
—
23.9%
—
$
2,517,549 $
1,405,833
55.8% $
1,111,716
North Carolina # †
—
87.2%
$
545,750 $
257,313
47.1% $
288,437
North Dakota
—
—
33.6%
$
23,829 $
8,164
34.3% $
15,664
Ohio
—
—
90.7%
$
589,150 $
326,767
55.5% $
262,383
Oklahoma
—
88.1%
$
302,822 $
107,317
35.4% $
195,505
Oregon
—
—
2.3%
$
181,828 $
51,227
28.2% $
130,601
Pennsylvania #
—
—
74.9%
$
588,656 $
317,709
54.0% $
270,947
Rhode Island # † %
—
—
—
—
39.7%
$
70,031 $
65,522
93.6% $
4,510
South Carolina # † %
15.3%
—
$
437,593 $
206,138
47.1% $
231,455
South Dakota
—
—
78.4%
$
34,379 $
18,542
53.9% $
15,836
Tennessee
—
9.6%
$
307,585 $
60,139
19.6% $
247,446
Texas
—
—
50.8%
$
1,882,714 $
881,015
46.8% $
1,001,700
Utah
—
—
89.2%
$
125,376 $
69,232
55.2% $
56,143
Vermont
—
—
41.1%
$
17,536 $
6,848
39.0% $
10,688
Virginia
—
—
15.3%
$
284,710 $
92,210
32.4% $
192,500
Washington
45.6%
$
205,491 $
14,180
6.9% $
191,310
West Virginia %
—
—
—
8.2%
$
95,929 $
59,860
62.4% $
36,069

CRS-14
Percent of each active available account spent
Total available
Total
Percent of
(through 9/30/02)
(adjusted)a
expenditures
available
State
allotment
applied against
(adjusted)a
Allotment

1998
1999
amounts for
allotments
allotments spent balance at end of
reallocated reallocated
2000
2001
2002
FY1998-FY2002 (through 9/30/02) (through 9/30/02)
FY2002b
Wisconsin † %
—
—
—
$
248,170 $
159,327
64.2% $
88,843
Wyoming
—
56.3%
$
28,126 $
7,160
25.5% $
20,966
MOEc
NOT APPLICABLE
$
7,894
NOT APPLICABLE
$
7,894
Puerto Rico # † %
—
—
—
—
1.9%
$
208,136 $
178,424
1.9% $
29,711
Guam # † %
—
—
—
20.8%
$
7,953 $
5,550
69.8% $
2,403
Virgin Islands # † %
—
—
83.0%
$
5,908 $
4,079
69.1% $
1,828
American Samoa # † %
—
—
—
—
—
$
2,727 $
4,128
151.4% $
(1,401)
N. Mariana Isl. # † %
—
—
—
—
—
$
2,499 $
5,203
208.2% $
(2,704)
Total (all states and
territories)
95.0%
58.9%
48.2%
3.4%
0.0% $
20,095,600 $
9,420,272
46.9% $
10,675,328
Source: Centers for Medicare and Medicaid Services, 4th quarter FY2002 state-reported expenditure data as of Nov. 30, 2002. (From unpublished reports: FY02RPT.xls, CHIP1202.xls
and ST121602.xls).
Note: Shaded cells with “ — “ represent depleted accounts at the close of FY2002 as reported to CMS by Nov. 30, 2002. Blank cells represent available accounts that have not been
accessed by the states at the close of FY2002 as reported to CMS by Nov. 30, 2002.
a “Adjusted” refers to increases or decreases to the amounts provided by states’ original FY1998 and FY1999 allotments due to the redistribution of unspent FY1998 and FY1999
funds. For states that received redistributions of other states’ unspent funds, this amount is greater than what was provided by original allotments. For states that contributed
unspent funds to the pool for redistribution for other states, this amount is less than what was provided by original allotments (the amount is derived by subtracting out the unspent
funds and adding back the amount the state was able to retain due to BIPA-2000).
b This is NOT the amount that will be available to states in FY2003. To derive that amount, the following adjustments need to be made to the number in this column: 1) subtract the
amount of unspent FY1998 and FY1999 reallocated funds that expired Sept. 30, 2002 under current law; 2) add in redistributions of unspent FY2000 funds (amounts will depend
on whether Congress acts to create a redistribution method, as it did in BIPA-2000; if Congress does not act, the amount will depend on the method CMS chooses for
redistribution); and 3) add in new allotments for FY2003.
c MOE refers to one of the maintenance of effort provisions in SCHIP statute. When SCHIP was created, three states — Florida, New York and Pennsylvania — had existing
comprehensive state-based health benefit programs for children that were deemed to meet SCHIP requirements. These states are required to maintain their prior level of spending
under SCHIP. Specifically, beginning in FY1999, the allotment for a given fiscal year will be reduced by the difference between the state’s spending in the prior fiscal year versus
FY1996 (before SCHIP began). The $7.9 million shown for MOE in this table reflects spending patterns in Pennsylvania for FY1999, in which Pennsylvania’s share of SCHIP
costs was $7.9 million less than FY1996 spending, so its allotment for FY2000 has been reduced by $7.9 million. This amount will be included in the redistribution process for

CRS-15
FY2000. (Pennsylvania’s share of FY1998 SCHIP costs was $2.2 million less than FY1996 spending, and its SCHIP allotment for FY1999 was reduced by $2.2 million. This
amount is not shown in the MOE cell because it has already been redistributed to other states in the FY1999 redistribution process.)
# indicates the 12 states that fully expended their original FY1998 allotments by the end of FY2000 as required, and therefore received additional “redistributed” FY1998 funds. All
five territories (Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern Mariana Islands) also received redistributed FY1998 funds. The remaining 39 states (including
the District of Columbia) did not spend their full FY1998 allotments by the end of FY2000. Such states received a “retained allotment” amount in the FY1998 redistribution
process.
† indicates the 13 states that fully expended their original FY1999 allotments by the end of FY2001 as required, and therefore received additional “redistributed” FY1999 funds (see
text for explanation). All five territories (Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern Mariana Islands) also received redistributed FY1999 funds. The
remaining 38 states (including the District of Columbia) did not spend their full FY1999 allotments by the end of FY2001. Such states received a “retained allotment” amount
in the FY1999 redistribution process.
% State-reported expenditure data predicts 14 states to have fully expended their original FY2000 allotments by the end of FY2002 as required, and therefore they will receive additional
“redistributed” FY2000 funds (see text for explanation). Expenditure data also indicates that all five territories (Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern
Mariana Islands) will receive redistributed FY2000 funds. The remaining 37 states (including the District of Columbia) did not spend their full FY2000 allotments by the end
of FY2002. Such states received a “retained allotment” amount in the FY2000 redistribution process. The identification of the FY2000 redistribution and retention states are
based CRS analysis of state-reported expenditure data submitted to CMS as of Nov. 30, 2002.
* See footnote a of Table 1 for an explanation of “adjusted.”

