Medicaid 101: Unpacking the Children’s Health Insurance Program (CHIP)
We want to give a special thank you to Dr. Sabrina Braham, Dr. Brad Richards, and Rebecka Rosenquist for offering their time, insights, and comments throughout this article, and for helping bring this to fruition!
TL;DR: This article is a continuation of our series unpacking Medicaid. We previously explored the emerging Medicaid startup market (here) and overview of Medicaid’s functions and structure (here).
In the first half, we unpack broader questions of CHIP: how it’s structured, financed, eligibility requirements, and more. In the second half, we dive into our takeaways, looking specifically at opportunities for innovation and investments.
Table of Contents
- The History of CHIP
- Market Size
- How is CHIP Structured?
- Our Take
The History of CHIP
The original goal of The Children's Health Insurance Program (CHIP) was to provide health insurance coverage for children whose families earned too much to qualify for Medicaid, but not-enough to afford private insurance. As health insurance costs began to rise throughout the 80’s and 90’s, a growing number of working families struggled to provide health insurance for their children.
Before CHIP's creation, there were more than 10 million children in the US without health insurance. Many of whom were part of working families with incomes just above the eligibility level for Medicaid. CHIP was established as a part of the Balanced Budget Act of 1997 to provide states with increased financial support and program design to address this uninsurance gap for children. At its creation, it was unclear how many states would take advantage of this new funding opportunity. However, by the year 2000, every state including Washington D.C. had children enrolled in CHIP-financed coverage. Below is a timeline of key milestones throughout CHIP’s history.
Since the early 2000’s, there have been significant declines in uninsured rates for children. The rate went down to fewer than 6 million children in 2012, and as low as 3.6 million in 2016. The decline has been largely attributed to expansion of public programs in Medicaid and CHIP, along with the improvement of enrollment for these programs.
In 2018, funding expired for CHIP, and as shown in the chart below, uninsured rates rose as debates ensued.
Ultimately, the HEALTHY KIDS Act was passed that year (2018), followed by the ACCESS Act just two weeks later, both of which helped expand funding through FY2023 and again until FY2027.
With federal funding determined for the foreseeable future, the next big event is the end of the public health emergency (slated for May 11, 2023) and the impact it will have on Medicaid continuous coverage protections. According to an analysis by Georgetown University, it is estimated that 6.7 million children are at risk of becoming uninsured, and 3 out of 4 of those children will still be deemed eligible. It’s important to note the cohorts of children at elevated risk for disenrollment:
- Children in states with more administrative barriers to enrollment and less advanced systems will be at greater risk of losing Medicaid enrollees, while those in states with continuous eligibility and other strategies in place will be better protected.
- Currently, only 24 states offer 12 months of continuous eligibility for children in Medicaid and CHIP, while 17 states and the District of Columbia do not have this protection for any children.
With 5.4% of children uninsured in the US, there are an implied 78 million total children with health insurance.
In reviewing both census data, and Medicaid enrollment data, we see an estimated 45 million children enrolled in either Medicaid or CHIP programs. This means almost half of all Medicaid enrollees are children. Of those 45 million, roughly 9 million (20%) are in CHIP programs, bringing the total market size down when looking at CHIP alone.
Figures above are based on FY2021 annual reports in lieu of aggregated 2022 numbers. Monthly reports are available for October 2022, which show lower figures, however point-in-time data can vary from the aggregated fiscal year reports.
Given the confusing overlap between Medicaid and CHIP, we’ve estimated the CHIP market at ~9M kids in CHIP programs leveraging census and Medicaid enrollment data.
Note: When comparing KFF and census.gov’s insurance coverage data, it is estimated that 39% of insured children were covered by Medicaid or CHIP programs and over 60% are in private plans. The difference between this and KFF/census.gov is that the census data estimates using a 1% sample population, while enrollment data is state-reported actuals.
Budget vs. Spend
CHIP budgeted $25.9 billion in FY2021 (and the same in FY2022), which covers both federal and state funding. Those budgeted funds are distributed across states through a combination of federal matching rates and block grants.
CHIP spending was only $21.0 billion for FY2021, and split between $15.8 billion federal and $5.2 billion state. More details on state-by-state spend can be found here.
