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How Congress Made CHIP a Budgetary Boondoggle

Lawmakers have routinely used the Children’s Health Insurance Program to fund other priorities

Senator Patrick J. Toomey, R-Pa., is a lonely voice in opposition to the way CHIP funds are being used. (Meredith Dake-O’Connor/CQ Roll Call file photo)
Senator Patrick J. Toomey, R-Pa., is a lonely voice in opposition to the way CHIP funds are being used. (Meredith Dake-O’Connor/CQ Roll Call file photo)

It’s getting harder and harder not to think of the nation’s signature health insurance program for children who aren’t quite poor enough to qualify for Medicaid as a “slush fund” to tap for other congressional priorities.

Lawmakers are on the verge of wringing another $7.7 billion in budgetary savings out of the Children’s Health Insurance Program to finance the discretionary portion of the Department of Health and Human Services’ fiscal 2019 budget, among other expenses in the Labor-HHS-Education appropriations conference report. That would bring the CHIP offsets tally to $58.3 billion since the GOP House takeover after the 2010 midterms, according to a review of Labor-HHS-Education spending laws over the past nine years.

The $7.7 billion figure is about $1 billion more in CHIP savings than contemplated in the initial House and Senate versions of the bill. In fact, that’s the main reason Senate appropriators were able to lop off $1.2 billion in net spending subject to discretionary caps from the version that chamber passed last month, freeing up that money to be used for other nondefense appropriations. 

The story of how lawmakers came to habitually raid CHIP’s coffers, while still being able to insure about 9 million lower-income children annually, is a tale that could be cooked up only in Washington. And given the bipartisan vigor with which lawmakers have tweaked CHIP over the last several years — and then dealt out the proceeds — it seems unlikely that a Democratic takeover after this year’s elections would represent any sort of change in the trajectory. 

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Years in the making

There are two basic reasons for this CHIP windfall. First, Congress over the years has delivered far more in available funds for the program, which are technically outside the jurisdiction of the Appropriations committees and don’t count against annual discretionary caps, than the states can feasibly spend.

The fiscal 2019 Labor-HHS-Education bill, part of an $855.1 billion package adopted by the Senate on a 93-7 vote Tuesday that also covers the Pentagon, would grab back $2.06 billion of those unobligated CHIP balances to offset other spending. Based on Congressional Budget Office data, even with the new rescission, states would still have about $11 billion more than they need in fiscal 2019 to meet their estimated coverage.

Second, a 2009 law, among the first acts signed by President Barack Obama working with Democratic majorities in both chambers, created a separate “contingency fund” for states that see unexpected shortfalls, equal to 20 percent of each year’s CHIP appropriation. But the fund has been tapped sparingly, for a total of $108 million since the program was created.

Meanwhile, the so-called Child Enrollment Contingency Fund had stockpiled an estimated $5.65 billion by the end of the current fiscal year through previous appropriations and income from fund investments, which the new Labor-HHS-Education bill would simply prevent from being spent next year. The CBO scores the absence of that funding as an offset, which appropriators divvied up among other programs.

But when the contingency fund “restocks” with another $4.52 billion in fiscal 2019, thanks to the multiyear reauthorization President Donald Trump signed into law last year, the loss of that money won’t really be felt. And once fiscal 2020 rolls around, what’s to stop appropriators from simply making the delayed funding “unavailable for obligation” once again? 

Sen. Patrick J. Toomey, a lonely voice in opposition to what critics call a gimmick, saw this day coming.

“Shouldn’t we have a [spending] cap? Shouldn’t we adhere to it? Why are we, the Senate Finance Committee, creating a slush fund for the Appropriations Committee?” the Pennsylvania Republican asked on Oct. 4, 2017. That was during the Finance Committee’s markup of its initial version of the CHIP reauthorization bill Trump ultimately signed.

Cigarette taxes

Created as part of the landmark 1997 balanced budget law, financed in part by hiking federal tobacco taxes, the program formerly known as S-CHIP — the “S” for state — started out small: roughly $4 billion per year in mandatory funds for the states to cover an estimated 2 million children annually that did not previously have insurance. But costs were much less than expected in the early years, and states eventually were able to ratchet up their spending by dipping into built-up surpluses. 

