Budget Reconciliation: Projections of Funding in the State Children's Health Insurance Program (SCHIP)

Budget Reconciliation: Projections of Funding in the State Children's Health Insurance Program (SCHIP)

Order Code RL33130
CRS Report for Congress
Received through the CRS Web
Budget Reconciliation: Projections of Funding
in the State Children’s Health Insurance
Program (SCHIP)
October 28, 2005
Chris L. Peterson
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Budget Reconciliation: Projections of Funding in the
State Children’s Health Insurance Program (SCHIP)
Summary
In FY2005, six states faced the prospect of running out of federal funds in the
State Children’s Health Insurance Program (SCHIP). This was the first time since
the program’s creation in 1997 that multiple states faced such a shortfall. The
shortfalls were avoided by the redistribution of funds from other states’ original
SCHIP allotments that had not been spent by the end of the three-year period of
availability.
However, in FY2006, the available unspent original allotments are projected to
be inadequate to cover the other states’ shortfalls. Under current law, more than a
dozen states are projected to exhaust their federal SCHIP funds in FY2006, even after
the redistribution of unspent funds from other states. In FY2007, the number of
states facing shortfalls and the size of those shortfalls grow as the pool of unspent
allotments shrinks.
To address this, the reconciliation proposal approved by the Senate Finance
Committee would reduce the period of availability for original allotments from three
years to two. This would dramatically increase the amount of unspent original
allotments available for redistribution to shortfall states. According to the
intermediate-demand scenario in the Congressional Research Service (CRS) SCHIP
Projection Model, the proposal is projected to eliminate the shortfalls in FY2006 and
nearly do so in FY2007. Even after the reduction of funds from this shortened period
of availability, states losing additional original allotment funds under the proposal
would still have, on average, nearly double the amount of funds necessary to cover
their projected demand for federal SCHIP funds in FY2006 and FY2007.
The results based on the CRS SCHIP Projection Model could change as new
data become available or as changes are made in the legislative language. If either
occurs, this report will be updated as necessary.

Contents
Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reconciliation Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
State-Level Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other Policy Issues and Model Assumptions . . . . . . . . . . . . . . . . . . . . . . . . 10
Regular FMAP for certain SCHIP expenditures . . . . . . . . . . . . . . . . . 10
Twenty percent allowance under current law and the effect of its
extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SCHIP provisions not modeled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Tables
Table 1. Overall Projected Federal SCHIP Funding Under Current Law and
Under Reconciliation Proposal, Intermediate-Demand Scenario . . . . . . . . . 4
Table 2. Projected Reallocations and Shortfalls Under Current Law
and Reconciliation Proposal, Intermediate-Demand Scenario, by State . . . . 5
Table 3. Federal SCHIP Funds and Projected Demand in FY2006
Under Reconciliation Proposal, Among States With Projected Reduction
of FY2004 Original Allotments, Intermediate-Demand Scenario . . . . . . . . . 7
Table 4. Federal SCHIP Funds and Projected Demand in FY2007
Under Reconciliation Proposal, Among States With Projected Reduction
of FY2005 Original Allotments, Intermediate-Demand Scenario . . . . . . . . 9
Table 5. Projected Federal SCHIP Spending Using 20% Allowance
Continued Under Reconciliation Proposal, FY2006 and FY2007 . . . . . . . . 13

Budget Reconciliation: Projections of
Funding in the State Children’s Health
Insurance Program (SCHIP)
This report provides projections of state shortfalls1 in the State Children’s
Health Insurance Program (SCHIP) through the program’s current authorization
(FY2007). This analysis is based on the applicable SCHIP sections of the budget
reconciliation language as approved by the Senate Finance Committee and as
transmitted to the Senate Budget Committee.2 The proposal’s key change to current
law would be to allow states access to their original allotments for only two years,
instead of the current three-year period, before the unspent amount is redistributed
to other states. The Congressional Research Service (CRS) SCHIP Projection
Model3 projects that implementation of this “reconciliation proposal” would
eliminate state shortfalls in FY2006 and perhaps FY2007.
Current Law
Under current law, each state’s annual allotment of federal SCHIP funds, the so-
called “original allotment,” is available for three years. At the end of that three-year
period, any remaining unspent funds from that original allotment are to be
redistributed to states that had exhausted that allotment. Laws were enacted for
redistributions occurring through FY2004 ensuring that states which did not exhaust
their allotment within the three-year period were still permitted to retain a portion of
their unspent funds.4 Current law for FY2005 onward, beginning with the
redistribution of unspent FY2002 original allotments, requires the Secretary of Health
and Human Services (HHS) to decide how to redistribute funds. In FY2005, unspent
FY2002 original allotments were redistributed first to the territories (receiving 1.05%
of the total unspent funds) and subsequently to states with an estimated initial
shortfall (that is, the estimated shortfall excluding any unspent FY2002 funds they
may receive). From the unspent FY2002 funds, enough was available to cover the
1 For this report, unless otherwise specified, a “shortfall” is the amount by which a state’s
demand for federal SCHIP funds in a given year exceeds the balance of available federal
funds.
2 Sections 6051 and 6054 dated October 25, 2005.
3 A detailed description of the model and the current-law results can be found in CRS Report
RL32807, SCHIP Financing: Funding Projections and State Redistribution Issues, by Chris
L. Peterson.
4 For more information on the legislative history of SCHIP, see CRS Report RL30473, State
Children’s Health Insurance Program (SCHIP): A Brief Overview, by Elicia J. Herz et al.