CRS-16
Figure 1. FY1998-2002 Spending as a Percentage of FY1998-2002 Available (Adjusted)* Funds
1 0 0 . 0 %
9 0 . 0 %
8 0 . 0 %
7 0 . 0 %
6 0 . 0 %
5 0 . 0 %
4 0 . 0 %
3 0 . 0 %
2 0 . 0 %
1 0 . 0 %
0 . 0 %
HI
IL
MI
IN
IA
AR
DE
TN
WI
WA
NM
NH
WY
OR
VA
CA
ND
CT
OK
DC
NV
VT
LA
CO
NE
GA
AZ
TX
SC
NC
AL
ID
MN
MO
MT
MA
SD
PA
UT
OH
NY
ME
KY
FL
MS
KS
WV
MD
AK
NJ
RI
-
-
X
-
-
-
-
+
-
+
-
-
+
-
-
-
-
-
-
-
+
-
-
+
-
-
-
-
-
X
-
-
-
-
-
-
-
-
-
+
+
-
-
-
-
-
X
-
-
X
X
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9 8 9 8
-
-
-
9 8 9 8
-
9 8
-
9 8
-
-
-
9 8 9 8 9 8
-
-
-
-
-
9 8 9 8
-
9 8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9 9 9 9
-
-
-
9 9 9 9
-
9 9
-
-
-
-
-
9 9 9 9 9 9
-
-
-
-
9 9 9 9 9 9 9 9 9 9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0 0
-
-
-
0 0
-
-
-
0 0
-
-
-
-
-
0 0 0 0 0 0
-
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Source: CRS analysis of FY2002 state-reported expenditure data through Sept. 30, 2003, as reported to CMS on Form 21-C by Nov. 30, 2002.
Note: Under each state abbreviation, an ‘X’ identifies states with an SCHIP Section 1115 waiver that covers one or more categories of adults and was implemented as of Sept. 30,
2002. For such states, some portion of the spending shown on this chart is associated with service spending for adults. A ‘+’ identifies states with an approved SCHIP Section 1115
waiver (as of Apr. 11, 2003) that covers one or more categories of adults, but was not implemented as of September 30, 2002 [http://www.cms.gov/schip/1115waiv.pdf]. For such
states, none of the spending shown on this chart is associated with service spending for adults since the programs were not implemented as of the end of FY2002. States with “98,”
“99,” and “00" indicated whether the state qualified for a redistribution for each of FY1998, FY1999, and FY2000 respectively.

CRS-17
Of the 22 states that spent more than 50% of available funds for FY1998
through FY2002, 20 states spent between 50% and 75%, and two states (New Jersey
and Rhode Island) spent more than three-quarters of all available funds by the end of
FY2002. Further, only seven states accessed their FY2001 allotments. By the end
of FY2002, Rhode Island was the only state to deplete its FY2001 allotment and
access its FY2002 allotment. Nationally, as seen in the last row of Table 2,
expenditure data show that states spent approximately 46.9% of all available federal
funds by the end of FY2002, leaving an unspent balance of approximately $10.7
billion from the FY1998 through FY2002 allotments. Of that total, approximately
$2.2 billion of the unspent FY2000 funds are available for redistribution in FY2003.
Spending Trends Over the Life of the Program May Shape the
Future of SCHIP Financing
Over time, more and more states are likely to spend all of their available funds
and thus will be eligible for redistributions. FY2002 is the first of 3 years in which
the total federal appropriation is 26% less than it was for each of FY1998-FY2001.
Often referred to as the “SCHIP dip,” this decrease in appropriations was written into
SCHIP’s authorizing legislation due to budgetary constraints at that time. While
additional states will be eligible for redistributions, fewer funds will be available for
redistribution to such states. These states may not be able to sustain the high levels
of spending they achieved when more program funds were available. CMS projects
shortfalls for 15 states over the second half of the program (FY2003-2007). In most
cases, these states are expected to spend all of their allotments and to rely on
redistributed funds, but not have sufficient redistributed funds to operate at their
October 2001 levels.
To illustrate this point, on the national level, Table 3 provides a variety of
point-in-time and cumulative statistics on annual allotments and expenditure patterns
over the life of the SCHIP program, FY1998 — FY2007. Table 3 captures the
complexity of SCHIP financing inherent in the statutory and regulatory requirements
governing this program (i.e., the 3-year availability of original allotments, the
continued availability of unused prior year funds for redistribution among qualifying
states, BIPA-2000's special rule for the continued availability of unused FY1998 and
FY1999 allotments, as well as the order and time frame by which states may access
each available account). The role of Table 3 is to visualize the interplay of each of
these financing requirements over the life of the program using actual expenditure
data for FY1998 through FY2002 and CBO March 2003 Baseline estimates for
FY2003 through FY2007.
FY1998-FY2001: New Allotments Exceed Spending. As seen in Table
3, in FY1998, states spent only 2.9% (sixth row) of the FY1998 allotment. In fact,
only 19 states spent any SCHIP funds during FY1998, and only two of them — New
York and South Carolina — spent more than 10% of their state-specific allotments
(data not shown) in that year. This meant that $4.113 billion (fifth row) of the
FY1998 allotment was carried forward for use in FY1999. An additional $4.247
billion in FY1999 original allotments was also available to states (first row).

CRS-18
During FY1999, all states except five20 spent at least some SCHIP funds. State
spending in that year totaled 11.0% (sixth row) of available funds. (Available funds
consisted of unspent FY1998 allotments and the new FY1999 allotment). Because
states may not use a given year’s allotment until it has depleted the previous fiscal
year’s allotment (or the previous year’s allotment is no longer available), states drew
nearly all of FY1999 expenditures from the FY1998 allotments.21 At the end of
FY1999, $7.438 billion (fifth row) in unspent SCHIP funds carried forward for use
in FY2000.
By the end of FY2000, all states were claiming SCHIP funds. State spending
for the year totaled 16.5% (sixth row) of available funds. (Available funds consisted
of unspent FY1998 and FY1999 allotments and the new FY2000 allotment). The
fifth row shows that $9.759 billion in unspent funds carried forward for state access
in FY2001. Just over 2 billion dollars ($2.034 billion, row 5b) of the unspent funds
that carried forward for state use in FY2001 were FY1998 reallocated funds.
In FY2001, spending for the year came to 19.1% (sixth row) of available funds,
and $11.336 billion (fifth row) of unspent funds carried forward for state use in
FY2002. Almost 3 billion dollars ($2.819 billion, row 5b) of unspent funds that
carried forward for state use in FY2002 were FY1999 reallocated funds. The
remainder of the unspent funds ($8.517 billion, row 5a) included: (1) unspent
FY2000 and FY2001 allotments; as well as (2) unspent FY1998 reallocated funds
that states were permitted to use for an extra year under BIPA-2000.
FY2002 through FY2007: State Expenditures Exceed Annual
Appropriations. FY2002 is the first year that total spending exceeds that year’s
appropriation (reflected by the negative value in the third row of Table 3).22 Thus,
it is in FY2002 that states’ SCHIP balances begin to decline as new annual allotments
cannot keep pace with states’ increased program spending. This trend is predicted
to continue through the remainder of the program as more and more states deplete
their original allotments. Assessing current program trends, these states must turn
to other available funds (i.e., redistributed funds) to finance their programs.
Two other factors contribute to the decline of nationwide SCHIP balances and
the related acceleration in “spending as a share of available funds” between FY2002
(26.1%) and FY2004 (49.7%), (sixth row). First, FY2002 is the first of 3 years in
which total federal appropriations are 26% less than annual levels for fiscal years
1998-2001 (first row). Because the “SCHIP dip” results in less new money available
to states, it also contributes to a more rapid decline in the nationwide balance of
unused funds.
20 Hawaii, Oklahoma, Tennessee, Washington, and Wyoming.
21 New York and South Carolina were the only states to finish their FY1998 allotments
during FY1999. These states began accessing their FY1999 allotments in that year.
22 State-reported expenditure data through the fourth quarter of FY2002 show federal SCHIP
expenditures reached $3.78 billion. This exceeds the FY2002 appropriations by $661
million.

