Insuring Low-Income Children: The Difference Between Medicaid and CHIP

Keeping American Children Healthy

Keeping children healthy on Medicaid and CHIP
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Both Medicaid and the Children's Health Insurance Program (CHIP) provide healthcare coverage for low-income children. Both programs are jointly funded by federal and state governments. Both are run by the states.

There are still some inherent differences between the two programs you need to understand if you have a child in need of health care. Simply put, it depends on what state you live in.

Medicaid Eligibility for Children

Children raised in families earning 133 percent or less of the federal poverty level (FPL) per year are eligible for Medicaid. The FPL is calculated by the U.S. Department of Health and Human Services every year and is based on the number of people in a family with consideration also given to location. After all, some states are much more expensive to live in than others, for example, Alaska and Hawaii.

Before the Affordable Care Act (ACA) was passed in 2010, children became eligible for Medicaid based on both their age and family income. Generally speaking, the older a child got, the less likely he was to get Medicaid coverage for the same family income. Oddly enough, this meant that only some children within the same family might be covered in any given year. The new legislation made the income eligibility standard the same for children 0 to 19 years of age.

Some states still have different eligibility requirements for different ages groups, but the standard value is now set for at least 133 percent of the FPL for all children. Before the ACA, the eligibility threshold was set at only 100 percent for children between 6 and 19 years old.

Eligibility for CHIP

Medicaid is intended to provide care for the poorest children. The CHIP program was established in 1997 as a way to expand coverage to children who have lower family incomes but who fall outside the Medicaid eligibility window.

The states ultimately decide the eligibility thresholds for CHIP, but the majority of states (46 states and the District of Columbia) set that threshold at 200 percent of the FPL or more.

Federal Funding for Medicaid

When it comes to Medicaid, the federal government matches state spending "dollar for dollar," at least in concept. It uses what are known as Federal Medical Assistance Percentages (FMAP) to determine how much it will pay. FMAPs take into account a state's average income relative to the national average.

Each state is given an FMAP of at least 50 percent, i.e. the federal government pays 50 percent of Medicaid costs. All other states receive a higher percentage of Medicaid funds based on their calculated FMAP. With the lowest per capita income level, Mississippi has a 2017 FMAP of 74.63 percent so that the federal government contributes $2.94 for every $1 the state spends.

In order to get this Medicaid funding, the states agree to certain terms. The state is not permitted to put people on waiting lists, it cannot have an enrollment cap, and it cannot charge for premiums or copayments for anyone earning less than 150 percent of the FPL.

Federal Funding for CHIP

Federal funding for CHIP, on the other hand, has pre-set limits. Each state is given an allotment ever year as a block grant. The dollar amount is fixed regardless of the number of people covered by the program.

The 50 states and the District of Columbia have a choice to use their block grants in one of three ways:

  • As a combination Medicaid-CHIP program (29 state programs)
  • As part of the state's Medicaid expansion (9 state programs)
  • As a separate CHIP program (13 state programs)

To encourage state's to participate in CHIP, the federal government offers a higher matching rate than it does for Medicaid. The national average for Medicaid matching is 57 percent whereas it is 70 percent for CHIP. Again, states with higher economic needs get reimbursed at a higher rate.

Those states using combination programs or Medicaid expansion have the same program requirements as traditional Medicaid. States with separate CHIP programs, however, have more wiggle room. If need be, they can put children on waiting lists or establish enrollment caps to rein in CHIP costs. Many of those states will also charge premiums and copayments to their beneficiaries.

CHIP Funding Is in Danger

Sad to say, CHIP has been in danger of losing its funding. Federal funding for the program was set to expire in September 2017 and states were running out of money to help children in need. Congress approved a stop-gap measure in December 2017 to extend funding into March 2018. It was not until January 2018 that Congress passed a more long-term solution, a six-year extension through 2023. While that appears to be good news, the downside is that very same legislation will also decrease the federal matching rate over time. With less money put into the program, fewer children may be covered over time.

In May 2018, the White House presented a rescission proposal that would cut $7 billion from CHIP. The proposal has not yet been approved by Congress. 

Differences in Coverage for Medicaid and CHIP

Federal regulations mandate Medicaid offer specific services to its covered children. This includes Early and Periodic Screening, Diagnosis and Treatment (EPSDT), comprehensive services which focus on preventive care and wellness. It includes the following:

Services also covered by Medicaid include care provided at Federally Qualified Health Centers (FQHCs) as well as rehabilitation services.

CHIP programs, however, do not have to meet the standard set by EPSDT, although they must provide benchmark care that includes hospital care, laboratory studies, x-rays, and well-child examinations, including immunizations. Dental care may not be as extensive as that offered under EPSDT but must be part of the included benefit package. To this end, each state can choose their dental benefit based on the most popular state employee dental plan, the most popular federal employee dental plan for dependents, or coverage from the most popular commercial insurance plan in the state.

The Future of Medicaid and CHIP

Politically, Medicaid is a charged issue. The current administration is attempting to repeal the Affordable Care Act, which in turn would put an end to Medicaid expansion. The intent is to also decrease federal funding for traditional Medicaid.

The GOP's most recent health plan wants to replace federal matching for Medicaid with a flat-rate block grant to each state. While block grants were beneficial for the CHIP program, the CHIP program is significantly smaller in scale than Medicaid. Also, block grants limited how many children states could cover under the CHIP. States with block grants also put children on waiting lists.

How many children will lose health coverage if GOP health reform comes to pass?

A Word From Verywell

Children raised in low-income families deserve the same quality health care as their higher-earning counterparts. Medicaid offers care to the poorest families while CHIP extends coverage to a larger number of children. Care through the Medicaid program may be more extensive, but the CHIP program also offers a broad depth of coverage. Understand the difference between these two programs and make the most of your child's health care.

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