CRS-2
estimated shortfalls; the remaining unspent funds were redistributed to the states that
had exhausted their FY2002 original allotment.
In FY2006, however, the projected amount of unspent FY2003 funds available
for redistribution will not be adequate to cover the initial projected shortfalls, as
shown in Table 1. In FY2007, as more states exhaust all of their available federal
SCHIP funds, the total shortfall grows while the amount of unspent funds available
for redistribution drops.
Reconciliation Proposal
Table 1, which is based on the model’s intermediate-demand scenario, also
summarizes projected federal SCHIP funding under the reconciliation proposal. All
projections discussed in the remainder of this report will be based on the
intermediate-demand scenario unless specified otherwise. The reconciliation
proposal is projected to eliminate state shortfalls in FY2006. The proposal is
projected to nearly eliminate state shortfalls in FY2007. The estimated FY2007
shortfall of $33 million represents approximately one-half of 1% of total federal
SCHIP projected demand for the year. Each of the 15 states expected to face the
shortfall under the proposal would still be able to cover at least 97% of their federal
SCHIP demand.5
As previously mentioned, the key provision affecting SCHIP in the
reconciliation proposal reduces the period of availability of the FY2004 and FY2005
original allotments from three years to two. In FY2006, this provision (Section
6051(a)) would mean that besides the redistribution of unspent FY2003 funds, there
would also be a redistribution of unspent FY2004 funds. In addition to
approximately $200 million available from the redistribution of unspent FY2003
funds, $1.6 billion would be available for redistribution from unspent FY2004 funds.
Under the proposal, shortfall states receive all the funds necessary to meet their initial
projected FY2006 shortfall (plus the five territories receiving 1.05% of the total
unspent funds), with the remaining unspent FY2004 funds retained by the states that
had unspent funds. These FY2004 reallocated funds are available for one year,
whether for the shortfall states or the retention states. For the retention states, then,
they have access to the FY2004 funds for a total of three years (two years for the
original allotment and one year for the reallocated funds), but at an amount lower
than they would have in the original allotment’s third year under current law.
5 Under the model’s low-demand scenario, the reconciliation proposal covers the state
shortfalls for both FY2006 and FY2007. Under the high-demand scenario, the FY2006
shortfalls are eliminated; however, an FY2007 shortfall remains in 21 states, totaling $490
million. This is due to the differences in projected demand. For example, for FY2007, total
projected demand under the low-demand scenario is $5.8 billion; under the high-demand
scenario, total demand is projected at $6.7 billion. Although both extremes are certainly
possible, the intermediate-demand scenario is used throughout this report to provide a single
estimate for each year.

CRS-3
The reconciliation proposal calls for unspent FY2005 funds to be redistributed
to shortfall states in FY2007. Under the intermediate-demand scenario, the unspent
FY2005 original allotments are projected to total nearly $970 million. Ultimately,
those funds are $33 million shy of covering the initial projected shortfall of $1
billion. As a result, the states that had unspent FY2005 funds retain no portion of
them in FY2007.
State-Level Differences
Table 2 shows the amount of funds each state is projected to receive (or give
up, as represented by the negative amounts) under current law in the redistribution
of unspent FY2003 original allotments in FY2006 and in the redistribution of
unspent FY2004 original allotments in FY2007. It also shows the shortfalls for these
years that are partly a function of the adequacy of these redistributions. Table 2 also
displays the net amount of unspent original allotments projected to be reallocated
under the reconciliation proposal — unspent FY2003 allotments and unspent
FY2004 allotments in FY2006 and unspent FY2005 allotments in FY2007 — with
a projected shortfall for FY2007 only.
Under current law, for example, six states are projected to have unspent FY2004
allotments redistributed in FY2007, as shown by the negative numbers in the “2007
net reallocation” column for current law in Table 2. By shortening the availability
period of original allotments by one year under the reconciliation proposal, 35 states
have unspent FY2004 funds redistributed in FY2006, as shown by the negative
numbers in the “2006 net reallocation” column for the reconciliation proposal of
Table 2. These additional funds available for redistribution in FY2006 under the
reconciliation proposal would eliminate the projected shortfall still remaining in 13
states after the redistribution of unspent FY2003 funds. The redistribution for this
shortfall as well as $17 million for the territories would allow the remaining unspent
FY2004 funds to be retained by the states with unspent funds. Thus, 18% of each
state’s unspent FY2004 original allotment would go toward the shortfall states and
the territories; the states with unspent FY2004 original allotments would retain 82%
of that amount for spending in FY2006.
For these states projected to have their FY2004 original allotments reduced in
FY2006, Table 3 provides some context for the size of those reductions. As
previously mentioned, the reduction would generally be 18% of each state’s unspent
FY2004 original allotment as of the end of FY2005. The penultimate column of the
table shows the reduction in the FY2004 original allotment as a percentage of the
state’s total available federal funds at the beginning of FY2006, even after
accounting for that reduction. These total funds would consist of any redistributed
FY2003 funds, the retained FY2004 funds, the state’s own unspent FY2005 original
allotment, and the state’s newly available FY2006 original allotment. Among states
projected to have unspent FY2004 original allotments at the end of FY2005, the
reduction in their allotments is approximately 3.8% of all the funds available to these
states. As shown in the last column of Table 3, even after accounting for the
reduction under the reconciliation proposal, these states are projected to begin
FY2006 with almost twice (197%) the funds needed to cover their projected demand
for FY2006.

