Making Choices To Ensure Coverage Of Mental Health:

Summary of the Child Health Assistance Program (CHAP)

New Title XXI Of The Social Security Act

(This page was posted on October 7, 1997)

A new multi-billion dollar program to help fund health care for children gets underway beginning October 1, 1997. The program, authorized under the Balanced Budget Act of 1997 (Public Law 105-33), provides block grants for states to assure access to health care services for uninsured, low-income children. The legislation is historic—the largest expansion of federal law to provide health coverage for a specific population since 1965, when Medicare and Medicaid were enacted.

Approximately two million children under age 19 are expected to benefit from the program, which is targeted to children in families with incomes under 200% of poverty (roughly $32,100 for the average family of four) who are not now eligible for Medicaid. The law makes available $20.25 billion over five years (FY 1998- 2002) and authorizes an additional $19.4 billion for the following five years, although that funding is not assured. States must provide matching funds, but will have considerable flexibility in deciding what mechanism to use in spending their federal allotment, who will be eligible and what services will be covered (within certain federal requirements, including a mandate with respect to mental health coverage). The law requires public participation in planning for this very significant new program. In its state plan, the state must describe how the public has been involved in the program's initial design and implementation, as well as how it plans to promote ongoing public involvement. A summary of the major provisions follows. The Bazelon Center also has briefing sheets on the use of these funds to expand a state Medicaid program (the best option) and the opportunities for ensuring adequate mental health coverage if the state chooses to initiate a new insurance program.

Which Children States Can Cover

In general, CHAP allows states to cover children in families with incomes up to 200% of poverty. In a few states with Medicaid programs that already cover children in families with incomes over 150% of poverty, the new dollars can be used for children in families with slightly higher incomes.¹ States have significant flexibility in setting eligibility rules. For example, a state could vary the program from county to county, limit it to a certain number of children or create waiting lists. Specifically, states are permitted to base eligibility on: geographic area, age, income, family resources, residency, other available health coverage and duration of eligibility. They may also cover children with disabilities to a greater extent than other children (such as covering these children when they live in slightly higher-income families than other eligible children, provided the family income does not exceed the level permitted by the federal law). These funds may also be used, in limited circumstances, to purchase family coverage (including parents as well as children), so long as this is found cost-effective by the federal agency² and does not substitute for coverage that would otherwise have been provided for children with CHAP funds. Eligibility rules preclude coverage of children who are in public institutions, including "institutions for mental diseases." This provision does not apply to children the state includes under Medicaid (for those children, the standard Medicaid rules apply and these permit reimbursement of public or private psychiatric hospitals and residential treatment centers). The exact definition of an institution for mental diseases under this law must await federal agency guidance. To summarize, children in the following groups are not eligible: children who are found eligible for Medicaid, children who have health insurance coverage, children who are covered by a group health plan, children who are inmates of a public institution or patients in an institution for mental diseases, and children whose families are eligible for state employee health benefits.

How States Can Qualify for Funds

States must meet the following requirements in order to receive funds:

• Current efforts to cover children under Medicaid cannot be reduced; eligibility rules in effect on June 1, 1997 cannot be lowered.
• Eligibility standards may not be based on diagnosis.
• No health plan under this program may deny eligibility because of a pre-existing condition. States may, however, consider disability status so long as it does not restrict eligibility (i.e., children with disabilities can be eligible even though they are from families with slightly higher incomes than the families of children without disabilities).
• Children must be screened for Medicaid eligibility. Only children who are not already eligible for Medicaid (under state eligibility criteria that are no more restrictive than those in effect on June 1, 1997) can be covered through a health insurance policy purchased with CHAP funds.
• States must ensure that insurance coverage provided through this program does not substitute for employer-sponsored coverage.
• States have until the end of fiscal year 1998 (September 30, 1998) to apply for CHAP without losing their entitlement to any funds. They may carry over any unexpended funds to spend in any of the three subsequent years.