While a lot of data is made publicly available, it is actually quite convoluted to determine how much each state is budgeting for CHIP in a given year, and even more complicated when looking at the spend. This seems to be because each state has different programs in place (CHIP, Medicaid-expansion, Medicaid) and varying levels of flexibility that comes with combining their Medicaid and CHIP funding.
After experiencing a decline of almost 6% (or ~600K children) between 2019-2020, CHIP’s reported enrollment has increased over the last two years (3.4%). Various regulatory factors can affect the uninsured rate each year, the most relevant is the upcoming Medicaid redetermination. While the redeterminations are a bit unique to the PHE, it is clear that CHIP and Medicaid children are quite sensitive to government changes given the mid single-digit percent swings that can happen in a single year. The areas impacting the uninsured rates the most include federal legislation (broadly speaking), changes to CHIP funding, and state eligibility requirements.
When CHIP was first introduced, states that supported the expansion of Medicaid eligibility for children also rolled out forms of enrollment marketing (think billboards and other old school marketing efforts), which can be directly attributed to increased enrollment. Whether these marketing efforts still take place today largely depend on the state’s willingness and ability to promote the CHIP program.
How is CHIP Structured?
CHIP is complicated largely because it is tied to Medicaid. Not many folks realize the differences between the two programs, and tend to lump the two programs together. In essence, CHIP is similar to a “gap insurance” program that extends coverage for people who wouldn’t otherwise qualify for Medicaid or the Medicaid-extension program (if available). It is specifically designed for children whose families make too much for them to qualify for Medicaid, but who are less likely to have an employer offer coverage through their parents.
CHIP’s structure mirrors Medicaid’s eligibility in a variety of ways, but with some different parameters: FPL, age, pregnancy, citizenship, and state residency. Where CHIP differs from Medicaid is with waiting periods, funding and plan design.
In this section, we will cover the following concepts in further detail:
- CHIP vs. Medicaid
- Waiting Periods
- Plan Design
CHIP vs. Medicaid
When it comes to setting up a CHIP program, states have the flexibility to do so in a couple of ways:
- Separate CHIP: States can use their funds to create CHIP programs that are separate from Medicaid. These programs are referred to as “separate CHIP” programs, which have expanded eligibility requirements for families who don’t qualify for Medicaid.
- Medicaid-expansion: States can also choose to just expand upon their existing Medicaid programs, called “Medicaid-expansion” programs which are funded by CHIP dollars. These programs still fall under CHIP for funding, but mirror the core plan offerings of traditional Medicaid.
All in, about 60% of CHIP enrollees are in Medicaid-expansion programs, while the remaining 40% are enrolled in separate CHIP programs. The benefits to operating a separate CHIP program essentially provides the state with more flexibility around benefits design and cost-sharing, which can foster better access to specialty services (such as DME, home health), enable innovation and promote collaboration.
Historically, most states have started with separate CHIP plans, but because of certain provisions introduced in the ACA, most of those states have since converted to a combination approach. This initial shift was largely a result of two provisions in the ACA that encouraged states to convert certain CHIP enrollees into Medicaid programs. The map below provides a breakdown of which states have CHIP Medicaid expansion, separate CHIP, or a combination of both.
Operating a separate CHIP program provides the state with more flexibility around benefits and cost-sharing, which in some ways could foster more innovation and collaboration. However, states tend to use their CHIP programs as gap insurance, so separate CHIP programs often lack in-comparison to the guaranteed coverage that Medicaid provides.
See full list of programs and data from KFF here.
CHIP covers targeted low-income children and low-income pregnant women in the 50 states, District of Columbia, and 5 US territories. In general, the eligibility for separate-CHIP is much less restrictive than Medicaid and Medicaid-expansion, with the exception that states can “block” enrollment by establishing waiting periods. Other, more nuanced restrictions include blocking expanded coverage for kids age 6-18, but allowing coverage for infants age 0-6.
- Income Levels
- Children (under 19)
- Pregnant women (must also be Medicaid-eligible)
- US Citizen (or meet immigration requirements)
- State resident
Family income must fall within a certain threshold based on the Modified Adjusted Gross Income (MAGI) as a percent of the federal poverty level (FPL).