CRS-4
Table 1. Overall Projected Federal SCHIP Funding Under Current Law and
Under Reconciliation Proposal, Intermediate-Demand Scenario
(millions of dollars)
Number of
Demand for
shortfall states
Amount of
Initial projected Funds available
Remaining
Year
federal SCHIP
(depleting all
federal SCHIP
shortfallsb
for reallocationc
shortfall
fundsa
federal SCHIP
funds expiringd
funds)
Current law
2006
$5,722
$456
$198
$260
13
$0
2007
$6,227
$1,027
$107
$920
18
$0
Reconciliation proposal
2006
$5,744
$498
$1,801
$0
0
$64
2007
$6,227
$1,001
$966
$33
15
$0
Source: Congressional Research Service (CRS) SCHIP Projection Model, based on data from the Centers for Medicare
and Medicaid Services (CMS), including states’ projections of demand for federal SCHIP funds provided in August
2005.
Notes: The proposal’s most significant change from current law is to shorten the period of availability of the FY2004
and FY2005 original allotments from three years to two years. This increases the amount of funds available to shortfall
states in FY2006 and FY2007.
a. For FY2006, the reconciliation proposal’s projected demand is slightly higher than under current law because of the
extension of the 20% allowance, discussed in the text of the memorandum. In FY2007, all unspent FY2005 funds
are projected to go to the shortfall states, with none remaining for the states that qualify for the 20% allowance.
b. Under both current law and the reconciliation proposal, the initial estimated shortfalls are used to calculate how much
states receive in the reallocation of unspent funds, shown in the next column. The column following that shows
the remaining shortfall after accounting for the reallocated funds. For FY2006, the reconciliation proposal’s initial
projected shortfall is higher than under current law mostly because it does not include the amounts ultimately
available to the proposal’s “described” states from their own FY2004 original allotments. For FY2007, the
reconciliation proposal’s initial projected shortfall is lower than under current law mostly because Minnesota, New
Jersey and Rhode Island would obtain funds for their shortfall in FY2006 that they could not spend in FY2006 (and
that rolls over to FY2007) because of the limitation on expenditures on adults under the reconciliation proposal.
c. A portion of these funds (1.05%) are designated for the territories and are not available for shortfall states.
d. For FY2006 under the reconciliation proposal, the $64 million was from retained FY2004 original allotments not
spent by three states and expiring at year’s end in the following amounts: Tennessee, $44 million; Washington,
$16 million; and Connecticut, $4 million. In FY2007 under the reconciliation proposal and for both years under
current law, no amounts expire because all redistributed funds go to shortfall states that will use all of the funds.

