August 1997

Federal Children’s Health Care Initiative

by Lisa D. Baragar

Children’s health watchdogs consider the child-related care provisions in Public Law 105-33 of 1997—the federal Budget Reconciliation Act—a "pleasant surprise." What started last spring as a $16 billion proposal to extend health insurance to many of the nation’s 10 million uninsured children (aged 18 and under) ballooned this summer into a $24 billion jackpot that will be distributed over five years.

Of the $24 billion, $3.8 billion is earmarked to bolster Medicaid benefits for uninsured and/or low-income children. In particular, the money will go toward expanding coverage from month to month to year-round, augmenting benefits for the disabled, and guaranteeing presumptive eligibility (e.g., if a child is eligible for the Women, Infants, and Children [WIC] food program, s/he is presumed eligible for Medicaid). The remaining $20.2 billion will be distributed through block grants, thereby allowing each state to decide how to extend health insurance benefits to needy kids.

State officials are pleased that the federal government is giving them flexibility, and children’s advocates are happy that Congress and the president have made such a substantial commitment to children. Still, Sharon Claytor Peters, president and chief executive officer of Michigan’s Children, warns against being overly optimistic: "The success of the federal program in Michigan will be dictated by . . . the course of action the state chooses to adopt."

Michigan’s Share

Paul Shaheen, executive director of the Michigan Council for Maternal and Child Health explains that although Michigan—compared to other states—has a relatively low number of uninsured children, there is substantial need for the additional federal funding: "There are many children who are uninsured and many who have some coverage but are underserved."

The children to whom Shaheen refers stand to benefit greatly from the federal initiative. Over the next five years, Michigan will receive a total of $467.3 million ($92 million annually from 1998 to 2000, $104.7 million in 2001, and $86.5 million in 2002) to expand health care coverage for this population. But the pot is even larger, because Michigan must contribute matching funds—roughly 32.5 percent of the federal amount—regardless of how services are expanded; in 1998, for example, the state match to the federal government’s $92 million will be $44.3 million, generating a $136.3 million program. It is as yet unclear whether the legislature will have to appropriate new money for the state match.

Before the state can begin using the funds, it must develop a spending strategy. The terms of the federal budget agreement specify that state officials have only two alternatives for expanding children’s health care: (1) a new children’s health insurance program or (2) broadened Medicaid eligibility criteria and services.

New Insurance Program

Although Michigan officials are pleased that they have been granted the flexibility to devise a new health insurance program, they point out that there are some strings attached: The federal budget agreement specifies that they must select one of three options.

• Provide to uninsured children the same benefits offered in one of the following benchmark plans: (1) Blue Cross and Blue Shield’s preferred provider organization plan (this plan is offered to federal employees); (2) any state-government employee health plan; or (3) a plan offered by the health maintenance organization in the state that has the largest commercial enrollment.
• Create a benefits package that actuarially is equivalent to and modeled on one of the three benchmark plans cited; the new package may include any array of benefits as long the value equals that of the benchmark plan’s benefits. If the latter provides prescription drug, hearing, vision, and mental health benefits, the new plan must also but at only 75 percent of the value provided under the benchmark plan.
• Develop a unique benefits package—one not based, in terms of value or benefits, on a benchmark plan. This option requires a federal waiver.

The advantage in creating a new health insurance program is that states can design a benefits package that meets the specific needs of their uninsured and low-income children. Despite this, many state officials consider this alternative overly complex and are looking instead at expanding Medicaid as the way to use their federal block grant funds.

Expanding Medicaid

In addition to, or instead of, creating a new health insurance plan, the federal budget agreement allows states to expand their Medicaid programs. Again, states have alternatives.

• Broaden their Medicaid eligibility criteria.
• Broaden their Medicaid coverage.

In Michigan, Medicaid eligibility currently is granted to infants (newborns to one year) in families earning below 185 percent the federal poverty level (FPL) and to children aged one through 15 in families earning below 150 percent. (In 1997, the poverty level was $16,050 for a family of four.) Under the federal budget agreement, Michigan could extend the FPL eligibility amount by up to 50 percentage points, making the ceiling 235 percent for families of infants and 200 percent for families of the older children. The state also could use its federal funds for such initiatives as a new Medicaid program that would fund nurses in schools or more comprehensive oral care.

State officials are exploring their options, but Michigan children’s advocates have some firm ideas about how the funding should be used. Shaheen points out that developing and implementing a new health insurance program will require much in the way of time and resources. Given the fact that Michigan can—but is not required to—begin drawing its federal children’s health money on October 1, 1997, he contends that expanding Medicaid eligibility and services is the more expedient and cost-conscious alternative, because the delivery mechanisms and necessary bureaucracy already are in place.

Peters agrees and suggests that because Michigan already does a relatively good job of providing health coverage to many needy children, it makes sense to expand existing Medicaid benefits and make others eligible to receive them. For example, the Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program—which focuses on early disease detection and prevention—could be expanded to cover children from the moment they are born instead of at one month old.

Still, Peters is open to the idea of a new insurance program for indigent children. She suggests that if the state chooses this alternative, the benchmark plan on which it is modeled should be the state employees’ plan.

Outreach is Key

Regardless of how Michigan officials choose to expand health care for needy children, both Shaheen and Peters believe that success depends on adequate outreach.

Shaheen contends that the state has failed to adequately inform parents that their children are eligible for certain Medicaid benefits, and as a result, many children needlessly go without. He fears that without the proper focus on outreach, the situation will continue.

Peters adds, "The question should be ‘How can everyone—including the state—help ensure that a child receives care as early as possible?’ The answer is outreach."

The budget agreement does allow some funds for outreach, but combined spending on direct services, administration, and outreach is limited to 10 percent. Shaheen notes, "We don’t know if this is a hindrance or an incentive."

Conclusion

Michigan officials are reviewing the federal budget agreement and exploring their options for expanding health care benefits for uninsured and low-income children. Policymakers say that a decision likely will not be made right away.

Peters and Shaheen want to see a plan be implemented as soon as possible but not so soon that their organizations and others like them are excluded from the decision-making process. "We hope the state will welcome partners, to make sure that kids get the care they need," says Shaheen. Peters adds "We want the best for children—that’s why we’re here."