How States May Use the Funds

States have three choices on how to use the CHAP funds:

1. Funds may be used to expand the state Medicaid program to cover children who would not be eligible for Medicaid under the state's standards as of April 15, 1997. This is the best of the options. States choosing this option will receive a higher federal Medicaid match for these children (the same federal match as is available to the state under options 2 and 3 below). Significantly, if the state spends all of the state and federal match funds allotted under this program for any one year before the end of the year it can then continue to receive regular federal Medicaid matching payments for these children for the remainder of the year.
2. Funds may be used to purchase insurance policies for eligible children. In contrast to the Medicaid option in 1) above, once the allotted funds are spent, no more federal dollars will be available until the next fiscal year.
3. A very limited portion of the funds may be used to purchase services directly, such as from a community program. A state may not use more than 10% of the funds it draws down from the federal government for all of its administrative costs, its outreach and the direct purchase of services. It must spend the remaining 90% of the CHAP funds on Medicaid expansion and/or purchase of insurance. This 10% limit can be exceeded under certain circumstances with a waiver from the federal agency (see below).

Services

The law specifically allows states to include any or all of the services listed in the federal Medicaid law. It also permits coverage of services furnished in state psychiatric hospitals and residential or other 24-hour therapeutic services.³ Specifically, states may use CHAP funds to purchase:

• inpatient and outpatient mental health services (including services in state hospitals),
• home- and community-based services (including personal care, daycare, respite care and training for family members),
• case management and rehabilitation services (which, under Medicaid, states have used to cover day treatment, intensive in-home services, therapeutic group homes and foster care homes),
• outreach, and
• transportation.

This means that states can opt to cover the full array of community services children need, including the intensive services required by the growing number of children with serious emotional disturbance.

Rules for Using Funds to Expand Medicaid

If a state chooses the option of using some or all of these new funds to expand its current Medicaid program, the proportion of the cost of care the federal government will pay is higher than in the regular Medicaid program. It is identical to the federal share under the other two CHAP options. For various reasons, this is the best of the approaches. Children will be entitled to all medically necessary Medicaid services and will have appeal rights if they or their families are dissatisfied with their care. The benefit package is broad and the mental health benefits, in particular, are appropriate for children of all ages, including those with serious mental or emotional disorders.

Rules for Using Funds to Purchase Insurance

A state using these funds to purchase health insurance policies for uninsured children must ensure that the benefit package meets certain conditions. Benefits must be equivalent to one of three benchmark packages:

• the federal employees' standard Blue Cross-Blue Shield preferred provider option, which covers 100 days of inpatient hospital care and 20 outpatient sessions with mental health practitioners per year;⁴
• the plan offered to state employees; or
• the HMO in the state that has the largest commercial (non- Medicaid) enrolled population.

The state may either purchase a plan with the specific covered services in one of the three options above, or it may purchase a different benefit package that is "actuarially equivalent" to one of the three benchmark plans. Many states may choose the second alternative because it offers more flexibility. On the other hand, it would probably be administratively simpler for a state to add the newly covered children to its own employees' health plan or to contract with the most popular HMO for its standard package. (In this case, the state would have to subsidize the child's cost-sharing in order to comply with the law's requirements restricting out-of-pocket costs, described below.) If the state selects the "actuarially equivalent" route, then the benefit package must include coverage of mental health services at no less than 75% of the actuarial value of the benchmark plan's mental health benefit. Thus, mental health services must be covered (assuming that the benchmark plan includes any mental health coverage), but not necessarily beyond 75% of the value of one of the three benchmark plans. This makes it possible that some states will offer a very limited mental health benefit. States that opt to purchase insurance must ensure that their plans conform to the requirements for mental health coverage in the 1996 parity amendments. There can be no lifetime limit on mental health care that is different from a lifetime limit on other services and annual reimbursement rates cannot be different for mental health than for other services. Other required benefits in any insurance plan purchased are:

• inpatient and outpatient hospital services, physician services, lab and X-ray, and well-baby/well-child care, including immunizations; and
• hearing, vision and prescription drugs, which must be covered through the same provision as mental health services—that is, coverage must be at least 75% of the value of these benefits in whichever benchmark plan the state selects.