CRS-5
Table 2. Projected Reallocations and Shortfalls Under Current Law and
Reconciliation Proposal, Intermediate-Demand Scenario, by State
(millions of dollars)
Current law
Reconciliation proposal
2006
2007 net
2007
2006
2007 net
2007
2006 net
2006 net
State
remaining
realloca-
remaining
remaining
reallo-
remaining
realloca-tion
reallocation
shortfall
tion
shortfall
shortfall
cation
shortfall
AL -$2.9
AK
$1.6
$13.7
$1.8
$12.9
$0.6
AZa
AR
-$30.3
-$36.6
-$31.9
CA
-$65.2
-$117.5
COa
-$6.7
-$38.9
CT
-$6.0
-$8.7
-$11.0
-$36.6
DE
-$4.7
-$1.3
-$6.1
-$8.9
DC
-$1.2
-$6.5
FL
-$1.4
GA
$5.7
$7.6
$7.9
$68.2
$13.3
$72.6
$3.4
HI
-$1.0
-$0.9
ID
-$2.5
-$8.9
ILa
$30.6
$40.6
$13.5
$117.0
$71.2
$124.7
$5.9
IN
-$4.8
IA
$3.1
$4.0
$2.7
$23.3
$7.1
$24.8
$1.2
KS
-$3.7
KY
-$7.1
-$5.5
LA
$2.8
$3.7
$6.8
$58.9
$6.4
$62.8
$2.9
ME
$0.3
$2.9
-$1.4
$4.4
$0.2
MD
$2.7
$3.6
$8.5
$73.8
$13.0
$72.3
$3.4
MA
$4.2
$36.2
-$2.9
$41.3
$1.9
MIa
-$2.5
MNa
$17.2
$22.8
$4.8
$41.6
$40.0
$34.5
MS
$29.6
$39.3
$8.5
$73.7
$68.9
$78.6
$3.7
MO
$3.3
$4.4
$3.6
$31.5
$7.7
$33.6
$1.6
MT
-$1.3
-$3.4
NE
$5.5
$7.3
$1.5
$12.9
$12.9
$13.7
$0.6
NV
-$3.5
-$1.0
-$9.1
-$35.7
NH
-$4.6
-$1.8
-$6.1
-$7.5
NJa
$45.8
$60.7
$14.4
$124.7
$106.5
$132.1
NM
-$32.8
-$38.7
-$29.9
NY
-$33.4
-$27.6
NC
$11.2
$14.8
$14.6
$126.6
$26.0
$134.9
$6.3
ND
$0.6
$5.3
$5.6
$0.3
OH
-$1.6
OK
-$5.3
-$14.3
ORa
-$0.1
-$7.0
-$30.9

CRS-6
Current law
Reconciliation proposal
2006
2007 net
2007
2006
2007 net
2007
2006 net
2006 net
State
remaining
realloca-
remaining
remaining
reallo-
remaining
realloca-tion
reallocation
shortfall
tion
shortfall
shortfall
cation
shortfall
PA
-$9.4
-$6.2
RIa
$37.0
$49.1
$10.7
$92.2
$86.1
$89.0
SC
-$4.8
-$13.3
SD
$1.4
$1.8
$0.8
$7.0
$3.2
$7.4
$0.3
TN
-$58.4
-$58.0
-$68.8
-$78.9
TX
-$13.6
-$73.3
-$375.8
UT
-$3.4
-$7.6
VT
-$0.6
-$3.7
VA
-$5.2
-$9.4
WA
-$44.2
-$36.8
-$53.3
-$64.7
WV
-$2.8
WIa
$1.2
$10.7
-$1.5
$12.8
$0.6
WY
-$0.9
-$3.8
Total
$0b
$259.7
$0b
$920.3
$0b
$0
$0b
$33.0
Source: Congressional Research Service (CRS) SCHIP Projection Model based on data from the Centers for Medicare
and Medicaid Services (CMS), including states’ projections provided in May 2005.
Note: The “net reallocation” numbers are negative for those states with unspent funds redistributed among other states;
the positive numbers are the amounts received by states from others’ unspent allotments. Under current law, the FY2006
net reallocation is based on the redistribution of unspent FY2003 funds; the FY2007 net reallocation is based on the
redistribution of unspent FY2004 funds. Under the reconciliation proposal, the FY2006 net reallocation is based on the
redistribution (and retention) of unspent FY2003 and FY2004 funds; the FY2007 net reallocation is based on the
redistribution of unspent FY2005 funds.
a. This state has implemented an approved waiver that expands SCHIP coverage to adults.
b. This total also includes the amounts received by the territories.

