CHIP Financing Basics #1 – Federal CHIP Funding Structure

As we at CCF begin to dig into the future of CHIP—which stands to go away if funds are not renewed before next September—we thought it would make sense to refresh Say Ahhh! readers (and ourselves!) about how the financing works so we can more thoughtfully contemplate what happens if Congress does or does not act to renew funds next year. So welcome to the first in a multi-part series on the world of CHIP financing.

The financing structure that must not be named… Unlike Medicaid, CHIP is a (shhhh!) block grant. This means annual funds states receive, or allotments, are capped. Once funds run out, the state is on the hook for the full cost of coverage for CHIP kids (if they choose to continue at all). Luckily (and importantly, not without serious sweat and blood by advocates nationwide!) CHIP’s 2009 well-funded reauthorization ensured states had sufficient funds to reach more children, not only by restructuring the formula for state allotments, but also by adding contingencies by way of new funding pots. In effect, the worst of our block grant fears has not yet been fully realized.  Post-CHIPRA, states haven’t yet been in any danger of exhausting their CHIP funding even as we have covered more children, so, to reiterate the obvious, CHIP’s success has nothing to do with it’s capped structure. Of course, if no new funds are available after September 2015, it won’t be long before states run out. Since states have two years to spend their allotments, and the ACA’s 23% bump in federal CHIP match will accelerate spending after September 30, many anticipate that most states could run out of CHIP funds by the end of 2015 (more on federal contributions in a future post).

One of these things is not like the others… In this new coverage landscape, CHIP is the only funding for coverage that is capped—Medicaid and marketplace tax credits are available to any family that qualifies without enrollment or funding limits. So CHIP sits in a slightly awkward place between other public coverage supports. And if states exhaust their funds, many kids would transition to marketplace coverage that our research so far suggests would provide less comprehensive services at a higher cost to families. Or worse, thanks to the family glitch, other kids losing CHIP likely won’t be eligible for credits to purchase marketplace coverage leaving them with no affordable coverage option.

So what’s next? Exactly what happens to CHIP-supported kids if funds are not renewed depends on the relationship between Medicaid and CHIP in each state.  Our next installment will begin to unpack this issue with a look at CHIP program design.

(Can’t wait on the next installment? Feel free to read ahead by checking out our earlier reports on ACA Medicaid/CHIP financing changes and CHIP’s financing structure.)


Elisabeth Wright Burak
Elisabeth Wright Burak is a Senior Fellow at the Center for Children and Families