CRS-19
Table 3. Allotments and Actual and Projected Available Funds and Spending, FY1998-2007(in millions)
Actual expenditures*
Projected expenditures**
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
(1) Allotment
$4,235
$4,247
$4,249
$4,249
$3,115
$3,175
$3,175
$4,082
$4,082
$5,040
(2) Spending
$122
$922
$1,929
$2,672
$3,776
$4,500
$4,900
$4,700 $
4,700
$5,000
(3) Allotment in excess of spending
$4,113
$3,325
$2,320
$1,578
($661)
($1,325)
($1,725)
($618)
($618)
$40
(4) Total funds available this year
$4,235
$8,360
$11,688
$14,008
$14,452
$12,591
$9,867
$9,049
$8,431
$8,771
(5) Available unspent funds
$4,113
$7,438
$9,759
$11,336
$10,675
$8,091
$4,967
$4,349
$3,731
$3,771
(5a) Original allotments not yet subject to reallocation
$4,113
$7,438
$7,725
$8,517
$7,210
$5,991
$4,767
$4,249
$3,631
$3,671
(5b) Original allotments subject to reallocation
—
—
$2,034
$2,819
$2,206
$700
$200
$100
$100
$100
(5c) Expiring funds
—
—
—
—
$1,259
$1,400
—
—
—
—
(6) Spending as share of available funds
2.9%
11.0%
16.5%
19.1%
26.1%
35.7%
49.7%
51.9%
55.7%
57.0%
(7) Cumulative funds available since start of program
$4,235
$8,482
$12,731
$16,980
$20,096
$22,012
$23,787
$27,869
$31,952
$36,992
(8) Cumulative spent since start of program
$122
$1,044
$2,972
$5,644
$9,420
$13,920
$18,820
$23,520
$28,220
$33,220
(9) Cumulative spent as share of cumulative funds
2.9%
12.3%
23.3%
33.2%
46.9%
63.2%
79.1%
84.4%
88.3%
89.8%
Notes: The first row shows the national allotment made available to states and territories each year. Allotments include: (1) amounts available to states and territories as specified in
BBA 97 at the time of enactment; and (2) adjustments to the total appropriations available for states and territories enacted by P.L. 105-277, and P.L. 106-113. The second row shows
each year’s spending (*actual spending through 2002 and **CBO March 2003 Baseline estimates for 2003 and beyond). The third row shows the amount by which each year’s allotment
exceeds that year’s spending or if spending exceeds the allotment, as it does in FY2002 forward, vice versa.)
Rows four, five, and six show how spending each year relates to the funds available to states that year. The fourth row shows total funding available that year, comprised of: (1) initial
annual allotments, (2) any remaining funds carried over from previous years; and (3) starting in FY2001, redistributed funds. The fifth row shows available funds unspent at the end
of the year. Row 5a, 5b, and 5c (in italics) show how available unspent funds break out between: (a) available unspent original allotments that are not yet subject to reallocation, (b)
available original allotments that are subject to reallocation (i.e., unused prior year funds available for reallocation among qualifying states in the following year), and (c) expiring funds
(i.e., FY1998 and FY1999 reallocated funds that were not spent by the end of FY2002, and FY2000 reallocated funds that CBO estimates will not be spent by the end of FY2003).
The sum of rows 5a, 5b, and 5c equals the total available unspent funds in row five. The sixth row shows each year’s spending as a percentage of funds available that year.
The last three rows show the relationship between cumulative spending and cumulative available funds over the life of the program. Expiring funds are subtracted out of “Cumulative
funds available since the start of program” (seventh row) for FY2003 forward.
Figure 2 shows the data presented in this table graphically.

CRS-20
Figure 2. Actual and Projected Available Funds and Spending, FY1998-2007
$ 1 6 , 0 0 0
E x p i r i n g
U n s p e n t
$ 1 , 2 5 9
F u n d s
$ 1 4 , 0 0 0
$ 1 , 4 0 0
$ 2 , 8 1 9
$ 2 , 2 0 6
$ 1 2 , 0 0 0
U n s p e n t
O r i g i n a l
$ 2 , 0 3 4
$ 7 0 0
$ 2 0 0
A l l o tm e n ts
$ 1 0 , 0 0 0
S u b j e c t to
$ 1 0 0
R e a l l o c a ti o n
$ 1 0 0
$ 1 0 0
$ 8 , 0 0 0
U n s p e n t
$ 7 , 2 1 0
$ 5 , 9 9 1
$ 4 , 7 6 7
$ 8 , 5 1 7
O r i g i n a l
$ 4 , 2 4 9
$ 3 , 6 7 1
$ 3 , 6 3 1
A l l o tm e n ts
$ 6 , 0 0 0
$ 7 , 7 2 5
N o t Y e t
S u b j e c t to
$ 7 , 4 3 8
R e a l l o c a ti o n
$ 4 , 0 0 0
S p e n d i n g
$ 4 , 5 0 0
$ 4 , 9 0 0
$ 4 , 7 0 0
$ 4 , 7 0 0
$ 5 , 0 0 0
$ 4 , 1 1 3
$ 2 , 0 0 0
$ 3 , 7 7 6
$ 2 , 6 7 2
$ 1 , 9 2 9
$ 1 2 2
$ 9 2 2
$ 0
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
Notes: This figure portrays available funds and spending each year as shown in Table 3. From bottom to top, each bar is comprised of: (1) spending (Table 3, second row); (2)
unspent original allotments that continue to be available to all states the following year (Table 3, row 5a); (3) unspent funds that will be reallocated the following year (Table 3, row
5b); and (4) expiring funds for FY2002 and FY2003 only (Table 3, row 5c). In any given year each bar represents total funds available for that year (Table 3, row 4).

