eNews Archive

Balanced Budget Plan Signed Into Law, New Childrens’ Health Program Enacted

E-News August 6, 1997

As has been widely reported in the press, legislation implementing the historic balanced budget agreement reached between President Clinton and congressional leaders was signed into law on August 5. The legislation signed by the President includes a massive bill that continues strict limits on domestic discretionary spending and curbs in future entitlement spending as well as a separate bill designed to cut taxes. After passing the balanced budget package (H.R. 2015), Congress began a month long summer recess and will not return to Washington until early September.

What follows below is the first installment of NAMI’s analysis of the new law and the impact it is likely to have on people with serious brain disorders and their families. Because of the breadth and complexity of the new law, the analysis developed by the NAMI Policy staff has been divided into two separate parts. The first describes the new $24 billion federal program providing health coverage for uninsured children. The second e-news message (which NAMI will be forwarding in the next few days) contains analysis of changes to the Medicaid and SSI programs. A third e-news message covering recent actions on the FY 1998 spending bills governing NIMH, SAMHSA and HUD will be forwarded to later this week.

States Granted Tremendous Flexibility on Spending of Childrens’ Health


Among the most contentious issues in the final days of negotiations over the balanced budget package was the shape of the required benefits package. The nation’s governors pushed hard to ensure that they have maximum flexibility in determining the benefits in all plans purchased through the new $24 billion block grant for uninsured children. Perhaps the most controversial proposal in this debate over benefits states would be required to offer was a provision in the Senate bill requiring that all plans have non-discriminatory coverage for mental illnesses, i.e. parity. In the final bill, the White House and congressional leaders agreed to a complicated scheme that gives states a menu of options to select from, all of which either include mental illness benefits, or require at least 75 percent of the "actuarial equivalence" of the benefits in a specified plan.

Lost in the debate over eligibility standards and required benefits is the fact that this new program is the most important federal initiative in healthcare since Medicaid was established in 1965. However, unlike Medicaid, the new program does not confer a federal entitlement to beneficiaries and gives states wide latitude in terms of how funds will be spent. As a capped program, states will not be allowed to draw down additional federal funds once they have exhausted their annual block grant allocation. While states are generally required to spend these new federal funds for health coverage, they can be passed on in the form tax credits or direct subsidies to employers and individuals.

Most importantly for NAMI chapters and affiliates is the fact that the new program goes into effect at the beginning of the new fiscal year on October 1. Since this is only seven weeks away, NAMI advocates should immediately begin the process of meeting with state officials on the complicated issues relating to implementation of the new program. Because these new federal funds are capped, states will have a tremendous incentive to restrict amount, scope and duration of services in the benefit package they select.

It is therefore critical to immediately contact your state’s governor, insurance commissioner, Medicaid director and other key state officials to press them on the need to include meaningful and equitable mental illness coverage in their plans. Sponsors of parity legislation in your state legislature should also be enlisted in your efforts to ensure that this new program does not unfairly discriminate against children with severe mental illnesses.

What follows below is an in depth summary of the structure of this new program and what states will be required to include in their programs.

Eligibility: Enrollees must be ineligible for Medicaid and states will be prevented to offering coverage to children who are otherwise eligible for Medicaid. In general, eligibility will also be limited to families at or below 200 percent of the federal poverty level, although states will be allowed to go up to 50 percent above their current standard for Medicaid eligibility. A maintenance of effort requirement will bar states from reducing their Medicaid eligibility standards below where they were as of June 1, 1997 (thus preventing states from shifting Medicaid eligible children into the new program).

Financing: The new program will be financed largely through $24 billion in federal funds over 5 years. This level is $8 billion more than was proposed by the House, and includes revenues from a 15 cent a pack increase in the federal excise tax on cigarettes. This total is expected to extend coverage to approximately 3.4 million children, 2 million of whom previously had no coverage. A state match will be required, based on state contribution to Medicaid, minus 30 percent. A state’s allotment in the first 2 years of the program is based on the number of uninsured children, but shifts gradually in the 3rd year and beyond to more heavily weigh the number of children in poverty. States will be allowed to spend up to 10 percent of their allotment on administration and direct services (including payments to community-based providers and DSH hospitals).

