House-Passed Bill to Fund CHIP for Two More Years Would Result in Substantial State General Fund Savings

With federal support for a key children’s health coverage program set to expire in October, the US House of Representatives yesterday approved a bill to extend funding for the Children’s Health Insurance Program (CHIP) through September 2017. (California primarily uses federal CHIP dollars — along with state funds — to support health coverage for certain children enrolled in Medi-Cal.) The House passed H.R. 2 by a vote of 392 to 37, with overwhelming support from both Democrats and Republicans. The bill’s next stop is the Senate, where Democrats are expected to press to extend CHIP funding for four years — twice as long as the House bill provides — when the bill is heard, likely in April.

In addition to extending federal funding for two years, the House bill continues existing CHIP program rules, including the requirement that states maintain, through 2019, their existing eligibility levels and enrollment processes for children. As such, the House bill represents a “clean” extension of current law and avoids the “substantial cuts and changes” to CHIP that some Republicans in Congress recently proposed.

From California’s perspective, one of the most important features of the House bill is that it leaves in place a substantial increase in the share of CHIP costs paid by the federal government. This increase was authorized — but not funded — by the Patient Protection and Affordable Care Act (ACA) of 2010, also known as federal health care reform. Under the ACA, the federal share of CHIP costs is scheduled to rise by 23 percentage points on October 1, 2015. In California, this “CHIP bump” — assuming that Congress funds it — would cause the federal CHIP matching rate to jump from 65 percent to 88 percent. In turn, California’s share of costs for CHIP-funded health services would by drop from 35 percent to just 12 percent.

What would this more generous federal CHIP matching rate mean for California’s state budget? Without a doubt, it would result in significant General Fund savings. With the CHIP bump in place, California would spend roughly $450 million less on Medi-Cal in 2015-16 — the fiscal year that begins on July 1 — than Governor Brown assumed in his proposed budget, according to the Legislative Analyst’s Office. This is because the Governor made the prudent assumption that Congress, in an effort to contain federal spending, would prevent the higher federal “matching rate” from going into effect, leaving California’s share of CHIP costs at the current 35 percent. In other words, the Governor didn’t build any CHIP-related state savings into his proposed budget because he assumed there wouldn’t be any state savings.

But things may turn out differently. If President Obama ultimately signs a bill that includes the higher federal matching rate for CHIP, then California would receive hundreds of millions of additional federal dollars to support CHIP-funded services in 2015-16 alone. This outcome, in turn, would “free up” an equivalent amount of state dollars that would no longer be needed to provide California’s CHIP match. These freed-up state dollars could be redirected to critical state priorities, such as increasing abysmally low payments to dentists and other providers in Medi-Cal, expanding access to affordable child care for working families, and boosting income support for low-income Californians in order to help families, seniors, and people with disabilities move out of poverty.

— Scott Graves