CRS-21
Second, FY2002 state-reported expenditure data shows almost $1.3 billion from
the BIPA-2000 reallocation expired at the end of FY2002 (row 5c). At the end of
FY2003, CBO estimates that $1.4 billion in unspent FY2000 funds will expire (row
5c). According to CBO, no funds are expected to expire in FY2004 or beyond (row
5c). Thus approximately $9.416 billion in unspent funds carry forward from FY2002
to FY2003. (These include $10.675 billion (fifth row) minus $1.259 billion in
expiring funds — row 5c.) Part of the funds that carry forward from FY2002 to
FY2003 will be comprised of FY2000 redistributed funds (row 5b) as well as unused
FY2001 and FY2002 allotments (row 5a). Figure 2 shows the data presented in
Table 3 graphically.
For FY2003 and beyond, spending nationally is projected to exceed annual
allotments each year, so the unused balance carried forward over time will decrease
(fifth row). A significant decrease in the unspent balance is projected to occur at the
end of FY2003 due to CBO’s predicted expiration of approximately $1.4 billion in
FY2000 redistributed funds (row 5c). Unspent balances carrying forward from
FY2003 to FY2004 will be approximately $6.691 billion ($8.091 billion (fifth row)
minus the $1.4 billion CBO estimates to expire — row 5c).
Using CBO estimates without any legislative or policy change, by the end of
FY2007, the total unused balance will decline to approximately $3.771 billion (fifth
row).23 Each year, the portion of unspent funds available for redistribution to
qualifying states will become smaller (row 5b). However, funds available for
redistribution are not expected to disappear completely, since it is likely that some
states will never spend all of their allotments by the applicable 3-year deadline.
Variation in SCHIP Spending Among States
The extent to which a state will be affected by the shrinking pool of funds
available for redistribution depends on the amount by which the state’s spending
exceeds its available funds. States show an extremely wide variation in the extent
to which they utilized their allotments, with some states spending significantly less
than their original allotments and some spending more. State spending is directly
linked to program enrollment. States have the flexibility to design their SCHIP
programs “narrowly” or “broadly” in terms of the pool of eligible individuals. There
are many other factors that also affect state spending (e.g., the delivery system used
to provide beneficiaries with coverage, or the composition of the benefit package
available to beneficiaries).
23 It is important to note that the estimates in the CBO baseline — like any projections —
are limited in their precision, especially in out-years. While the baseline projections take
into consideration factors such as inflation, state plan amendments, and spending under
Section 1115 waivers, differences between CBO’s assumptions and actual program changes
over time will result in a difference between CBO projections and actual spending. For
example, if actual spending is higher than CBO projections, the balance of unspent funds
at the end of FY2007 will be smaller than $3.8 billion. On the other hand, if actual spending
is lower than CBO projections, the balance of unspent funds remaining at the end of FY2007
will be greater than $3.8 billion.

CRS-22
For instance, New Jersey, which consistently spent a larger share of its
allotments than most states, chose an ambitious expansion by extending coverage to
children in families with incomes up to 350% FPL. Minnesota and Arkansas,
conversely, consistently spent very small shares of their allotments, although for
different reasons. Arkansas chose a minimal expansion from its pre-SCHIP
Medicaid thresholds. Expenditure data through the end of FY2002 show that
Arkansas used the smallest share of its available SCHIP funding to date (3.2%).24
Minnesota, by contrast, had high Medicaid eligibility thresholds prior to SCHIP
(275% FPL for all children ages 0-18) and used its SCHIP funds to expand Medicaid
to children under age 2 in families with income up to 280% FPL. In FY1999,
FY2000, and FY2001, Minnesota enrolled 21, 24, and 49 children, respectively. As
of the end of FY2001, Minnesota used an even smaller share of its available SCHIP
funding (0.6%) than Arkansas over the same time period. Minnesota’s spending
increased considerably since the implementation of its Section 1115 SCHIP waiver
to cover parents of SCHIP and Medicaid-eligible children. With its operational
Section 1115 waiver, at the close of FY2002, state-reported expenditure data show
that Minnesota claimed 50.7% of its available funding. (See Figure 1 for a ranking
of cumulative state spending for FY1998-2002 as percentage of FY1998-FY2002
available funds. This figure also identifies states with approved SCHIP Section 1115
waiver programs that cover one or more categories of adults.)
However, even if states have similar program designs, enormous enrollment
variability can exist due to the complex interaction between economic trends (e.g.,
the recent economic downturn will likely increase the number of individuals eligible
for SCHIP); federal and state policies (e.g., statewide projects that expand coverage
to new groups of uninsured individuals); program administrative procedures (e.g.,
those that simplify and expedite the eligibility determination and enrollment process);
and beneficiary perceptions unique to each state. Each of these factors affect
enrollment and influence state spending.
Shortfalls Projected for Some States
Two recent analyses — one by the Centers for Medicare and Medicaid Services
(CMS) 25 and the other by the Center on Budget and Policy Priorities (CBPP)26 use
models to forecast which states will face significant federal allotment constraints in
out-years. Both models account for state-specific SCHIP funding and expenditures.
CBPP uses the same model created by CMS’ Office of the Actuary (OACT) with
modifications. Both analyses define “available funds” to include annual original
24 CRS Report RL30642, The State Children’s Health Insurance Program: Eligibility,
Enrollment, and Program Funding, by Evelyne Baumrucker includes a table showing
eligibility thresholds under state SCHIP programs as well as states’ Medicaid income
eligibility thresholds prior to SCHIP.
25 Centers for Medicare and Medicaid Services, Report on the Health Insurance Flexibility
and Accountability (HIFA) Initiative: State Accessibility to Funding for Coverage
Expansions, Oct. 4, 2001.
26 Center on Budget and Policy Priorities. OMB Estimates Indicate That 900,000 Children
Will Lose Health Insurance Due to Reductions in Federal SCHIP Funding, Aug. 2, 2002.

CRS-23
allotments and additional unspent funds such states are projected to receive through
SCHIP redistributions.27
CMS and CBPP agree that the same 15 states will exceed all of their available
SCHIP funds by FY2006 (Table 4), some sooner than others. In addition to the 15
states, CBPP adds Arizona and Louisiana to their list of states who are predicted to
exceed their available funding (in FY2005 and FY2006 respectively).28 The last
column of the table indicates states with SCHIP Section 1115 waivers. States with
approved waivers are allowed to use SCHIP funds to cover groups not traditionally
eligible for SCHIP.
Also captured in Table 4 is the type of SCHIP program operating in the state.
As discussed previously, states with separate state programs have the flexibility to
design their programs to operate within current funding constraints. While this may
mean that states must cap enrollment or otherwise control spending to stay within
their capped federal allotments, targeted low-income children enrolled in Medicaid
are entitled to Medicaid benefits as long as they continue to meet state-specific
eligibility criteria. These children will have continued access to health insurance
coverage unless the state eliminates the new optional Medicaid eligibility category
of optional targeted low-income children, or otherwise changes its income, or
resource criteria for targeted low-income children covered through an existing
Medicaid eligibility category.
Table 4. States Expected to Use All of Their Available SCHIP
Funds by FY2006 (CMS and CBPP Projections)
First year in
Has 1115
which
Type of SCHIP program
waiver
expected to
Separate
expanding
use all
Medicaid
state
eligibility
available
expansion
program
Combination
to new
State
funds
only
only
program
groups
Alaska
FY2004
X
Idaho
FY2006
X
Indiana
FY2006
X
Iowa
FY2005
X
Kansas
FY2005
X
Kentucky
FY2005
X
Maryland
FY2004
X
27 Each analysis incorporates its own assumption regarding the method for redistribution of
unspent funds. CMS calculates projected redistributions of unspent allotments based on an
assumption that qualifying states will receive redistributed funds in proportion to original
allotments. It is unclear whether CBPP calculates projected redistributions using the BIPA-
2000 formula or by another method.
28 CMS’s analysis was released prior to the Dec. 2001 approval of Arizona’s HIFA waiver
and therefore does not include projected spending associated with the waiver. CMS’s
analysis projects that by FY2006 Louisiana’s expenditures will comprise 81% of its
available funds.

