State Children's Health Insurance Program (SCHIP)

Children's Mental Health Parity is Still Possible, but Advocates are Going to Have to Fight For It

Congress recently passed a brand new $20 billion block grant program (over a five year period) to expand health insurance coverage to kids in low-income and working poor families. This follow-up document is designed to explain that complex federal legislation; the National Center hopes to help MHAs take maximum advantage of this extraordinary opportunity to finance mental health services for children with mental and emotional disorders.

What's At Stake? What's The Payoff?

While estimates indicate that 10 million American children have no regular health insurance, the new initiative will only cover upwards of 2 million. Nonetheless, the program is very important to children's mental health advocates for the following reason: The prevalence of emotional and behavioral disorders varies by income, with poor (0-99% of poverty) and low-income (100-199% of poverty) children experiencing the highest rates.

Since the new children's insurance program specifically targets kids between 100% and 200% of the poverty line, MHAs across America have an opportunity to facilitate access to mental health care for the kids who need help the most -- in many cases for the first time.

States Must Make A Choice

Actually, states must make two choices. First, they must decide to produce matching funds and draw down the available federal dollars. Second, states can extend coverage to the target population of kids either through the existing Medicaid program, or through the new block grant. Although we encourage states to use Medicaid (and Vermont is doing just that), it's expected that many will opt for the block grant because it has fewer federal strings. States are eligible to receive federal financing as soon as October 1, 1997.

What's The Benefit Package?

What About Kids' Mental Health?

In essence, states can select from among four (4) benefit packages; the first three options are referred to as "benchmark" plans.

  1. The federal employees Blue Cross/Blue Shield Standard (BCBS) Option Benefit Plan.
  2. The state employee health plan.
  3. Health benefits offered by the HMO with the largest enrollment in the state.
  4. A benefit package that has the "aggregate actuarial value" of one of the three benchmark plans. IF the benchmark plan selected contains mental health care and prescription drug coverage, states MUST cover BOTH at a minimum of 75% of the value of those benefits.

MENTAL HEALTH NOTE: The Blue Cross/Blue Standard Option, all state employee health benefit plans (except Minnesota), and the largest HMOs (Prudential, Humana, Aetna, etc.) all offer mental health care of some type. As a result, states must offer mental health care to kids (even though they fought very hard to avoid the responsibility). In addition, the Mental Health Parity Act of 1996 applies to this new program; therefore, no benefit package financed through the initiative can contain discriminatory lifetime and annual dollar limits.

EXAMPLE OF "AGGREGATE ACTUARIAL VALUE" OPTION: Let's say Ohio decides to offer a kids benefit package with the "aggregate actuarial value" of the largest HMO in the state (Humana). If Humana's benefits package is worth $2,134 per member/per year, the kids benefit package must be of comparable value. Furthermore, assuming that the mental health benefits in that same Humana plan have a total value of $400, the mental health care offered to uninsured kids in Ohio must be worth at least $300 (i.e., 75% of $400). IT CAN BE MORE IF ADVOCATES DO A SUCCESSFUL JOB OF ADVOCACY IN THEIR STATE LEGISLATURES.

EXCEPTIONS: Pennsylvania, New York and Florida were specifically exempted from these requirements (and may continue to administer existing health insurance programs as they currently operate).

Cost Sharing

Deductibles and copayments for families below 150% of poverty can only be "nominal" (i.e., a state can charge a co-payment of no more than $3 for a service that costs $50 more). Cost-sharing above 150% of poverty is authorized on a sliding-scale basis related to income, but total charges cannot consume more than 5% of a family's income.

In our opinion, states are barred from imposing discriminatory premiums, deductibles and copayments for mental health care.

State Plan Required

In order to qualify for federal funds, a state must file a plan describing eligibility standards, methods of delivering services, benefits, outreach program, etc. Please note that states can spend no more than 10% of available funds for things like administrative expenses, "other child health assistance" and general health service initiatives designed to "improve the health of children" -- meaning that 90% of all available funds must be obligated to purchase health insurance.

Eligibility/Entitlement Issues

Aside from the poverty targets already mentioned, there are no eligibility requirements. Specifically, there is no individual entitlement under the new law. Therefore, states have the discretion to:

  • only cover kids between birth and five years of age. 
  • only cover kids who have resided in the state for at least eighteen months. 
  • only cover kids who live in certain parts of the state. 
  • only cover kids for eight months (or longer than one year).

However, states CANNOT discriminate based upon diagnosis or pre-existing condition -- meaning that they can't deny children coverage because they have been diagnosed with a serious mental or emotional disturbance prior to seeking health insurance under the new program.

Administration

Because its a block grant, states can administer the new program in any way they see fit -- meaning that they have exclusive authority to determine: (i) which agency will administer the program; (ii) which health care providers will participate; (iii) whether managed care will be used; and (iv) what type of enrollment system will be used. To the extent that states elect to use the new block grant, it is our guess that numerous states will contract with private, for-profit insurance companies to extend coverage.

Funding

States are virtually bribed to draw down federal dollars in order to participate in this effort through an "enhanced match" funding system, which reduces by 30% a state's share of the cost of financing children's health insurance. For example, a state with a regular Medicaid matching rate of 50% would have an enhanced federal matching rate of 65% (thereby reducing the state share from 50% to 35%). This formula applies to both possible approaches and states benefit whether they choose Medicaid or the block grant route to extend coverage. Due to this system, virtually every state will participate.

Remember, states can only spend 10% of available funding for administration and related activities, while 90% must be obligated for health insurance purchasing.

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