CRS-7
Table 3. Federal SCHIP Funds and Projected Demand in FY2006 Under
Reconciliation Proposal, Among States With Projected Reduction of FY2004
Original Allotments, Intermediate-Demand Scenario
Funds available at
Reduction in Funds available at
Reduction as
beginning of FY2006
FY2004
beginning of
percentage of
as a percentage of
allotmenta
FY2006b
funds available
projected demandc
Alabama
$2,937,000
$145,568,000
2.0%
145%
Alaska
$620,000
$27,072,000
2.3%
112%
Arkansas
$6,327,000
$121,204,000
5.2%
266%
California
$65,223,000
$1,610,491,000
4.0%
190%
Colorado
$6,734,000
$146,501,000
4.6%
295%
Connecticut
$5,046,000
$94,025,000
5.4%
487%
Delaware
$1,410,000
$24,498,000
5.8%
376%
DC
$1,152,000
$24,427,000
4.7%
292%
Florida
$1,420,000
$505,029,000
0.3%
130%
Hawaii
$952,000
$29,136,000
3.3%
184%
Idaho
$2,507,000
$52,751,000
4.8%
227%
Indiana
$4,834,000
$168,387,000
2.9%
156%
Kansas
$3,655,000
$72,577,000
5.0%
150%
Kentucky
$7,087,000
$144,025,000
4.9%
178%
Maine
$1,401,000
$30,755,000
4.6%
127%
Maryland
$1,455,000
$140,336,000
1.0%
105%
Massachusetts
$4,750,000
$145,131,000
3.3%
117%
Michigan
$2,512,000
$239,925,000
1.0%
134%
Montana
$1,309,000
$30,792,000
4.3%
207%
Nevada
$5,621,000
$107,826,000
5.2%
357%
New Hampshire
$1,445,000
$25,033,000
5.8%
300%
New Mexico
$5,914,000
$111,188,000
5.3%
284%
New York
$33,396,000
$694,340,000
4.8%
176%
Ohio
$1,588,000
$257,689,000
0.6%
142%
Oklahoma
$5,296,000
$138,808,000
3.8%
207%
Oregon
$6,865,000
$125,335,000
5.5%
264%
Pennsylvania
$9,445,000
$307,978,000
3.1%
184%
South Carolina
$4,817,000
$131,741,000
3.7%
202%
Tennessee
$10,454,000
$206,815,000
5.1%
6354%
Texas
$59,679,000
$1,175,886,000
5.1%
340%
Utah
$3,362,000
$79,184,000
4.2%
201%
Vermont
$568,000
$12,303,000
4.6%
323%
Virginia
$5,187,000
$172,126,000
3.0%
190%
Washington
$9,078,000
$170,660,000
5.3%
678%
West Virginia
$2,811,000
$60,546,000
4.6%
163%
Wisconsin
$1,462,000
$114,278,000
1.3%
121%
Wyoming
$853,000
$16,120,000
5.3%
252%
Total
$289,172,000
$7,660,484,000
3.8%
197%

CRS-8
Source: Congressional Research Service (CRS) SCHIP Projection Model, based on data from the Centers for Medicare
and Medicaid Services (CMS), including states’ projections of demand for federal SCHIP funds provided in August
2005.
a. After taking into account the redistributed FY2003 funds, a shortfall of approximately $270 million still remains in
FY2006, which would be paid for (along with nearly $20 million due to the territories) from states’ unspent
FY2004 original allotment. States are projected to have a total of $1.6 billion in unspent FY2004 original
allotments. Of this total, then, 18.0% of the unspent FY2004 funds goes to the shortfall states and to the territories.
This column therefore represents 18.0% of these states’ unspent FY2004 original allotment, with states retaining
the remainder for spending in FY2006.
b. Funds available at the beginning of FY2006 for these states are from the redistribution of unspent FY2003 funds,
retained FY2004 original allotments, the balance of FY2005 original allotments, and the newly available FY2006
original allotment.
c. A value of 100% means a state has exactly the available funds necessary to cover its projected demand for FY2006.

CRS-9
Table 4. Federal SCHIP Funds and Projected Demand in FY2007 Under
Reconciliation Proposal, Among States With Projected Reduction of FY2005
Original Allotments, Intermediate-Demand Scenario
Funds available at
Reduction in
Funds available at
Reduction as
beginning of
FY2005
beginning of
percentage of
FY2007 as a
allotmenta
FY2007b
funds available
percentage of
projected demandc
Arkansas
$31,884,000
$97,864,000
32.6%
189%
California
$117,467,000
$1,445,055,000
8.1%
153%
Colorado
$38,935,000
$129,496,000
30.1%
244%
Connecticut
$36,561,000
$77,171,000
47.4%
375%
Delaware
$8,943,000
$20,212,000
44.2%
291%
DC
$6,495,000
$21,356,000
30.4%
239%
Hawaii
$890,000
$27,719,000
3.2%
167%
Idaho
$8,875,000
$46,056,000
19.3%
177%
Kentucky
$5,470,000
$129,078,000
4.2%
150%
Montana
$3,371,000
$28,062,000
12.0%
177%
Nevada
$35,737,000
$93,620,000
38.2%
286%
New Hampshire
$7,490,000
$20,541,000
36.5%
309%
New Mexico
$29,906,000
$94,202,000
31.7%
238%
New York
$27,645,000
$608,813,000
4.5%
145%
Oklahoma
$14,312,000
$128,199,000
11.2%
176%
Oregon
$30,921,000
$104,772,000
29.5%
202%
Pennsylvania
$6,229,000
$299,649,000
2.1%
167%
South Carolina
$11,055,000
$124,120,000
8.9%
179%
Tennessee
$78,905,000
$179,675,000
43.9%
NAd
Texas
$375,767,000
$1,016,151,000
37.0%
265%
Utah
$7,589,000
$71,970,000
10.5%
161%
Vermont
$3,677,000
$10,765,000
34.2%
301%
Virginia
$9,441,000
$161,566,000
5.8%
164%
Washington
$64,705,000
$144,589,000
44.8%
1003%
Wyoming
$3,841,000
$13,142,000
29.2%
189%
Total
$966,111,000
$5,093,843,000
19.0%
192%
Source: Congressional Research Service (CRS) SCHIP Projection Model, based on data from the Centers for Medicare
and Medicaid Services (CMS), including states’ projections of demand for federal SCHIP funds provided in August
2005.
a. This amount is the entirety of these states’ unspent FY2005 original allotments, projected to be redistributed to
shortfall states at the beginning of FY2007.
b. Funds available at the beginning of FY2007 for these states are from the balance of FY2006 original allotments and
the newly available FY2007 original allotment.
c. A value of 100% means a state has exactly the available funds necessary to cover its projected demand for FY2007.
d. Tennessee has no SCHIP enrollees. It can only use SCHIP funds under the 20% allowance. Because no FY2005
funds are retained by states not facing shortfalls in FY2007, Tennessee is projected to have no SCHIP spending
in FY2007.