CRS-24
First year in
Has 1115
which
Type of SCHIP program
waiver
expected to
Separate
expanding
use all
Medicaid
state
eligibility
available
expansion
program
Combination
to new
State
funds
only
only
program
groups
Minnesota
FY2005
X
X
Mississippi
FY2005
X
Missouri
FY2006
X
New Jersey
FY2005
X
X
New York
FY2004
X
X
Rhode Island
FY2003
X
X
Texas
FY2006
X
West Virginia
FY2005
X
Source: Centers for Medicare and Medicaid Services. Report on the Health Insurance Flexibility and
Accountability (HIFA) Initiative: State Accessibility to Funding for Coverage Expansions, Oct. 4,
2001; and Center on Budget and Policy Priorities. OMB Estimates Indicate That 900,000 Children
Will Lose Health Insurance Due to Reductions in Federal SCHIP Funding, Aug. 2, 2002.
Legislative Activity in the 108th Congress
Several bills have been introduced in the 108th Congress to modify the rules for
redistribution and extended availability of SCHIP allotments. Ultimately H.R. 2854,
a bill to amend title XXI of the Social Security Act to extend the availability of
allotments for fiscal years 1998 through 2001 under the State Children’s Health
Insurance Program, was passed by the Congress and signed into law as P.L. 108-74
on August 15, 2003. P.L. 108-74 represents a bi-partisan compromise to reconcile
differences among the earlier bills passed by the House and Senate (i.e., S. 312, and
H.R. 531) during the 108th Congress. Detailed descriptions of the provisions
included in each of the bills are described below.
The Senate passed a bill, S. 312, to amend Title XXI of the Social Security Act
to extend the availability of allotments for fiscal years 1998 through 2001 under
SCHIP, on June 26, 2003. S. 312 addresses many of the above-mentioned concerns
by extending the availability of FY1998 and FY1999 reallocated funds through the
end of FY2004 and establishing a new method for redistributing unspent allotments
for FY2000 and for FY2001 for both those states spending all of their allotments and
those that had not. This new method is a modified version of the special
redistribution rules for unspent FY1998 and FY1999 allotments.
For each of FY2000 and FY2001, no more than 50% of the total amount of
unspent funds would be available for redistribution to states, commonwealths, and
territories that exhausted their SCHIP allotments for each of those years by the
applicable 3-year deadline.29 Subject to this ceiling, each such state would receive
29 The purpose of the limits applied to the redistributions for FY2000 and FY2001 is to
ensure that all states have access to at least some of the funds available for redistribution.
(continued...)

CRS-25
an amount equal to: 50% of the total amount of unspent funds for each of those years
less amounts redistributed to the territories, all multiplied by the ratio of such state’s
excess spending, to total excess spending for all such states. Each territory would
receive an amount equal to 1.05% of the total amount available for redistribution for
each of those years multiplied by that territory’s proportion of the original allotment
available for all territories. The bill would make redistributed funds from the
FY2000 reallocation available through the end of FY2004. Redistributed funds from
the reallocations for FY2001 would be available through the end of fiscal year 2005.
For each of FY2000 and FY2001, the amount available for retention among
those states that did not fully expend their SCHIP allotments by the applicable 3-year
deadline would be equal to 50% of such state’s unspent funds for each of those years.
The bill would make retained funds for such jurisdictions from the FY2000
reallocation available through the end of FY2004. Retained funds from the
reallocation for FY2001 would be available through the end of FY2005.
Similar to current law for FY1998 and FY1999, to calculate the amounts
available for reallocation for FY2000 and FY2001, the Secretary would use
expenditures reported by states not later than November 30 of the applicable calendar
year.
In addition to the redistribution formula, S. 312 would allow “qualifying states”
to use up to 20% of their original SCHIP allotment or their reallocated funds (for that
fiscal year) in each of FY1998, FY1999, FY2000 and FY2001, for medical assistance
payments under the state’s regular Medicaid program associated with the coverage
of children through age18 with family incomes greater than 150% FPL. Subject to
availability of their SCHIP allotment or reallocated funds for the year, qualifying
states would be eligible to receive an amount equal to the additional amount that
would have been paid to such state for coverage of such children if such claims were
matched at the state’s Enhanced FMAP as opposed to the state’s regular FMAP. Use
of these funds for expenditures incurred under an approved Section 1115 waiver in
the qualifying state would not impact the budget neutrality agreement for such
states.30 For example, when determining if a waiver meets the budget neutrality test,
these savings may not be counted as an offset to ensure that the predicted “with
waiver”costs do not exceed the “without waiver”costs as required by the budget
neutrality agreement.
For a given fiscal year, “qualifying states” under S. 312 would include those
which: (1) as of April 15, 1997, or under a Section 1115 waiver implemented on
January 1, 1994, had a Medicaid income eligibility standard for at least one category
of children (excluding infants) of at least 185% FPL; and (2) as of January 1, 2001
29 (...continued)
This redistribution design would help states to sustain spending through the 3-year dip in
appropriations.
30 In 1994 the Clinton Administration published a notice in the Federal Register which
describes the budget neutrality requirement for Section 1115 waivers. In this context,
budget neutrality means that estimated spending under the waiver cannot exceed the
estimated cost of the state’s existing Medicaid program.

CRS-26
had a SCHIP eligibility standard of at least 200% FPL, or greater than 200% FPL if
under a Section 1115 waiver targeted at uninsured children; (3) did not impose
waiting lists or enrollment caps for children whose family income is at least 200%
FPL; (4) provide statewide SCHIP coverage to all children who meet such state’s
income and other eligibility requirements; and (5) have implemented at least three
of the following procedures for establishing children’s eligibility for their Medicaid
and SCHIP programs: (a) use the same uniform, simplified application form; (b) do
not apply asset tests; (c) adopt 12-month continuous enrollment; (d) use the same
forms, verification policies, and frequency for initial eligibility determinations and
eligibility redeterminations; and/or (e) have procedures in place for initial eligibility
determinations that can be made by disproportionate share hospital (DSH) facilities
as well as federally qualified health centers.
On June 26, 2003, the House passed H.R. 531, a bill to amend Title XXI of the
Social Security Act to extend the availability of allotments for fiscal years 1998
through 2001 under the SCHIP. This bill is identical to S. 312 except that it does not
include the provision that would allow “qualifying states” to use up to 20% of their
original SCHIP allotment or their reallocated funds (for that fiscal year) for certain
Medicaid medical assistance payments.
In the most recent legislative development regarding SCHIP financing, the
House passed a new version of the bill, H.R. 2854, to restore the unspent FY1998
and FY1999 reallocated SCHIP funds in the same manner as described in S. 312, to
establish a method for redistributing unspent allotments for FY2000 and for FY2001
for all states according to the same method described in S. 312, and to allow
qualifying states to use up to 20% of their available SCHIP funds for certain
Medicaid payments. In contrast to S. 312, under H.R. 2854, qualifying states would
include those which on and after31 April 15, 1997, had a Medicaid income eligibility
standard for at least one category of children (excluding infants) of at least 185%
FPL. The bill also identifies the Section 1115 waiver programs operating in
Minnesota and Tennessee as those that would meet the definition of “qualifying
states.” All of the other additional qualifications listed in S. 312 were dropped. H.R.
2854, also includes a technical correction to the temporary increase of the Medicaid
FMAP provision included in the Jobs and Growth Tax Relief Reconciliation Act of
2003 (P.L. 108-27).32
31 Such states would be required to maintain their April 15, 1997 level of coverage (i.e., at
least 185% FPL for one or more categories of children other than infants) to continue to
meet the qualifying state criteria.
32 For more information on the temporary increase of the Medicaid FMAP provisions
included in the Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27), see
CRS Report RS21262, Federal Medical Assistance Percentage (FMAP) for Medicaid by
Christine Scott.