None of these rules on benefits apply in three states: New York, Florida and Pennsylvania. These states lobbied successfully to be allowed to continue offering the benefits furnished through their current programs for uninsured children, provided they maintain their current level of spending on child health plans. However, the substantial new federal funds available through CHAP allow these states to consider expanding Medicaid or, if that option is rejected, expanding the benefit package in their current programs. With such substantial new funding, these states may well be able to improve their programs for children who need mental health services.

How States Apply for Funds

States can begin to receive funds on October 1, 1997, using federal form HCFA-R-211. However, if a state is not ready, it has until September 30, 1998 to apply for first-year funds. In future years, a state may carry over grant funds from one year into the two succeeding fiscal years. Thus, states that fail to implement their program by this October 1 will not lose federal funds. The Health Care Financing Administration (HCFA) will issue guidance to states on implementation of the new law. Watch HCFA's internet site for this information: http://www.hcfa.gov. Funds will not be disbursed to a state until it submits a child health plan describing how it will spend the funds. This plan must spell out the state's strategic objectives, set performance goals and establish performance measures. It must detail:

• current health coverage for children; and
• current efforts by the state to help uninsured children, including efforts to identify and enroll them in Medicaid or other state initiatives.

In terms of CHAP, the state plan must include:

• the eligibility criteria the state will use;
• how outreach to eligible families will be conducted;
• methods of delivering services;
• coverage and benefits;
• utilization-control systems;
• how the state will assure access to covered services and quality and appropriateness of care; and
• how child health block grant funds will be coordinated with Medicaid or other existing state initiatives.

The state plan must also provide updated budget information, including sources of nonfederal funding, and must describe how the public has been involved in the program's design. HCFA must approve this plan before the state can receive funds. However, if HCFA fails to act within 90 days, the plan is deemed approved.

State Reporting/Federal Monitoring

Each state must provide to the federal government an annual evaluation on its success in covering uninsured children and its coordination of CHAP with other types of health care coverage. This report must include a description of the program the state is operating (such as the number of children served, benefits provided, geographic area covered and level of state assistance) and an assessment of the quality of services, as well as the state's plans for improving the program in the future. HCFA has authority to withhold CHAP funds if a state is found to be in "substantial noncompliance" with the law's requirements and to audit programs as necessary to ensure that the funds are used for the intended purposes.

Funds Available

The law authorizes the following amounts:

$ 4.275 billion for each year FY 1998-2001
$ 3.150 billion for each year FY 2002-2004
$ 4.05 billion for each year FY 2005-2006
$ 5 billion for FY 2007

For the first three years (FY 1998-2000), each state's allocation is based on its share of the nation's uninsured children in families with incomes below 200% of poverty. This formula benefits states with large numbers of uninsured low-income children, such as California, Texas and Florida. In 2001 and future years, the formula relies partly on the state's share of uninsured children under 200% of poverty and partly on its share of all children in families with incomes under 200% of poverty. This shifts dollars to increase the amounts for states with disproportionate numbers of low-income children, such as New York. See the table at the end of this summary for the first year's state allotments.

State Match Requirements

Each state's matching rate under this program equals its federal Medicaid match plus 30% of the difference between that rate and 100%. The final federal match cannot exceed 85% of the total cost of the services. If a state opts to use CHAP funds to expand its Medicaid program, this is, in effect, an enhanced Medicaid match that reduces by 30% the state's share of the cost of covering these children (as compared to the state's share of costs under regular Medicaid). The table shows each state's regular and enhanced Medicaid matching rate for FY 1998. This means, for example, a state with a 50% Medicaid match would have an enhanced matching rate of 65% under the new program. One with 60% Medicaid match, would have a 72% rate under the new program. One effect of this enhanced rate is to create two classes of covered children: 1) the "regular" Medicaid children, for whom the state collects the traditional matching amount, and 2) the newly eligible CHAP program children, for whom the state receives a higher match (at least until all the federal funds for the year are expended).