CRS-10
Table 4 is structured similar to Table 3 except that it shows the 25 states
(including the District of Columbia) projected to have their FY2005 original
allotments reduced in FY2007. The reduction would be 100% of the state’s unspent
FY2005 original allotment as of the end of FY2006. The penultimate column of
Table 4 shows the reduction in the FY2005 original allotment as a percentage of the
state’s total available federal funds at the beginning of FY2007 after accounting for
that reduction. These total funds would consist of the state’s own unspent FY2006
original allotment and the state’s newly available FY2007 original allotment. Among
states projected to have unspent FY2005 original allotments at the end of FY2006,
the reduction in their allotments is approximately 19.0% of all the funds available to
these states. As shown in the last column of Table 4, even after accounting for the
reduction under the reconciliation proposal, these states are projected to begin
FY2007 with almost twice (192%) the funds needed to cover their projected demand
for FY2007.
Other Policy Issues and Model Assumptions
CRS Report RL32807, SCHIP Financing: Funding Projections and State
R e d i s t r i b u t i o n I s s u e s , b y C h r i s L . P e t e r s o n , a t
[http://www.congress.gov/erp/rl/pdf/RL32807.pdf], provides detailed descriptions
of the model and the current-law results using the high- and low-demand scenarios.
The reconciliation proposal has additional features besides those already discussed
that merit further discussion, particularly with respect to how those features were
handled in the CRS SCHIP Projection Model.
Regular FMAP for certain SCHIP expenditures. Under current law,
states that set up an SCHIP program are reimbursed by the federal government for
a percentage of the incurred costs of covering enrolled individuals. This percentage,
which varies by state, is called the enhanced Federal Medical Assistance Percentage
(FMAP). It is based on the FMAP used for the Medicaid program but is higher in
SCHIP than in Medicaid. In other words, the federal government contributes more
toward the coverage of individuals in SCHIP (65% to 83.2% in FY2006) than it does
for those covered under Medicaid (50% to 77.6% in FY2006).6
In Section 6051(b), the reconciliation proposal specifies that unspent FY2003,
FY2004 and FY2005 funds redistributed to shortfall states would pay the enhanced
FMAP for “targeted low-income children”7 but would pay the regular FMAP for all
other expenses. Regarding payments on behalf of SCHIP enrollees, this means that
states would be able to draw down only the regular FMAP for adults covered under
SCHIP, with the exception of pregnant women.8 However, states would continue to
receive the enhanced FMAP for adults if the payment is from funds besides the
6 For more information on the FMAP, see CRS Report RL32950, Medicaid: The Federal
Medical Assistance Percentage (FMAP), by Christine Scott.
7 This is the term used for all children covered under SCHIP authority.
8 In the rest of this section of the report, “adults” does not include pregnant women covered
under SCHIP.