CRS-27
The Senate passed H.R. 2854 on July 31, 2003.33 CBO cost estimates project
that H.R. 2854 would increase direct spending in the SCHIP program by about $1.7
billion and would reduce Medicaid outlays by $795 million over the period FY2003-
FY2007.34 The bill was presented to the President for his signature on August 7,
2003 and signed into law as P.L. 108-74 on August 15, 2003.
Conclusion
The availability of SCHIP allotments under current funding rules influences
program design and planning. Unlike Medicaid, which operates as an individual
entitlement, SCHIP operates as a capped grant program. Allotment of funds among
states is determined by a formula set in law. Once a state depletes a given year’s
original allotment, other than funds from prior year(s) made available through
redistribution, no additional federal funds will be made available to that state for that
year. States have the flexibility under SCHIP statute to design their programs to
operate within these funding constraints.
The allotment and redistribution methods under current law have not matched
up with state spending patterns to date. Spending in the first several years of the
program was well below appropriations — expenditure data through the end of
FY2002 show that states spent approximately 46.9% of all available federal funds,
leaving an unspent balance of approximately $10.7 billion from the FY1998 through
FY2002 allotments. Relative to state spending, the appropriation levels were high
early on as it took time for states to set up their programs and build enrollment. Once
programs are established, states have shown a wide variability in the extent to which
they utilize their allotments, with some states spending significantly less than their
original allotments and some states spending more.
FY2002 is the first fiscal year in which total spending exceeded that year’s
appropriations. This trend is likely to continue as additional states spend all of their
available funds and are eligible for redistributions. Further, FY2002 is the first of 3
years in which the total federal appropriation is 26% less than it was for each of
FY1998-FY2001 and $1.3 billion of the BIPA-2000 reallocations as well as
additional sums (approximately $1.4 billion) from the FY2000 redistributions are
expected to expire from the program. While more states will be eligible for
redistributions, there will be fewer funds available for redistribution to such states.
In fact, CMS projects shortfalls for some states over the second half of the program
(FY2003-FY2006).
33 S. 1503 was introduced and referred to the Senate Committee on Finance on July 30,
2003. This bill has generated interest because it makes a technical correction to the
definition of qualifying state as specified in H.R. 2854. If enacted, this bill would ensure
that states with an income eligibility standard for one or more categories of children other
than infants that is just under 185% (e.g., $184.5%) would also meet the definition of
qualifying state.
34 CBO’s cost estimate for H.R. 2854 is available on their website at the following address
[ftp://ftp.cbo.gov/44xx/doc4486/hr2854.pdf]

CRS-28
SCHIP financing issues are being addressed by the 108th Congress because
states with unspent funds from the FY1998 and FY1999 reallocations are interested
in recouping those amounts and want to make sure that other unspent amounts from
subsequent years remain available to their programs. Both the Senate and the House
have passed H.R. 2854, a bill that attempts to strike a balance between policies to
reward fast spending states with the underlying program tenet that SCHIP is a capped
grant program under which states must design their programs carefully to stay within
the budgetary limitations of their allotments. Under H.R. 2854, among other
provisions, a new SCHIP redistribution formula is created that will allow unspent
funds from the FY2000 and FY2001 allotments to remain available to all states for
one additional year. Fifty percent of the unspent funds for each year will be
distributed among states and territories that spent their entire allotment for a given
year, and the remaining 50% of unspent funds will be retained and distributed among
states that have not used their entire allotments. The bill was presented to the
President for his signature on August 7, 2003 and signed into law as P.L. 108-74 on
August 15, 2003.

CRS-29
Appendix 1. Share of Original FY1998, FY1999, and FY2000 Allotments
Expended by Deadlines
(in 000s)
FY1998
FY1999
FY2000
Original
Original
Original
State
allotment
Expended
%
allotment
Expended
%
allotment
Expended %
Alabama
$85,975
$57,311
66.7%
$85,569
$23,136
27.0%
$77,012
$28,819
37.0%
Alaska
$6,889
$6,889
100.0%
$6,857
$6,857
100.0%
$7,730
$7,730
100.0%
Arizona
$116,798
$38,242
32.7%
$116,246
$0
0.0%
$130,213
$75,293
58.0%
Arkansas
$47,908
$2,203
4.6%
$47,682
$0
0.0%
$53,754
$0
0.0%
California
$854,645
$257,012
30.1%
$850,609
$0
0.0%
$765,548
$23,061
3.0%
Colorado
$41,791
$23,943
57.3%
$41,593
$9,416
22.6%
$46,890
$17,691
38.0%
Connecticut
$34,959
$25,063
71.7%
$34,794
$6,788
19.5%
$39,225
$4,427
11.0%
Delaware
$8,053
$2,290
28.4%
$8,015
$0
0.0%
$9,036
$0
0.0%
District of Columbia
$12,076
$6,262
51.9%
$12,019
$1,522
12.7%
$10,817
$1,069
10.0%
Florida
$270,215
$183,046
67.7%
$268,939
$138,923
51.7%
$242,045
$215,487
89.0%
Georgia
$124,660
$56,178
45.1%
$124,071
$32,850
26.5%
$132,381
$67,637
51.0%
Hawaii
$8,945
$420
4.7%
$8,903
$0
0.0%
$10,037
$0
0.0%
Idaho
$15,880
$12,776
80.5%
$15,805
$10,982
69.5%
$17,818
$ 12,328
69.0%
Illinois
$122,529
$53,472
43.6%
$121,950
$0
0.0%
$137,481
$0
0.0%
Indiana
$70,512
$70,512
100.0%
$70,179
$70,170
100.0%
$63,161
$50,187
79.0%
Iowa
$32,460
$26,332
81.1%
$32,307
$20,889
64.7%
$32,383
$23,938
74.0%
Kansas
$30,657
$21,562
70.3%
$30,512
$18,735
61.4%
$30,321
$30,321
100.0%c
Kentucky
$49,933
$49,933
100.0%
$49,697
$49,697
100.0%
$56,026
$56,026
100.0%
Louisiana
$101,737
$35,655
35.0%
$101,256
$0
0.0%
$91,131
$19,653
22.0%
Maine
$12,487
$12,487
100.0%
$12,428
$12,428
100.0%
$13,978
$13,978
100.0%
Maryland
$61,627
$61,627
100.0%
$61,336
$61,336
100.0%
$56,870
$56,870
100.0%
Massachusetts
$42,836
$42,836
100.0%
$42,634
$42,634
100.0%
$48,064
$48,064
100.0%