Cost-Sharing Limits

The new law limits the extent to which states can impose premiums, deductibles, co-payments or other forms of cost-sharing on children and their families. The following restrictions apply:

• For children in families with incomes below 150% of poverty ($24,075 for a family of four in 1997), any cost-sharing must be nominal and no more than the cost-sharing that can be imposed under Medicaid.⁵
• Premiums for children in families with income below 150% of poverty cannot exceed those allowed for medically needy Medicaid recipients.⁶
• No cost-sharing can be imposed for well-baby and well-child care, including immunizations.
• Families with incomes over 150% of poverty can be charged on a sliding-scale basis for premiums and cost-sharing, but such scales cannot favor higher-income families over lower-income families and in no case can exceed 5% of family income in a particular year.
• States cannot count money raised through premiums or other cost-sharing as part of the state match.

Waiver to Allow Greater Direct Spending

States that wish to spend more of their funds to purchase services directly can apply to HCFA for a waiver of the 10% restriction (see above). To obtain a waiver, the state must meet the following requirements:

• The health coverage provided to children must meet the requirements detailed above for purchase of health insurance plans.
• The average cost per child must not increase as a result of using the direct services approach as compared with using an insurance program.
• Coverage must be provided through community-based health delivery systems or disproportionate-share hospitals (hospitals which serve a large number of people who have no health insurance coverage).

Opportunities Offered by the New Program

This new law opens the door to a wide range of effective services to help meet the needs of children with mental or emotional disorders. A summary of the research in support of various community-based services for children has found that:

• psychotherapy, the most commonly utilized service component, shows a positive overall effect;
• day treatment programs, although they vary widely in design, are effective and a promising and cost-effective approach;
• family preservation services, or in-home treatment, are effective in keeping families intact and preventing or delaying out-of-home placement, but need to be supplemented with other services if the gains are to be lasting;
• therapeutic foster care services, a relatively new form of treatment, generally have positive results and most children are placed in less restrictive settings upon discharge;
• crisis services result in children's experiencing fewer behavioral problems during treatment and follow-up and in improvements in child and family functioning; and
• case management services have been associated with fewer hospitalizations and fewer days spent in the hospital. In general, case management has been found to result in positive outcomes for children.⁷

The same review also found that residential treatment programs result in improved functioning for some children, but that no conclusive evidence now exists to support the effectiveness of residential treatment over other service types. A state that opts to cover children by expanding its Medicaid program will be more likely to provide access to a full array of effective services, such as those listed above, than a state that uses a private insurance approach, where coverage is likely to be restricted to inpatient hospital care and outpatient physician and therapy visits. Medicaid funds are also increasingly used to provide children access to comprehensive, interagency systems of care, which have been found effective in meeting the needs of children and families.⁸ Systems of care have been funded through a federal demonstration program, foundation grants and state and local governments. Evaluations of these systems have found reduced costs (particularly from juvenile justice) and improvements in school performance and other areas of functioning.⁹

States Will Make a Critical Choice

CHAP represents a significant opportunity to expand health care coverage for an important low-income population. However, if states use these funds to set up programs that are separate from their Medicaid programs, the new block grant could actually threaten Medicaid's future. The nation's governors, along with Republican leaders in Congress, continue to urge block-granting of Medicaid to eliminate both the entitlement it has provided and most of its federal requirements for comprehensive services and consumer protections. While the CHAP block grant provides significant funds for states, it gives no child an entitlement (unless used to expand the state's Medicaid program), allows states to limit eligibility in various ways, fails to mandate comprehensive services and contains no rights protections for children and no mechanisms for families to appeal decisions on service delivery. In future debates over Medicaid, states may hold up the CHAP program as a more desirable approach. Accordingly, it could lead, in the long run, to less protection and fewer health and mental health benefits for children. Encouragingly, many states are taking a serious look at the Medicaid option. To date, several have already committed to taking this approach: Idaho, Massachusetts, Missouri, Oregon and South Carolina (Vermont is also expected to take this route).