CRS-11
redistributed funds (that is, original allotments or the unspent funds for which a state
retains an additional year of access).
According to the latest available data from the Centers for Medicare and
Medicaid Services (CMS), nine states covered adults through their SCHIP programs.9
For the model projections, it is assumed that the percentage of SCHIP enrollees who
are adults remains constant in these states and that the cost of benefit coverage for
adults is 80% higher than for children. Using these assumptions, estimates are
generated for the amount of each state’s projected demand that is attributable to
adults and the extent to which states receive only the regular FMAP for them in
FY2006 and FY2007.
Four of the nine states that cover adults (Arizona, Colorado, Michigan and
Oregon) are projected to have sufficient funds available in FY2006 and FY2007 that
they will not receive redistributed funds. They will receive the enhanced FMAP for
all of their adult SCHIP expenditures.
The other five states are projected to receive redistributed funds from which
payments for adults would be matched at only the regular FMAP rate. However,
states have the flexibility to delay filing SCHIP claims for up to two years, according
to Section 1132 of the Social Security Act. With this flexibility, states could claim
federal SCHIP funds for children only, until the redistribution funds are depleted.
Then, once the state’s other federal SCHIP accounts are accessed, the state could file
its claims for adults and thus receive the enhanced FMAP. For modeling purposes,
it is assumed that states covering adults and receiving redistribution funds in FY2006
or FY2007 will delay claiming SCHIP expenditures for adults until the redistribution
funds are exhausted. If, however, the expenditures for children are not enough to
exhaust the redistribution funds, it is assumed that adult expenditures will only be
claimed after all the expenditures for children during the fiscal year have been
claimed.
The SCHIP programs in Illinois and Wisconsin cover adults and are projected
to receive redistributed funds in FY2006 and/or FY2007. Because their projected
expenditures for children are always projected to exceed their balance of redistributed
funds, they are projected to exhaust any redistributed funds with the claims for
children and receive the enhanced FMAP for all of their adult expenditures from the
other available federal SCHIP accounts.
Minnesota, New Jersey and Rhode Island are projected to receive the regular
FMAP for a portion of their adults covered under SCHIP in FY2006 and FY2007.
The difference between the enhanced FMAP and regular FMAP for these adult
expenditures in both years — again, the amount of forgone federal funding due to the
limit on expenditures for adults — is projected at $18.9 million for Minnesota, $7.3
million for New Jersey, and $23.4 million for Rhode Island.
9 The nine states are Arizona, Colorado, Illinois, Michigan, Minnesota, New Jersey, Oregon,
Rhode Island, and Wisconsin, as shown in “Revised FY2004 Number of Children Ever
Enrolled in SCHIP by Program Type,” CMS, May 23, 2005, at
[http://www.cms.hhs.gov/schip/enrollment/schip04rev.pdf].

CRS-12
The provision limiting the enhanced FMAP from the redistributed funds to
targeted low-income children would also require SCHIP claims for outreach and
administration to be reimbursed at the regular FMAP. However, it is assumed that
the states affected would be able to claim their administration and outreach
expenditures later in the fiscal year in order to draw down the enhanced FMAP from
their original allotments.
Twenty percent allowance under current law and the effect of its
extension. P.L. 108-74 and P.L. 108-127 created and amended Section 2105(g) of
the Social Security Act, permitting qualifying states to apply federal SCHIP funds
toward the coverage of certain children already enrolled in regular Medicaid (that is,
not SCHIP-funded expansions of Medicaid). Specifically, these federal SCHIP funds
are used to pay the difference between SCHIP’s enhanced FMAP and the regular
FMAP that the state is already receiving for these children. The primary purpose of
this provision was to enable qualifying states to receive the enhanced FMAP for
certain children who likely would have been covered under SCHIP had the state not
expanded their regular Medicaid coverage before SCHIP’s enactment in August
1997. Specifically, the 20% allowance can be used by qualifying states only for
Medicaid enrollees (excluding those covered by an SCHIP-funded expansion of
Medicaid) who are under age 19 and whose family income exceeds 150% of poverty.
Funds under this allowance may only be claimed for expenditures occurring
after August 15, 2003, when P.L. 108-74 was enacted. Qualifying states are limited
in the amount they can claim for this purpose to the lesser of the following two
amounts: 20% of the state’s available original SCHIP allotments from FY1998 to
FY2001 (hence the terms “20% allowance” and “20% spending”) and the state’s
balance (calculated quarterly) of available FY1998 to FY2001 federal SCHIP funds.
If there is no balance, states may not claim 20% spending.
States’ FY1998 to FY2000 balances expired at the end of FY2004. As a result,
the only 20% spending authorized to take place in FY2005 was from the qualifying
states’ balance of FY2001 reallocated funds, which expired at the end of FY2005.
Thus, under current law, no 20% spending is permitted in FY2006 or after.
Eleven states qualify to claim 20% spending, according to CMS: Connecticut,
Hawaii, Maryland, Minnesota, New Hampshire, New Mexico, Rhode Island,
Tennessee, Vermont, Washington and Wisconsin. As of the end of the second
quarter of FY2005, all but three of these states (Connecticut, Minnesota and
Wisconsin) claimed 20% spending.
Section 6054 of the reconciliation proposal would permit qualifying states to use
FY2004 and FY2005 funds under the 20% allowance. It is assumed that none of the
three states with no previous 20% spending would have any under an extension.
Although Maryland and Rhode Island have previously claimed 20% spending, they
are not projected to do so in FY2006 and FY2007 because they will face shortfalls