CRS-30
FY1998
FY1999
FY2000
Original
Original
Original
State
allotment
Expended
%
allotment
Expended
%
allotment
Expended %
Michigan
$91,586
$51,727
56.5%
$91,153
$11,772
12.9%
$102,762
$6,299
6.0%
Minnesota
$28,396
$15
0.1%
$28,262
$0
0.0%
$31,861
$31,861
100.0%c
Mississippi
$56,017
$29,178
52.1%
$55,753
$31,665
56.8%
$58,036
$58,036
100.0%c
Missouri
$51,673
$51,673
100.0%
$51,429
$51,429
100.0%
$57,979
$1,278
2.0%
Montana
$11,740
$4,887
41.6%
$11,685
$9,430
80.7%
$13,173
$11,150
85.0%
Nebraska
$14,863
$9,881
66.5%
$14,793
$6,231
42.1%
$16,576
$8,219
50.0%
Nevada
$30,407
$13,064
43.0%
$30,263
$3,281
10.8%
$30,526
$9120
30.0%
New Hampshire
$11,458
$2,539
22.2%
$11,404
$0
0.0%
$10,264
$0
0.0%
New Jersey
$88,418
$70,008
79.2%
$88,000
$88,000
100.0%b
$96,859
$96,859
100.0%
New Mexico
$62,973
$4,210
6.7%
$62,675
$0
0.0%
$56,408
$0
0.0%
New York
$255,626
$255,626
100.0%
$254,419
$254,419
100.0%
$286,822
$286,822
100.0%
North Carolina
$79,508
$79,508
100.0%
$79,133
$79,133
100.0%
$89,211
$77,769
87.0%
North Dakota
$5,041
$1,859
36.9%
$5,017
$425
8.5%
$5,656
$1,900
34.0%
Ohio
$115,734
$97,580
84.3%
$115,188
$88,430
76.8%
$129,858
$117,815
91.0%
Oklahoma
$85,699
$51,257
59.8%
$85,294
$3,660
4.3%
$76,765
$0
0.0%
Oregon
$39,122
$20,148
51.5%
$38,937
$2,539
6.5%
$43,896
$1,026
2.0%
Pennsylvania
$117,457
$117,457
100.0%
$114,685
$96,243
83.9%
$121,063
$90,688
75.0%
Rhode Island
$10,684
$10,684
100.0%
$10,634
$10,634
100.0%
$9,571
$9,571
100.0%
South Carolina
$63,558
$63,558
100.0%
$63,258
$63,258
100.0%
$71,314
$71,314
100.0%
South Dakota
$8,541
$4,655
54.5%
$8,501
$2,720
32.0%
$7,951
$6,234
78.0%
Tennessee
$66,153
$41,705
63.0%
$65,841
$0
0.0%
$74,226
$0
0.0%
Texas
$561,332
$81,262
14.5%
$558,681
$0
0.0%
$502,812
$255,484
51.0%
Utah $24,241
$20,836
86.0%
$24,127
$20,359
84.4%
$27,199
$24,259
89.0%
Vermont
$3,535
$1,955
55.3%
$3,519
$1,319
$37.5%
$3,967
$1,631
41.0%
Virginia
$68,315
$23,550
34.5%
$67,992
$16
0.0%
$73,580
$11,234
15.0%
Washington
$46,661
$604
1.3%
$46,441
$0
0.0%
$52,355
$0
0.0%

CRS-31
FY1998
FY1999
FY2000
Original
Original
Original
State
allotment
Expended
%
allotment
Expended
%
allotment
Expended %
West Virginia
$23,607
$10,771
45.6%
$23,495
$13,907
59.2%
$21,146
$21,146
100.0%c
Wisconsin
$40,633
$23,461
57.7%
$40,441
$40,441
100.0%b
$45,592
$45,591
100.0%
Wyoming
$7,712
$1,041
13.5%
$7,675
$0
0.0%
$7,069
$0
0.0%
Total Five Territories
$10,738
$10,738
100.0%
$42,688
$42,688
100.0%
$44,888 $44,888
100.0%
MOEa
—
—
—
$2,217
$0
0.0%
$7,894
$0
0.0
Total
$4,235,000
$2,201,492
52.0%
$4,247,000
$1,428,373
33.6%
$4,249,200
$2,042,760
48.0%
Source: Federal Register, vol. 66, no. 120, June 21, 2001. p. 33263 and Federal Register, vol. 67, no. 81, Apr. 26, 2002, p. 20799, and Centers for Medicare and Medicaid Services,
preliminary 4th quarter FY2002 state-reported expenditure data as of Nov. 30, 2002.
Note: Shaded cells represent states that spent all of their allotment by the applicable 3-year deadline, and thus qualified for redistributions of unspent funds (from other states).
a MOE refers to one of the maintenance of effort provisions in SCHIP statute. When SCHIP was created, three states — Florida, New York and Pennsylvania — had existing
comprehensive state-based health benefit programs for children that were deemed to meet SCHIP requirements. These states are required to maintain their prior level of
spending under SCHIP. Specifically, beginning in FY1999, the allotment for a given fiscal year will be reduced by the difference between the state’s spending in the prior
fiscal year versus fiscal year 1996 (before SCHIP began). The $7.9 million shown for MOE in this table reflects spending patterns in Pennsylvania for FY1999, in which
Pennsylvania’s share of SCHIP costs was $7.9 million less than FY1996 spending, so its allotment for FY2000 has been reduced by $7.9 million. This amount will be
included in the redistribution process for FY2000. (Pennsylvania’s share of FY1998 SCHIP costs was $2.2 million less than FY1996 spending, and its SCHIP allotment
for FY1999 was reduced by $2.2 million. This amount is not shown in the MOE cell because it has already been redistributed to other states in the FY1999 redistribution
process.)
b New Jersey and Wisconsin show an uncommon spending pattern for FY1998 and FY1999. Both states left a portion of FY1998 funds unspent at the 3-year deadline (end of
FY2000). States are not permitted to access the succeeding year’s allotment (in this case, FY1999 funds) until the prior year’s allotment (in this case, FY1998 funds) is fully
expended, or the deadline for availability of the prior year’s funds has passed. Therefore these 2 states could not begin accessing their FY1999 allotments until FY2001, the
final year of availability for FY1999 allotments. Despite their not having spent all of the FY1998 allotment by the 3-year deadline, both states spent their entire FY1999
allotments in FY2001, and thus qualified for redistributions of unspent FY1999 funds (from other states) which were made available during FY2002.
c Kansas, Minnesota, Mississippi, and West Virginia show an uncommon spending pattern for FY1999 and FY2000. Each of these states left a portion of FY1999 funds unspent
at the 3-year deadline (end of FY2001). States are not permitted to access the succeeding year’s allotment (in this case, FY2000 funds) until the prior year’s allotment (in
this case, FY1999 funds) is fully expended, or the deadline for availability of the prior year’s funds has passed. Therefore these 4 states could not begin accessing their
FY2000 allotments until FY2002, the final year of availability for FY2000 allotments. Despite their not having spent all of the FY1998 allotment by the 3-year deadline,
or their FY1999 allotment by the 3-year deadline these states spent their entire FY2000 allotments in FY2002, and thus will qualified for redistributions of unspent FY2000
funds (from other states) which will be made available during FY2003.

