October 12, 2017

CHIP: A Pawn in Healthcare Reform

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Failure to reauthorize program could result in financial crunch.

Congress has missed a critical deadline relative to reauthorizing and funding CHIP (the Children’s Health Insurance Program). With all of the machinations surrounding healthcare reform, the end of the federal fiscal year came without congressional action. 

CHIP was launched in 1997 and has enjoyed bipartisan support over the years. It is credited with reducing the percentage of America’s uninsured children from 25 percent down to 5 percent.  Recent developments, including the possible repeal of the Patient Protection and Affordable Care Act (PPACA) and significant changes in Medicaid funding, have created a great deal of activity and discussion at the congressional level, but little in the way of substantive decisions. During this limbo period, CHIP is quite vulnerable, because it is only one piece of the larger puzzle.

What is CHIP? 

CHIP is a joint program primarily funded by the federal government and then administered by the states. Each state has its own form of implementation. Funding to the states varies, ranging from 100 percent for needy states down to 88 percent for the less needy.  The PPACA increased CHIP funding by 23 percent for the period of 2014 through 2019. 

Services include routine checkups, immunizations, doctor visits, dental and vision care, hospital care, diagnostic tests, and emergency services. While implementation varies by state, well-child physician and dental visits are free. There may be co-payments and there may even be monthly premiums for CHIP coverage. The annual federal budget for CHIP is about $14 billion.

As with many Centers for Medicare & Medicaid Services (CMS) programs, there is an advisory commission overseeing CHIP: in this case, MACPAC, or the Medicaid and CHIP Payment and Access Commission. Note that it is an advisory commission; recommendations are not binding upon CMS. As with other advisory bodies, MACPAC conducts studies and makes recommendations.

What if CHIP is not reestablished? 

There are really multiple levels to the answer to this question. The first concern is that CHIP may not be reestablished at all. A second concern is that CHIP is reestablished, but not in a timely fashion. Also, there are multiple perspectives that can be considered.

From the perspective of healthcare providers, taking $14 billion out of the reimbursement picture will cause some financial impacts. Of course, the impacts will be proportionate to the CHIP population being served. Children’s hospital, academic medical centers, and other hospitals with any significant CHIP population will be hit with increased charity care and/or bad debt. Even smaller community hospitals will not be immune from some financial impact. As with hospitals, individual practitioners such as physicians and dentists will experience the same sort of issues. The simple fact is that the need and demand for healthcare services will still be present, but the ability to pay for care will be delimited.

If we look at individual states, their reaction to this whole situation will be varied, if not chaotic. As indicated above, CHIP is a partnership between the federal government and the various state governments. If funding for CHIP is to be discontinued or significantly delayed, then the states will need to make adjustments in their programs – or at least in the way CHIP is financed at the state level.

Fortunately, states do have some latitude in expending monies beyond the fiscal year in which they are granted. However, MACPAC estimates that if CHIP is not reauthorized, three states and the District of Columbia will run out of funding by the end of 2017. Another 27 states will run out by the end of the first quarter of 2018. Thus, the impact will be almost immediate.

While other perspectives can be considered, for example, individual recipients, the bottom line is that either discontinuing or significantly delaying CHIP will have significant ramifications for all of those involved.

Will Congress reauthorize and fund CHIP? 

While we can all speculate, there is the real possibility that CHIP will not be reestablished, or that there will be a significant delay. The situation in Congress is quite volatile, and CHIP is but a pawn in the chess game that is taking place. Healthcare providers, particularly those with any sort of CHIP population, should take into account potentially decreased reimbursement for services provided. Keep a close eye on developments during the next several weeks and months.

Program Note: Listen to Prof. Duane Abbey discuss the CHIP reauthorization issue during the next edition of Monitor Mondays on Monday, Oct. 16, from 10-10:30 a.m. ET.

Duane Abbey, PhD, CFP

Duane C. Abbey, PhD, CFP, is an educator, author, and management consultant working in the healthcare field. He is president of Abbey & Abbey Consultants, Inc., which specializes in healthcare consulting and related areas. His firm is based in Ames, Iowa. Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University. Dr. Abbey is a member of the RACmonitor editorial board and is a frequent guest on Monitor Mondays.

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