Land mines: Does your CHIP have some?

Two minor technicalities may derail Virginia’s program, a Medicaid lookalike

Just days before Virginia’s Children’s Health Insurance Program (CHIP) was to have taken effect, state officials learned in late September that the program would be derailed by their strategies for covering abortion services and generating the local CHIP match.

At issue is the extent of Virginia’s Title XXI abortion coverage and the state’s use of a provider tax to fund its share of the CHIP program. CHIP officials at both the federal and state level say they hope to reach a resolution on the issues by the end of this month.

"We’re not at a standstill," said Debbie Chang, co-chair of the Health Care Financing Administration (HCFA) Steering Committee on CHIP Implementation. "We’re really working hard with the state to pursue these two issues."

While Virginia has chosen to implement its children’s health expansion outside Medicaid, it has elected to use Medicaid to define the benefit package. Under the federal Hyde amendment, Medicaid benefits can include coverage for abortion services only if the life of the woman is threatened or in the case of rape or incest.

Virginia officials say that because separate state funds are used to provide abortion in the case of rape or incest, those services are not officially part of its Medicaid package and do not need to be included in CHIP coverage. Federal officials dismiss the distinction.

"Although the state has not chosen to use federal funds to match payments for abortions performed in cases of rape or incest, this service is nonetheless a service required to be included under Medicaid," HCFA Deputy Director Richard Fenton wrote in a Sept. 9 letter to Virginia Department of Medical Assistance Services Director Dennis Smith.

In 1994, the most recent year for which statistics are available, the state-only plan paid for 132 abortions, House Appropriations Committee legislative analyst Susan Massart said. The state-only coverage also pays for abortions in instances in which the health—not only the life—of a woman is endangered, she said.

Virginia has sought approval for its children’s insurance plan under a so-called "secretarial-approval" route, which gives broad approval power to the secretary of the Department of Health and Human Services and requires the state to meet very specific coverage standards, federal officials wrote.

"In order for the state to meet the requirement for Secretarial-approved coverage, it must provide exactly the same benefits of the Medicaid program, which the state has selected as its benefit package, and include the full coverage of the abortion services mandated under the Hyde amendment," Mr. Fenton wrote.

Virginia holds firm

Virginia officials contend that the Hyde amendment does not mandate abortion coverage, but only restricts the instances in which it can be offered if states do fund abortion.

One way to resolve the abortion issue would be for Virginia officials to give up pursuit of secretarial approval of its plan and redefine the CHIP benefit package as something other than a Medicaid-lookalike, HCFA’s Ms. Chang said.

Federal officials also are questioning Virginia’s use of a provider tax to generate the state’s 33.9% share of annual expenditures for the program, dubbed locally as the Virginia Children’s Medical Security Insurance Plan (CMSIP).

The use of provider taxes to fund state Title XXI matches is not novel and mirrors the strategy other states have used to attract Medicaid matching funds. As with the Medicaid program, HCFA requires that any provider tax used to fund CHIP implementation be broad-based, uniform, and redistributive in nature. The federal law cited by HCFA officials was designed initially to prevent Medicaid programs from boosting state Medicaid funds with provider taxes and returning those funds—augmented with a federal Medicaid match—directly back to the providers who paid the taxes.

Federal officials’ concern with Virginia’s match is that it is generated from health insurance premium taxes that arguably are assessed at different rates for different insurers. Since 1988, Blue Cross/Blue Shield of Virginia—now, Trigon—has taken advantage of a state law that gives a premium tax break on contracts offered to Virginia residents under open enrollment. Open-enrollment contracts are taxed at 0.75% of gross subscriber income; other contracts are taxed at 2.25% of gross subscriber income.

In 1997, Virginia legislation that implemented the federal Health Insurance Portability and Accountability Act (HIPAA) did away with the preferential tax treatment, as HIPAA required all carriers to provide guaranteed issue in the small group market, defined as employers with two to 50 employees. The funds that support Virginia’s CMSIP are generated from the equalization of the tax on small-group-market insurers.

Insurers in the individual market who offer open enrollment still are given preferential treatment, but no individual market tax revenues are used to fund the state’s CMSIP match. The rates are uniform within each class, e.g., open-enrollment contracts or other contracts, and therefore meet the definition of uniformity within federal law, Smith wrote.

The CMSIP trust fund predates approval of the federal CHIP law and was established originally to provide preventive and primary care to children up to age 18.

Virginia officials expect CMSIP to serve about 63,200 previously uninsured children by June 30, 2001. The program plans to cover children under the age of 19 in families earning up to 185% of the federal poverty level, $16,450 for a family of four, with cost-sharing phased in for families above 150% of the federal poverty level. To address the crowd-out issue, the Virginia plan states that a child must have been without health insurance for 12 months in order to be eligible for CHIP coverage.

For the two-year period ending in 2000, Virginia officials plan to spend a total of $93.8 million in coverage for newly eligible children under CMSIP and expansion of Medicaid to children currently eligible but not yet enrolled. The state’s CMSIP trust fund will contribute $7.2 million toward the CHIP match, $6.2 million in Medicaid outreach and enrollment, and $1.9 million in Department of Social Services eligibility determination. Federal contributions consist of $38.8 million in CHIP funding and an additional $18.5 million in increased Medicaid match.

Contact Ms. Chang at 410-786-0587 and Mr. Smith at 804-786-7933.