Manatt on Medicaid: The Emerging Conversation About the Future of CHIP

by Manatt, Phelps & Phillips, LLP

During passage of the Affordable Care Act (ACA), a debate erupted over the future of the Children’s Health Insurance Program (CHIP), a well-established program that now offers coverage to 8 million children in low- and moderate-income families. Should the popular program remain in place despite the creation of Marketplaces? Or should children be covered along with their parents in the new Marketplace plans? Ultimately, Congress punted by providing transitional funding for the program through fiscal year 2015, allowing CHIP to remain a source of continuity during the first few years of ACA implementation and deferring a larger conversation about its long-term future.

Now, however, the end of this transitional CHIP funding is approaching, provoking a new conversation about CHIP and its role in a post-ACA world. (The fiscal year 2015 funding is expected to allow states to continue operating their CHIP programs until shortly after September 30, 2015.) In the face of concerns about how well Marketplace plans work for children, leading children’s advocacy organizations are pushing hard for a funding extension through fiscal year 2019. In an interesting twist, at least one conservative think tank, the American Action Forum,1 also is recommending a funding extension, albeit a more modest, limited extension based on arguments that the ACA’s Marketplaces are deeply flawed.

So, with all of the agreement that CHIP funding should be continued, where is the rub? Here is Manatt’s take on key issues arising in the emerging CHIP conversation.

1) When will Congress act to extend CHIP funding?

Advocacy groups are pushing hard for Congress to act in 2014 to extend CHIP funding, arguing that it is the best way to ensure that there is no interruption in coverage for children. They point out that states will want to know as early as this fall whether CHIP funding will continue, in order to prepare for their upcoming budget cycles. They are joined in their calls for action in 2014 by Senator Jay Rockefeller (D-WVa), a longtime champion of CHIP who is retiring at the end of the year and views CHIP as a key part of his legacy. Indeed, Senator Rockefeller already has introduced legislation to extend CHIP funding through 2019 and make other improvements to children’s coverage.2 Even so, Congress rarely acts in advance of a hard deadline and has a history of bringing CHIP funding extensions down to the wire. And, with Republicans looking to pick up seats in the fall election, it is likely that they will want to see how they fare before tackling a range of issues, including the CHIP funding extension.

2) For how long will Congress extend CHIP’s funding? When, if at all, should children move into Marketplace plans?

While there is solid consensus that CHIP funding should be continued at least temporarily, this consensus starts to fall apart around the issue of for how long. A recent Medicaid and CHIP Payment and Access Commission (MACPAC) report recommends a two-year funding extension.3 Meanwhile, Senator Rockefeller’s legislation extends funding for four years, through September 30, 2019. In some respects this issue is about the fundamental question of when — and some might even say whether — Marketplace plans will be able to serve children as well as CHIP. Significant concerns remain about how children will fare in Marketplace plans. As advocacy groups and others have chronicled in detail, CHIP typically offers more affordable coverage in the form of lower deductibles and cost-sharing charges, as well as better coverage of key benefits such as pediatric dental services.4,5,6 CHIP also is commonly believed to offer better access to pediatric providers, though there is some debate about whether there is an empirical basis for this point.

One particularly challenging issue that has led many to conclude that CHIP funding should be continued is the “family glitch.” Many children are ineligible currently for subsidized Marketplace coverage because they are expected to secure coverage through “affordable” employer-sponsored insurance (ESI). However, the ACA definition of affordable ESI accounts only for the cost of self-only, not family, coverage. Under this definition, families with access to “affordable” coverage are ineligible for premium tax credits and cost-sharing reductions in the Marketplace, even though the cost of ESI coverage may, in fact, be unaffordable to them. It is estimated that more than 1.9 million children would be impacted by this “family glitch” and left without affordable coverage options if CHIP funding is not extended.7

3) What efforts, if any, will be made to better “marry” CHIP and Marketplace coverage?

If CHIP funding is extended, the conversation will likely turn to the question of how to better coordinate CHIP (and its larger companion program, Medicaid) with Marketplace plans. The issue is particularly acute for “split families,” which is to say those families in which parents are eligible for subsidized Marketplace plans and children are for CHIP. Senator Rockefeller’s bill offers some early clues as to how progressives may approach these issues. For example, when children and pregnant women move from QHPs into Medicaid or CHIP, it requires states to continue to pay for their medical homes on a transitional basis, as well as for out-of-network providers if they have chronic or complex conditions.8

We also may see more sweeping proposals to marry CHIP and Marketplace plans through the use of premium assistance. For example, policymakers may consider giving states more flexibility to use CHIP funds to help families to buy Marketplace plans for children, supplemented to raise them to CHIP standards. Such initiatives have the advantage of potentially addressing the “double hit” issue, a problem that arises because the premium tax credit formula does not take into account CHIP premium obligations. In effect, this means that a family with kids who are eligible for CHIP must make a Marketplace contribution and pay CHIP premiums, while a family at the same income level in another state without CHIP-eligible children is required to make only a Marketplace contribution. Premium assistance, however, is an idea that tends to turn controversial quickly, in part because it can be tricky to ensure that children receive comparable benefits and cost-sharing protections.

Some may even go further and argue that families should be provided with a “choice” between traditional CHIP coverage or a Marketplace plan. For example, Congress might debate whether to allow families to access tax credits for their children’s coverage in a QHP or maintain their CHIP coverage. Choice always is an appealing concept to policymakers, and we would not be surprised if they explore this possibility, particularly if it turns out not to be too costly.

Looking Forward

Even though it is unlikely that Congress will take action this year, look for the conversation about the future of CHIP to heat up in the months ahead. It seems likely that Congress eventually will again extend funding for the program, but the most interesting issues to watch will be for how long and whether it also takes any steps to better “marry” CHIP with other sources of coverage, including through the use of controversial premium assistance and other “choice” approaches.

1. Boothe, A. & Holt, C., 24 June 2014. CHIP Extension and How the ACA Fails Families. Available at
2. CHIP Extension Act of 2014, S. 246, 113th Cong. (2014). Available at 1
3. Medicaid and CHIP Payment and Access Commission, June 2014. Report to the Congress on Medicaid and CHIP. Available at
4. Ibid.
5. First Focus, April 2014, Letter to the Medicaid and CHIP Payment and Access Commission. Available at
6. Brooks, T., Heberlein, M., & Fu, J., May 2014. Dismantling CHIP in Arizona: How Losing KidsCare Impacts a Child’s Health Care Costs. Georgetown University Health Policy Institute Center for Children and Families. Available at
7. First Focus, April 2014, Letter to the Medicaid and CHIP Payment and Access Commission. Available at
8. CHIP Extension Act of 2014, S. 246, 113th Cong. (2014). Available at 1 - See more at:



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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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