Conclusion

The access to mental health services offered under this new law is extremely important for children who suffer from a range of mental and emotional disorders, including depression, post- traumatic stress disorder, attention deficit disorder, eating disorders and substance abuse. And the need for access is growing. Child welfare agencies, preschool programs, mental health agencies, schools and juvenile justice agencies all report seeing increasing numbers of children with increasingly serious and complex problems. The federal Center for Mental Health Services reports that 9-13% of all children in this country have serious mental or emotional disturbance that substantially interferes with or limits their functioning in family, school or community activities. Further, using a scale that is more conservative, CMHS finds that 5-9% of children have even more severe functional impairments.¹⁰ And there is increasing evidence from providers that more and more children are at risk of developing serious mental and emotional disorders at ever-younger ages.¹¹ Accordingly, advocacy is both timely and critical to assure that CHAP will afford these children access to the mental health services they need.

For More Information

In addition to this summary, the Bazelon Center has prepared two one-page briefing papers for advocates' use to educate policymakers and others about the various state options under this new law: one on the Medicaid option and a second on the private insurance option. For print copies of this summary and the briefing papers, send $3 with your name and postal address to "ChildHealth" at the Bazelon Center, 1101 15th Street, N.W., Washington, D.C. 20005.

Notes

1. If, on June 1, 1997, the state covered children of a certain age with family incomes above 150% of poverty, then children of that age may be covered under this program if their family income is less than 50 percentage points above the applicable Medicaid standard in effect on June 1, 1997. This means, for example, if a state covered children under age 6 in families with incomes up to 185% of poverty under Medicaid (as of June 1, 1997), then funds under this program can be used for children under age 6 in families with incomes up to 235% of poverty (185 + 50 = 235). Back to text.

2. This program is being run through the Health Care Financing Administration of the U.S. Department of Health and Human Services. Back to text.

3. This appears to conflict with the ban on coverage of services in "institutions for mental disease" and must be clarified by HCFA guidance. Until that occurs, however, it seems reasonable to assume that the exclusion applies only to children residing in public institutions and that short-term, acute-care residential services are covered. Back to text.

4. See the federal Office of Personnel Management internet site for more details: http://www.opm.gov. Back to text.

5. This means that deductibles can be $2 per month; co- insurance, 5% of noninstitutional costs; co-payments, between $0.50 and $3.00 per service depending on the type of service; and institutional care, 50% of the first day's costs. Back to text.

6. As per federal regulations (42 C.F.R. § 447.52), ranging from $15-19 a month depending on family size. Back to text.

7. Robbins Rivera, V., Kutash, K., Components of a System of Care: What Does the Research Say?, Research and Training Center for Children's Mental Health, Florida Mental Health Institute, University of South Florida, 1994. Back to text.

8. An explanation and description of systems of care is presented in Stroul, B.A. and Friedman, R.M., A System of Care for Severely Emotionally Disturbed Children and Youth, Research and Training Center for Children's Mental Health, Florida Mental Health Institute, University of South Florida, 1986. Back to text

9. Stroul, B.A., Systems of Care: What Are the Results?, CASSP Technical Assistance Center, Georgetown University Child Development Center, Washington, D.C. 1993; Systems of Care for Children with Serious Emotional Disturbance and their Families: Partnerships for Care, Interim Report of the Mental Health Services Program for Youth of the Robert Wood Johnson Foundation, Washington Business Group on Health, Washington, D.C., 1993. Back to text.

10. Center for Mental Health Services, Mental Health, United States, 1996, Manderscheid, R.W., and Sonnenschein, M.A., eds. DHHS Pub No (SMA) 96-3098. Washington, D.C.: Supt. of Docs., U.S. Govt. Print. Off., 1996. Back to text.

11. Knitzer, Jane, "Meeting the Mental Health Needs of Young Children and Their Families," in Children's Mental Health: Creating Systems of Care in a Changing Society, Stroul, B.A., ed., Paul H. Brookes Publishing Co., Baltimore-London-Toronto- Sydney, 1996. Back to text.

Eligible Children, Medicaid Federal Match Rates and Funds Available for 1998