CRS-32
Appendix 2. Share of FY1998 and FY1999 BIPA-2000 Reallocations
Expended by Deadline and Interim FY2000 Reallocation Payment
Amounts for Unexpended FY2000 SCHIP Allotments
(in 000s)
FY2000 interim
reallocation
FY1998
FY1999
payment
reallocations
reallocations
amounts
Redistributed
Redistributed
Interim
/ retained
/ retained
redistributed
State
allotment
Expended
%
allotment
Expended
%
allotment
Alabama
$18,512
$18,512
100.0%
$26,175
$26,175
100.0%
Alaska
$15,006
$15,006
100.0%
$38,614
$21,014
54.4%
$20,231
Arizona
$50,733
$50,733
100.0%
$48,736
$48,736
100.0%
Arkansas
$29,518
$4,011
13.6%
$19,990
-
0.0%
California $385,970
$385,970
100.0%
$356,616
$356,616
100.0%
Colorado
$11,527
$11,527
100.0%
$13,490
$13,490
100.0%
Connecticut
$6,391
$6,391
100.0%
$11,741
$11,741
100.0%
Delaware
$3,722
$3,722
100.0%
$3,360
$1,178
35.0%
District of Columbia
$3,755
$3,755
100.0%
$4,401
$4,401
100.0%
Florida
$56,296
$56,296
100.0%
$54,509
$54,509
100.0%
Georgia
$44,228
$44,228
100.0%
$38,245
$38,245
100.0%
Hawaii
$5,506
$5,506
100.0%
$3,733
$1,437
38.5%
Idaho
$2,005
$2,005
100.0%
$2,022
$2,022
100.0%
Illinois
$44,599
$44,599
100.0%
$51,127
$30,825
60.3%
Indiana
$44,908
$44,908
100.0%
$105,203
-
0.0%
Iowa
$3,958
$3,958
100.0%
$4,787
$4,787
100.0%
Kansas
$5,874
$5,874
100.0%
$4,937
$4,937
100.0%
$21,481
Kentucky
$27,919
$27,919
100.0%
$96,297
$34,340
35.7%
$71,982
Louisiana
$42,678
$42,678
100.0%
$42,452
$42,452
100.0%
Maine
$4,532
$4,532
100.0%
$18,728
$5,532
29.5%
$14,670
Maryland
$44,657
$44,657
100.0%
$137,136
$93,872
68.5%
$114,946
Massachusetts
$36,715
$36,715
100.0%
$87,173
$19,468
22.3%
$53,097
Michigan
$25,742
$25,742
100.0%
$33,280
$33,280
100.0%
Minnesota
$18,329
$18,329
100.0%
$11,849
$11,849
100.0%
$16,766
Mississippi
$17,333
$17,333
100.0%
$10,099
$10,099
100.0%
$40,864
Missouri
$9,236
$9,236
100.0%
$61,787
$61,787
100.0%
Montana
$4,426
$4,426
100.0%
$945
$945
100.0%
Nebraska
$3,217
$3,217
100.0%
$3,589
$3,589
100.0%
Nevada
$11,201
$11,201
100.0%
$11,312
$11,312
100.0%

CRS-33
FY2000 interim
reallocation
FY1998
FY1999
payment
reallocations
reallocations
amounts
Redistributed
Redistributed
Interim
/ retained
/ retained
redistributed
State
allotment
Expended
%
allotment
Expended
%
allotment
New Hampshire
$5,760
$5,760
100.0%
$4,781
$1,113
23.3%
New Jersey
$11,889
$11,889
100.0%
$107,350
$107,350
100.0%
$110,932
New Mexico
$37,951
$21,918
57.8%
$26,277
-
0.0%
New York
$434,890
$434,890
100.0%
$729,772
$174,076
23.9%
$414,465
North Carolina
$20,902
$20,902
100.0%
$92,147
-
0.0%
North Dakota
$2,055
$2,055
100.0%
$1,925
$1,925
100.0%
Ohio
$11,725
$11,725
100.0%
$11,218
$11,218
100.0%
Oklahoma
$22,244
$22,244
100.0%
$34,225
$30,157
88.1%
Oregon
$12,254
$12,254
100.0%
$15,260
$15,260
100.0%
Pennsylvania
$5,590
$5,590
100.0%
$7,732
$7,732
100.0%
Rhode Island
$1,987
$1,987
100.0%
$20,381
$20,381
100.0%
$25,048
South Carolina
$52,514
$8,009
15.3%
$75,055
-
0.0%
$32,649
South Dakota
$2,510
$2,510
100.0%
$2,424
$2,424
100.0%
Tennessee
$15,789
$15,789
100.0%
$27,604
$2,645
9.6%
Texas
$310,044
$310,044
100.0%
$234,226
$234,226
100.0%
Utah $2,199
$2,199
100.0%
$1,579
$1,579
100.0%
Vermont
$1,021
$1,021
100.0%
$922
$922
100.0%
Virginia
$28,911
$28,911
100.0%
$28,499
$28,499
100.0%
Washington
$29,745
$13,576
45.6%
$19,470
-
0.0%
West Virginia
$8,290
$8,290
100.0%
$4,020
$4,020
100.0%
$18,804
Wisconsin
$11,090
$11,090
100.0%
$38,614
$38,416
100.0%
$55,796
Wyoming
$4,308
$4,308
100.0%
$3,218
$1,811
56.3%
Total Five
$21,352
$21,352
100.0%
$29,596
$28,826
97.4%
$23,168
Total $2,033,508
$1,931,294
95.0%
$2,818,627
$1,661,415
58.9%
$1,034,899
Source: Centers for Medicare and Medicaid Services, preliminary 4th quarter FY2002 state-reported expenditure data as of Nov. 30, 2002
and Centers for Medicare and Medicaid Services (CMS) Letter to State Medicaid Directors and State Health Officials (SMDL #03-003),
Mar. 27, 2003.
Note: Shaded cells represent states with remaining BIPA-2000 reallocations at the close of FY2002. Cells containing “-“ represent states
that did not access reallocated funds during the period of availability. CMS permitted states to access reallocated funds from FY1998
during FY2001 and FY2002, and reallocated funds from FY1999 during FY2002. These reallocated funds became additional active
accounts whose availability overlapped with other original allotments (at which point remaining funds reverted to the Treasury).
On Mar. 27, 2003, CMS published an interim policy for a partial redistribution of unused FY2000 allotments (available for redistribution
after Sept. 30, 2002). The interim redistribution was limited to approximately one-half of the unexpended FY2000 allotments ($1.03
billion) and was targeted to states, commonwealths, and territories that fully spent such allotments by the end of FY2002. These amounts
appear in the last column of this table.