Generally, income-based eligibility is more lenient for separate CHIP programs than Medicaid-expansion programs. An example of this in action: a family of four in Alabama makes more than $40K (141% of the FPL), so the children and pregnant mother would not be eligible for Medicaid. However, this family qualifies for a CHIP-funded program (312% of the FPL) since they make under $85K. This is summarized in the graphic below.
Source: KFF Medicaid and CHIP Income Eligibility Limits for Children (link)
Income thresholds vary both by coverage group (Medicaid, CHIP, or Basic Health Plans) and age groups (0-1, age 1-5, and age 6-18). The upper-levels of income eligibility range from 170-400% of the FPL, with the state-by-state breakout here.
Note: the threshold calculations for KFF use the same methodology as Medicaid.gov, but KFF uses the 2021 FPL as the baseline due to January 2022 reporting, hence slightly higher figures.
Since there is no entitlement for CHIP programs like there is with Medicaid, some states have waiting periods to limit enrollment. Waiting periods are typically the length of time that a child must be without employer-sponsored insurance before enrolling in CHIP. During the COVID-19 PHE, states were not allowed to create new eligibility restrictions, but could continue using waiting periods they had in place previously.
Currently, 14 states have CHIP waiting periods, down from 36 states in 2014. Waiting periods last anywhere from 30 to 90 days, depending on the state.
Medicaid and CHIP are both matching programs. The matching program means that the federal government will provide states with a certain allotment of funding based on their own state funding commitments. A matching “rate” is assigned for each state (for CHIP, these rates are enhanced when compared to Medicaid), so if a state has a 50% match rate for Medicaid, they may have a 65% match rate for CHIP.
- Nationally, the average matching rate for CHIP is roughly 70%, while Medicaid averages a 57% matching rate.
- An example of this: if Colorado budgeted $100M in 2023 for CHIP programs, the federal government would allot up to $69.3M (69.3% matching rate) of total funds.
- Under the Affordable Care Act (ACA), the matching rates for CHIP increased by +23 ppt in an effort to incentivize states to expand eligibility for children. However, the elevated ACA matching rates ultimately expired in 2019 since the rule was established for a finite period of time (2015-2019).
CHIP is capped financially by the government, meaning there is a limit or maximum amount of funding available for the program every year. Once the cap is reached, no further funds are provided regardless of the need or demand for the program. The federal budget gets determined by CMS, and generally speaking, is established every 6 years. Funds are then distributed to states based on the matching rate and in the form of block grants. Below are a few key nuances to CHIP funding:
- How much states spend per child is not truly comparable since states use a combination of different programs.
- While the enhanced federal matching rate is publicly available (e.g. 71% of funding is matched), the actual amount of spend is closer to 6.5 to 1 when looking at federal vs. state.
- An example of this: Texas’ budget for fiscal years 2018 and 2019 had allocated about $200 per child per month to the roughly 400,000 CHIP-eligible Texans. If you compare that to their actual CHIP spend in FY2020, you see roughly $1.4B for the same 400,000 eligible children, which is a slightly higher PMPM of $285.
Each of the elements covered above can be found in further detail in each unique state’s CHIP plan design. If you are planning to work, operate, or just have a general nerdy interest in learning more, we highly recommend digging into the reports for each state. Those reports can be found here.
As you’ll see outlined in each report, the broad mechanics of state CHIP plans include:
- Program type (e.g. separate CHIP, Medicaid Expansion, or a combination)
- Federal matching rate
- Premiums and Cost Sharing
- Benefits package
- Delivery system e.g. (FFS, managed care)
- Health Services Initiatives
- Quality Measures
There are a couple of sections to call out in a bit more detail.
First, the benefits package is where there is more flexibility for CHIP, particularly looking at the distinction between Medicaid-expansion and separate CHIP programs. The chart below provides a high-level overview of some of those key differences. As you can see, this is loaded with caveats and disclaimers since this can really vary state-to-state:
Another area to dive into a bit further is quality measures. The CHIP program is based on the annual guidelines set in various Core Sets from CMS. The most relevant to CHIP is the 2023 Child Core Set, which establishes the quality guidelines for a two-year period in six key areas: Primary care access and Preventative Care, Maternal/perinatal health, Acute and Chronic care, Behavioral health, Dental/oral services, and Experience.