CRS-13
of their federal SCHIP funds and will receive, when available, just enough money to
cover those shortfalls.10
Table 5 shows the projected SCHIP spending using the 20% allowance
continued under the reconciliation proposal. In FY2006, Hawaii, New Hampshire,
New Mexico, Tennessee, Vermont and Washington are projected to have 20% from
their retained FY2004 original allotments. However, in FY2007, because all unspent
FY2005 funds are projected to go to shortfall states, no funds remain for these six
states’ 20% spending.
While the shortfall states can thus have the effect of limiting 20% spending in
other states, 20% spending can also reduce the amount of funds available to shortfall
states. Because the 20% allowance reduces the amount of unspent funds available
for redistribution to the shortfall states, the 20% allowance results in a total FY2007
shortfall that is $4 million more than if the policy were not continued.
Table 5. Projected Federal SCHIP Spending Using 20%
Allowance Continued Under Reconciliation Proposal, FY2006
and FY2007
State
FY2006
FY2007a
Hawaii $575,000
$0
New Hampshire
$2,104,000
$0
New Mexico
$4,307,000
$0
Tennessee $3,255,000
$0
Vermont $449,000
$0
Washington $11,661,000
$0
Total
$22,351,000
$0
Source: Congressional Research Service (CRS) SCHIP projection model, based on data from the
Centers for Medicare and Medicaid Services (CMS), including states’ projections of demand for
federal SCHIP funds, provided in May 2005.
a. In this case, unspent FY2005 funds are inadequate to cover the estimated shortfalls in FY2007. As
a result, all of the unspent FY2005 funds go to the shortfall states, with none remaining with the
states projected to have unspent FY2005 funds, including the six states in this table that would
otherwise have been projected to have 20% spending from their unspent FY2005 funds.
SCHIP provisions not modeled. Section 6052 of the reconciliation
proposal permits up to 10% of the FY2006 allotment to be available in FY2006 for
outreach activities. The proposal also permits up to 10% of the FY2007 allotment
to be available in FY2007 for outreach activities. This is in addition to any other
capped amounts that can be used for outreach.11 Because data are not available on
10 It is assumed that potential 20% spending is not part of their shortfall estimates, although
the legislation does not appear to prohibit this. Permitting the use of FY2003 funds for 20%
spending would be expected to have no impact, since those funds go exclusively to shortfall
states.
11 This is specifically referring to Section 2105(c)(2) of the Social Security Act, which caps
(continued...)

CRS-14
states’ outreach expenditures under SCHIP and because it is not possible to
confidently project which states will increase their outreach expenditures as a result
of the proposal, the model does not account for increased use of outreach funds, nor
does it account for the increased demand for federal SCHIP funds that a state may
experience due to outreach.
Section 6053 of the reconciliation proposal would limit the Secretary of Health
and Human Services’ Section 1115 waiver authority by prohibiting the approval of
waiver, experimental, pilot, or demonstration projects that allow federal SCHIP funds
to be used to provide child health assistance or other health benefits coverage to
nonpregnant childless adults. The provision would allow the Secretary to continue
to approve projects that expand the SCHIP program to caretaker relatives of
Medicaid or SCHIP-eligible children (as defined under Section 1931 of Medicaid
statue), and to pregnant adults. Finally, the provision would allow for the
continuation of existing Medicaid or SCHIP waiver projects (and/or extensions,
amendments, or renewals to such projects) affecting federal SCHIP funds that had
been approved under the Section 1115 waiver authority before the date of enactment
of the reconciliation legislation. Because this provision affects only future Section
1115 waivers, it is not expected to impact the projections in this report.
Section 6055 establishes a new grant program to “promote innovative outreach
and enrollment under Medicaid and SCHIP.” This grant program is also outside the
scope of analysis for this report.
Conclusion
SCHIP was created in the Balanced Budget Act of 1997 as a capped grant
program to states. Fixed annual balances of federal funds are made available to states
for a specific length of time. Although it is theoretically possible for states to be in
a chronic state of shortfall of federal SCHIP funds, this has been avoided by
redistributions of funds from lower-spending states to higher-spending states.
However, shortfalls are at the brink of overwhelming the shrinking pool of
available funds from other states’ unspent original allotments. For the first time,
shortfalls in a dozen or more states appear unavoidable in FY2006 and FY2007 under
current law because of the size of the shortfalls and the inadequacy of other states’
unspent allotments.
To address this, at least through the program’s current authorization of FY2007,
the reconciliation proposal reduces the time that states have their original allotments
available to them — from three years to two years. This dramatically increases the
amount of funds available to the shortfall states. According to CRS’s intermediate-
demand projections, the changes in the reconciliation proposal would eliminate the
shortfalls in FY2006 and virtually do so in FY2007. These results could change as
new data become available or as changes are made in the legislative language.
11 (...continued)
certain types of permitted SCHIP expenditures, including outreach.