State and Federal Budget Issues

Background on House and Senate SCHIP-Medicare-Medicaid Legislation

August 2, 2007

Legislation reauthorizing the SCHIP program for an additional 10 years is expected to be the most high profile health care fight in Congress this year.  The debate has already taken on the tone of the larger debate over comprehensive reform and the role of government in reaching the nearly 44 million Americans that have no health insurance. 

SCHIP was first authorized by Congress in 1997 and provides formula grants to the states to set up their own programs to cover low-income uninsured children who do not qualify for Medicaid.  In setting up their programs, states have an option of either enrolling eligible children in their Medicaid program, or enrolling children in private sector health plans that generally must be equivalent to certain benchmark plans (typically the plan options available to state employees, or the highest enrollment HMO in the state).  Authority for the program – which now covers 6.6 million eligible children – expires in October. 

Both the House and Senate bills keep this basic structure in place – with some important exceptions noted below.  The major differences among the parties and between Congress and the Bush Administration are over proposed increases in spending for the program and how any increases are to be financed.  The Senate bill allocates $35 billion in additional funding for the program over the next five years, enough to expand coverage to as many as 4 million uninsured children.  The House bill adds $50 billion over the same period, with much of the funding directed toward enrollment of eligible children into Medicaid.  The House is projected to add 5 million additional children to the program.  These increases are on top of the current base level spending for the program, which is projected at $25 billion over the next five years.  By contrast, the President has proposed a $5 billion increase, for a total of $30 billion.

Presidential Veto Threatened

Not only does the Bush Administration object to the higher spending levels in both the House and Senate bills, the President has also expressed strong opposition to how the increased spending in both bills would financed.  Both bills increase the current federal excise tax on tobacco – the Senate bill by 61 cents per pack of cigarettes, and the House bill by 45 cents.  In addition, the House bill is expected to roll back increased payments to Medicare Advantage (MA) plans – comprehensive health plans offered as alternatives to the traditional fee-for-service Medicare program.  This week, the Bush Administration issued veto threats against both S 1893 and HR 3162. 

Mental Illness Coverage Under SCHIP

Since 1997 when SCHIP went into effect, states have been allowed to limit mental health benefits as part of their non-Medicaid SCHIP programs, i.e. in cases where they follow a private sector option as opposed to a Medicaid expansion.  Under the private sector plan option, states have been able to limit mental illness treatment coverage to 75% of the actuarial equivalence of the average “benchmark” plan (the benchmark plan is generally defined as the state employees’ health plan or the largest enrollment HMO in the state).  This 75% actuarial equivalence standard applies only mental health, dental and vision coverage – NOT all other medical conditions.

NAMI has long opposed this discriminatory limit.  The House bill includes language sponsored by Representative Tammy Baldwin (D-WI) to eliminate the allowance for SCHIP plans to cover mental health benefits at the 75% actuarial equivalence level.  This Senate bill also removes this limit and in addition includes an amendment offered in the Finance Committee by Senators John Kerry (D-MA) and Gordon Smith (R-OR) making clear that plans would have to cover mental illness treatment on the same terms and conditions as all other diseases and conditions.  This includes equity for cost sharing, deductibles and out-of-pocket limits, as well as durational limits on inpatient days and outpatient visits.

NAMI is extremely grateful to Senators Kerry and Smith for their leadership on this issue, as well as to Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) for including the parity amendment in the bill.

Improvements to Medicare

HR 3162 contains many long overdue improvements to Medicare for beneficiaries with mental illness and their families.  Critical among these is a provision that would finally address the discriminatory 50% cost sharing requirement for outpatient mental health services.  For many years, Medicare beneficiaries with mental illness have been forced to meet a discriminatory 50% cost sharing requirement for outpatient psychiatric services.  This is in contrast to the traditional 20% cost sharing that applies to all other outpatient physician and ancillary services covered under Part B. 

The House bill brings cost sharing for mental illness treatment into alignment with this 20% cost sharing level.  A last minute change in the House bill accelerated the effective date of the new 20% cost sharing requirement up to 2008 (as opposed to the 5-year phase in that was in the original bill).  NAMI strongly supports this long overdue effort to bring parity to outpatient services under Medicare.

For the Medicare Part D drug benefit, there are numerous improvement contained in the House bill, especially for low-income and dual eligible participants living with mental illness.  These include:

  • Codification of current rules requiring broad formulary coverage within 6 protected therapeutic classes, including antidepressants, anticonvulsants and antipsychotics – NAMI fought hard for these rules that require all Part D plans to cover “all or substantially all” of the medications in these critical therapeutic classes that are essential to effective treatment for schizophrenia, bipolar disorder, major depression and severe anxiety disorders,
  • Restoration of coverage of benzodiazepines that are currently excluded from coverage under Part D on a mandatory basis, i.e. plans cannot cover them.  Benzodiazepines (klonopin, xanax, valium, etc.) are viewed as important tools in the treatment of actute mania in bipolar disorder and anxiety disorders.  The provision would not become effective until 2012.  As a result of cost concerns, this provision had been temporarily removed from the bill over the weekend, but was restored just prior to the legislation reaching the House floor. 
  • Elimination of cost sharing for certain non-institutionalized dual eligibles (defined in the bill as individuals participating in home and community-based waiver programs),
  • New exemptions for income and assets to expand eligibility for the Low-Income Subsidy (LIS) – The higher income limits and asset test included in HR 3162 (Section 211) will allow more low-income beneficiaries (most living on fixed incomes) to qualify for both the Part D LIS (a subsidy that pays monthly premiums and eliminates annual deductibles) and Medicare Savings Plans (allowing Medicaid to pay for Medicare Part B premiums).  Once a beneficiary qualifies for Part D LIS, they also avoid the risk of falling into the so-called “doughnut hole” coverage gap,
  • Waiver of the late enrollment penalty for the LIS – This would allow those qualifying for LIS to avoid higher premiums if they failed to timely enroll in a Part D drug plan since May 2006,
  • New limits on cost sharing for LIS eligible beneficiaries,
  • Intelligent assignment for low-income beneficiaries enrolling in Part D plans – A process by which beneficiaries are enrolled in plans that more adequately cover the specific medications they have been prescribed,
  • Allowing mid-year changes in enrollment for beneficiaries adversely impacted by mid-year formulary changes – This would permit beneficiaries to switch a different Part D plan in the middle of the year if the plan they are enrolled in removes a drug from their formulary in the middle of a plan year (avoiding “bait and switch” tactics by plans), and
  • A new special 90-day enrollment period for subsidy eligible individuals.

Medicaid Amendments

HR 3162 includes several proposals to curtail current efforts underway by the Bush Administration to redefine services under the Medicaid Rehabilitation Option.  These efforts – which include a new regulation currently under development – pose enormous risk to the ability of states to use Medicaid to finance intensive case management and evidence-based models such as Programs of Assertive Community Treatment (PACT). 

Specifically, the House bill places a moratorium on new rules redefining the Rehabilitation Option, as well as a separate rule curtailing school-based services financed by state Medicaid programs.  Senator Edward Kennedy (D-MA) is planning to offer similar language as an amendment to S 1892.  NAMI strongly supports these efforts to ensure that the Centers for Medicare and Medicaid Services (CMS) does not overstep its authority to restrict critical services for the most vulnerable enrollees in the program.  

Eligibility for SCHIP

The House and Senate bills largely maintain the current eligibility guidelines for SCHIP programs.  Generally, states are able to offer coverage to uninsured children in households up to 300% of the federal poverty level.  States are allowed to go above this 300% of poverty level, but receive a lower federal match for enrolled children above that threshold.  The Senate bill also allows states whose SCHIP programs are not extending eligibility above 300% to receive a higher match rate for children above 300%. 

Given that basic eligibility for the program is not expanded, where is the additional funding being authorized by Congress being invested?  The additional funding above the President’s is request would go to a range of activities including:

  • The increased cost of maintaining coverage for the 6.6 million children already in the program,
  • Efforts to help states reach all eligible but unenrolled children in their state, including a new $100 million grant program for states ,
  • A new contingency fund to shore up state programs with anticipated shortfalls, and
  • New demonstration programs for “express lane” eligibility that will expedite enrollment.

In addition, S 1893 allows states to set up a new “Premium Assistance” program to assist families that turn down employer provided coverage because of the costs associated with premiums.  The idea would be to provide them with modest assistance to enable these families to enroll in employer provided coverage and thereby avoid relying on SCHIP for coverage of their children.  This also addresses the so-called “crowd out” issue of SCHIP covering children that have other coverage available.  Employers would be required to notify workers of the availability of Premium Assistance.

Allowing SCHIP to Cover Pregnant Women, Parents or Childless Adults

The House and Senate bills also deal directly with one of the most controversial issues in the SCHIP debate – whether states should be allowed to expand their programs to cover pregnant women, the parents of eligible children and childless adults.  Of particular concern are the 11 states that are currently using waivers to extend eligibility to parents and childless adults – most of these waivers have been granted by the Bush Administration.  The Senate bill takes a different approach to each of these categories:

  • Pregnant Women – Eligibility would be allowed through a state plan amendment without the need for special permission from the federal government through a waiver,
  • Parents – No new waivers allowing parents eligibility would be allowed and starting in 2010, states would have to use a separate limited contingency fund to keep such coverage in place.  A higher federal match would be available if a state reached its goal for coverage of children.    
  • Childless Adults – No new waivers would be allowed for states to cover childless adults and states with these waivers would have to transition enrollees off them by 2009.

By contrast, the House bill grants states the option of covering pregnant women and increasing SCHIP eligibility to age 21 to match Medicaid’s age limit.  It also permits states to cover legal immigrant children and legal immigrant pregnant women, who otherwise meet the requirements for SCHIP coverage. 

State Funding Shortfalls

This has been a growing challenge in recent years in states that have been most aggressive to extending eligibility and reaching eligible children to get them enrolled.  In recent years, Congress has had to come up with supplemental funding to prevent states from having to freeze enrollment or suspend coverage.  In response to this, the Senate bill sets up a new Contingency Fund (capped at 12.5% of the program’s annual allotment) to shore up states with anticipated shortfalls.  

August 2, 2007


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