States will also be allowed to apply for waivers to spend funds on administration and direct services above the 10 percent cap. All funds outside of the administration and direct services cap must go toward purchase of health insurance for children with 3 exceptions: a) 12 months continuous Medicaid eligibility, b) a new Medicaid presumptive eligibility initiative, c) Medicaid eligibility for children losing SSI benefits under the 1996 welfare law. Under each of these "exceptions," states could use the enhanced state match under the childrens’ health program. These "exceptions" are estimated to cost $600 million over 5 years, thus leaving $23.4 billion for childrens’ coverage.

Benefits: As was noted above, the program’s required benefits package

is certain to be the most complicated issue states must deal with in

structuring their plans. In general, states will have the option of

collecting new federal dollars through their existing Medicaid program

or as a block grant. If a state accepts funds to expand Medicaid,

they must meet all current program requirements. However, it is

expected that states will accept federal dollars as a block grant, in

order to allow governors to select from four basic options in

selecting a required minimum benefits package: 1) the benefits in one

of the "benchmark plans" (see below), 2) the "actuarial equivalence"

to one of the benchmark plans (note, under the new law, "actuarial

equivalence" refers to the aggregate dollar value of coverage, rather

than actual benefits), 3) the benefits package contained in a state’s

existing childrens’ health insurance program (this option is limited

to Pennsylvania, Florida and New York), or 4) any other plan certified

by HHS.

The "benchmark" plans include: 1) the Blue Cross-Blue Shield Standard Option Preferred Provider Plan in the Federal Employees Health Benefit Plan (FEHBP), 2) the most widely available plan offered to state employees, and 3) the HMO in the state with the highest enrollment in the commercial market. It is important to note that the final agreement references the Public Health Service Act definition of an HMO, thus requiring that it be a fully insured product, rather than an ERISA self insured plan. Therefore, state benefit mandates will apply under the HMO option. Preliminary analysis indicates that all of the "benchmark" plans contain at least some form of mental illness benefits (including state employee plans analyzed by HHS). However, few of these plans have mental illness coverage for children that comes close to approaching parity, and most have higher cost sharing requirements for both inpatient and outpatient services and lower treatment limits. Nevertheless, states electing a benefits package from a benchmark plan will be required to have some kind of mental illness coverage.

If a state elects to use the actuarial equivalence option as its standard, then it must provide all of the services listed as part of a basic package: inpatient/outpatient, physician, laboratory & x-ray, immunizations and well-baby/well-child. In addition, states electing an actuarial equivalence standard must also include at least 75 percent of coverage under the selected benchmark plan for the following additional services: prescription drugs, mental health, vision and hearing. Thus, while the exact coverage included in a benchmark plan would not be required, states would have to include coverage equal to at least 75 percent of actuarial dollar value of mental illness benefits in the selected benchmark plan. Because this is actuarial equivalence option is such a loose requirement, NAMI chapters, affiliates and family advocates are being urged to closely monitor implementation of the program in states select this option.

The new law does grant the Secretary of HHS oversight authority over all benefit packages included as part of the new program, including plans adopted by states under the actuarial equivalence standard. States must submit plans to HHS for approval, and no federal funds can be released until approval is granted. All plans offered to uninsured children must comply with the 1996 Mental Health Parity Act, the new law establishing standards for equal lifetime and annual limits for mental and physical illness coverage.

On cost sharing protections, well child/well baby services are exempted from any cost sharing requirements. For children in families at or below 150 percent of poverty, cost sharing must be "nominal," as defined under Medicaid. For families and children above 150 percent of poverty, cost sharing is to be based on a sliding scale schedule.


While the final result on inclusion of mental illness parity in the new childrens’ health program is not everything NAMI had hoped for, it is a significant achievement. These new state programs will be allowed to integrate mental illness benefits for children that have discriminatory cost sharing requirements and treatment limits. Up until the final hours of negotiations, key governors were insisting that they be given wide discretion to completely exclude coverage for mental illnesses. Moreover, they were making this argument based on assertions that more uninsured children could be covered if they were not required to cover specific benefits. Therefore to have "mental health" cited in the bill as a required service is an important accomplishment.

The NAMI Policy staff therefore urges all chapters, affiliates and advocates to send a note of thanks to NAMI’s allies in Congress and the Administration that made this achievement possible.

President Clinton

The White House

Washington, D.C. 20500


Tipper Gore

The White House

OEOB, Room 200

Washington, D.C. 20500


Senator Pete Domenici

328 Hart Office Building

Washington, D.C. 20510


Senator Paul Wellstone

136 Hart Office Building

Washington, D.C. 20510


Representative Marge Roukema

2469 Rayburn Office Building

Washington, D.C. 20515

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