Lawmakers time-limited the program to mask its ultimate costs, leading to a big reauthorization fight between Democrats and President George W. Bush in 2007. Democratic leaders got the more robust CHIP they wanted after Obama took office in 2009, aided by another hefty cigarette tax increase. There was another extension as part of the 2010 health care law, but still, lawmakers had to do it all over again in 2015.

Last year, Congress finally acted on a longer-term timeframe after the CBO told lawmakers elimination of the individual mandate penalty in the tax law, combined with lower CHIP funding, would drive more kids onto the health care law’s exchanges, which would cost more. That meant the “cost” to extend higher caps on CHIP spending, which the CBO scores only as the difference between estimated outlays in the baseline and what the states might spend if they had more, was negated.

Lawmakers extended the program first through fiscal 2023 and then tacked on another four years less than two months later, in the same law that raised discretionary appropriations caps for two years. In the process, they created a slush fund, to use Toomey’s term, that will keep the taps open at least through fiscal 2027.

Available federal dollars top out at nearly $26 billion annually — not counting contingency funds — before the CBO expects the pot to shrink starting in fiscal 2024. That’s when the law switches from an explicit amount to “such sums as necessary” to finance the program, which the CBO expects would be more in line with actual expenditures of $14 billion to $15 billion a year. But there’s always a chance for Congress to widen the spigot again. 

“This is really an outrageous and dishonest way to circumvent the budget caps that Congress established and declared to the American people it was going to abide by,” Toomey said in an interview Tuesday, just before he voted “no” on the Defense and Labor-HHS-Education conference report.

“Everybody who’s involved knows exactly what’s going on, they intentionally inflate — dramatically inflate — the authorization for CHIP well above what they know it’s going to cost, and everyone goes along with the subsequent decision to cut it back down so that this money can be spent on other things,” Toomey added.

For health care advocates, the budget maneuvers are a difficult issue, said First Focus President Bruce Lesley. There are differing opinions over the use of the child health care funds for the Labor-HHS-Education bill within his own group, he said, because some think more money for the bill overall is still positive while others take a hard stance that the funds should simply be going to kids’ insurance. 

“You have to over-appropriate to make sure that no state is in a shortfall,” Lesley said.

But more broadly, Lesley said, it’s frustrating to watch funds to free up extra room for appropriators when savings could go back into the program — for example, to help pay for a future CHIP reauthorization. “When we come up for reauthorization, we’re going to be asked to pay for it again, and that’s despite the fact … this money went for CHIP and [then] went to other purposes. So to us, that’s really unfair,” he said.

Rescissions package

Embracing cuts to CHIP to pay for other programs comes in sharp contrast with a push earlier this year by House Republicans, spurred by the White House, to rid Congress of extra CHIP cash at its disposal in the name of fiscal responsibility. The White House included $7 billion in CHIP cuts in a $14.7 billion rescissions package, which ultimately foundered in the Senate. 

At the time, Democrats made no secret of their objections: raiding CHIP then could have taken valuable Labor-HHS-Education offsets off the table. The standalone rescissions bill squeaked through the House on a 210-206 vote with no Democrats in support, and 19 Republicans opposing. A procedural motion to take up the bill in the Senate was then blocked, 48-50. 

In reality, a budget point of order lay against the use of more “bad CHIMPs” — or changes in mandatory programs — that produce paper offsets yet generate no actual savings; the fiscal 2018 omnibus had used up all the available bad CHIMPs for this year. For fiscal 2019 and 2020, the cap is $15 billion. So technically, lawmakers still have some wiggle room to play with on other spending bills, like the Commerce-Justice-Science measure, in the lame duck session. 

For now, the use of CHIP as a piggy bank has no end in sight.

“I think it stops when there’s enough public awareness and people are shamed into discontinuing the use of a dishonest gimmick that allows them to bump the budget,” Toomey said. “And I can’t tell you when that will occur. It’s hard to shame people around here.” 

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