Example: Connecticut’s HUSKY Plus program
Connecticut is one of the few states who only operate a separate CHIP program, rather than a combination of CHIP and Medicaid-expansion. This is administered via the HUSKY B and HUSKY Plus program (HPP), which is a supplemental benefit for children not eligible for Connecticut’s Medicaid plan (HUSKY A). HPP helps bridge the gap for services not traditionally covered by Medicaid.
Additional benefits offered through HPP include long-term rehabilitation, home health services, durable medical equipment like motorized wheelchairs and hearing aids for children, and other services such as nutritional counseling and orthotics (full list of HPP benefits here).
In speaking with folks at the Connecticut Department of Social Services, while the CHIP program technically sits separate from Medicaid, the programs are still combined under one office and thus resources are deployed together. Dr. Brad Richards, Chief Medical Officer at Connecticut's Department of Social Services, details this below:
“We rarely see companies or startups pitch us on solutions for CHIP. [Their] programs typically focus on Medicaid for children more broadly, since it is the larger population and total spend. Our Department also doesn’t break out CHIP separately from a resourcing perspective. Other states with larger programs might do this, but we currently don’t have a standalone CHIP team.”
Is CHIP a likely catalyst for innovation in pediatrics?
Broadly speaking, it is unlikely. Because of the entanglement with Medicaid and the high variance from state-to-state, CHIP is quite a complex patient population to access efficiently.
Where we do see the opportunities is in organizations that are able to partner effectively with MCOs and states to develop unique programs that a) take advantage of the elevated reimbursement associated with CHIP populations, b) better utilize the flexibility in benefits design that CHIP provides, and c) help generate more awareness, education and ease of enrolling in the program. We dig into this a bit in the section below.
What would drive innovation?
Many of the big challenges associated with investing time and resources into children’s health broadly, also apply to CHIP. Specifically, calculating ROI for children is difficult because their health benefits are often realized over a lifetime.
One of our resident pediatrics experts, HTNer Dr. Sabrina Braham, noted, “Many sectors, including healthcare, education, and justice call this the ‘wrong pockets’ problem where no single payer will benefit from investment in child health, so investments are harder to come by.”
There is no doubt having longer time horizons (5-10 years for contracts) would help drive innovation for certain areas of spend, especially when we start to think about the many issues that present in childhood (e.g., obesity, trauma, etc.) and are ultimately associated with adult health problems that result in higher spending.
This would likely create perverse incentives for payers and states, where a) payers see these long-term contracts as a risk and b) states see this as a risk when managing the ever-evolving regulatory landscape, and scrutiny to demonstrate outcomes when using important time and resources.
So where is the innovation really happening?
As mentioned earlier, we see opportunity in state-run agencies and managed care organizations (MCOs) that seek to manage children’s needs by integrating care delivery, community partners, and in some cases foster care services, to provide care for Medicaid enrollees. In speaking with experts in public policy and pediatric health systems, both mentioned MCOs as a likely candidate for enabling risk-based models moving forward.
Still, CHIP programs seem to operate separately from state programs (e.g., Medi-Cal Managed Care) and other contracted MCOs (e.g., Centene). Given the relatively small size compared to Medicaid and complexity of dealing with it separately, then coupled with the long time horizon to see benefit, while not right, it is understandable while there isn't more integration or focus on the program.
We looked at the federal level, but didn’t see anything substantial developed for advanced payment models aside from a 2017 request for input, which resulted in the Integrated Care for Kids (InCK) model. More info on federal models we found here, here, and here.
While CHIP and Medicaid are complex, the time, effort and resources devoted to innovating in children’s health is important. Between CHIP and Medicaid, this combined group of children are some of our most vulnerable patient populations, and also tend to be the most underserved throughout their lives. While it’s been great to see innovation in pediatrics that has been more focused on commercial and direct to patient populations, we’re hopeful to see more innovation addressing the Medicaid and CHIP populations going forward.