Lesson 3: What is the Children’s Health Insurance Program (CHIP)?

You must first complete Lesson 2: How is Medicaid financed? before viewing this Lesson

Lesson Goal


For you to become familiar with CHIP programs, including how different states operate their CHIP program.

Lesson Summary


The Children’s Health Insurance Program (CHIP) is an insurance program that provides coverage to children living in families with incomes below certain levels. Like Medicaid, CHIP is a state federal partnership, and the federal government pays the majority of costs. CHIP was created in 1997 (as part of the Balanced Budget Act), and is not an open-ended entitlement like Medicaid.

States can set their own eligibility rules for CHIP (as long as its at or above the federal minimum), and there is a wide range of levels of FPL used by the states.

CHIP programs are usually contracted out to Medicaid managed care organizations.

The Big Topics in This Lesson


1- Differences in CHIP Eligibility and Management

The information under this topic reviews the different income levels states use for CHIP eligibility, as well as differences in premiums across states.

2- Common Challenges in CHIP Programs

The information under this topic introduces the CHIP uptake rate, enrollment freezes and common quality challenges.

3- Oversight of CHIP Managed Care Organizations

The information under this topic explains the use of health plans to operate CHIP, as well as the ways health plan performance is monitored.

Lesson Video


Lesson Q & A


Click on each question to learn more

Q1: What FPL levels are used for CHIP eligibility in different states?


States cover children in CHIP across a range of income eligibility levels. These levels are set using the FPL (see lesson 3 for more information on FPL), and range from 133% (the typical minimum for CHIP) and greater than 300%. Below 133% FPL is the typical level states cover kids children using Medicaid. Between 133% and 300% is the range at which a state can received the enhanced CHIP FMAP (see lesson 5 for more on FMAP and enhanced FMAP). Above 300% is the level at which the federal match goes back to the Medicaid rate.


38 states cover children in CHIP using FPL 200% and above. 19 states cover children above 300% FPL, likely through their Medicaid program. See the lesson video for a map of FPL levels by state.

Q2: What premiums are members required to pay in different CHIP programs?


Some states charge premiums for CHIP coverage. Premium and cost sharing amounts are limited by federal rules, and can not exceed 5% of household income. As of 2016, 30 states charged premiums for coverage of children in Medicaid or CHIP. Premium amounts ranged from $17 to $102 per month depending on FPL.


Q3: Can the parents of CHIP-enrolled kids get coverage through CHIP?


Typically no. CHIP is for children living in families with incomes below certain levels (not for the parents). The parents may be eligible for Medicaid depending on their income and the state they live in. CHIP eligibility is usually more generous than Medicaid eligibility, so many times the children can be covered while the parents will not be (they are evaluated using 2 different eligibility standards- CHIP for kids, Adult Medicaid for the parents).

Q4: What percentage of eligible kids are enrolled in CHIP?


For a variety of reasons, not all children eligible for CHIP are enrolled. The percentage of children who could enroll that are actually enrolled is referred to as the CHIP participation (or uptake) rate. The uptake rate varies from state to state and from year to year. Recent studies show a range of about 65% to 97% CHIP participation depending on the state.


State conduct outreach projects to try and increase CHIP participation. There have also been enhanced federal funding opportunities to reach additional CHIP eligibles. Most program officials believe the 2 biggest barriers to higher CHIP uptake are: 1) awareness of the program; and 2) stigma related to receiving public assistance. For the stigma barrier, most states have branded CHIP coverage to look like private commercial coverage in their market. For example, instead of calling CHIP “CHIP” or “Medicaid,” some states will label the program with kid-friendly names like “Husky” in Connecticut and “Dr. Dynasaur” in Vermont.

Q5: What are some of the common clinical challenges for CHIP programs?


Recurring challenges for CHIP programs include ensuring children receive the appropriate number of well child visits during their developmental years as well as kept up to date on immunizations and vaccinations. These issues have multiple causes, including not enough doctors who will accept Medicaid as well as non-compliance on the part of parents.


There are other common challenges with CHIP programs, including PCP assignment. If a family has multiple children, it can be challenging to ensure the kids all have the same PCP or practice. When the children do not share a practice, this can make getting to appointments more difficult.

Q6: What are some of the financing challenges for the CHIP program?


Unlike Medicaid funding, CHIP funding is capped at state specific levels. The levels tie to a formula based on actual use of CHIP funds, inflation and child population growth. If a state has a CHIP funding deficit, they can apply for additional funds – but this is sometimes challenging and can create a need to freeze enrollment in a state from time to time.


In addition to the funding caps, CHIP financing is also different from Medicaid in that it is indefinite. The original CHIP legislation was approved in 1997, and has to be authorized from time to time. Recent reauthorizations include CHIP-RA of 2009 and 2015. The program is currently extended through 2019.

Q7: What are Medicaid Managed Care Organizations that serve CHIP members?


The MCOs that serve CHIP members are often the same ones serving Medicaid adult and Medicaid child members. One example is Georgia. While the overall CHIP program is called PeachCare for kids, there are four MCOs that offer coverage to Georgia children enrolled in the CHIP and Medicaid programs. Each of these MCOs also cover adults in the Georgia Medicaid program.

Q8: What metrics are used to monitor performance of CHIP plans?


Each state is required by CMS to provide sufficient oversight of MCOs. Most states hire a third party vendor to assess MCO performance on standard quality measures. The most common measures used to assess CHIP MCOs are Well child / adolescent well care visits, immunization combos, Children’s Access to PCPs and certain measures related to asthma, or adhd medications. Most states capture data on dozens of measures for CHIP MCOs, but those measures are used in nearly all states with managed care for CHIP.


There are also measures of administrative performance for MCOs, such as timeliness of claims payment, member satisfaction (which is usually captured through CAHPS data) and the level of grievances and appeals filed using the plans appeals process.

Q9: How much do CHIP MCOs get paid?


All MCOs get paid using a method called capitation. This means they get a certain amount of money per member per month from which to cover the members medical expenses, their own administrative costs and profit.

Let’s use an example to help it make sense.


The typical pmpm (per member per month) for a healthy, middle-aged Medicaid adult is $250. That means an MCO gets $250 x 12 months to cover the members annual expenses. As long as the member has less than $3,000 in medical expenses, there is money left over for the MCO to pay its staff and to make a profit for shareholders. If the member has more than $3,000 in medical expenses, the MCO loses money.

CMS has rules that say at least 85% of the capitation revenue must go to medical expenses. This rule ties to a calculation called the Medical Loss Ration (MLR). So in our example, at least $2,550 must be spent on medical expenses for the member each year. The remaining $450 can go to the MCO for administrative costs and profit.

Some states have rules that cap the amount of profit an MCO might make in their state each year. These caps are often between 1 and 3%.  So assuming an MLR of 85%, and administrative costs of 12%, and MCO could make as much as 3% in a market with profit caps.

To finish out the example, lets take a typical MCO with 100,000 adult members in a Medicaid state market. If we apply the average pmpm pf $250 (some are much more, some are less) over those lives, that’s a total annual revenue of $300M. 3% of that is $9M potential profit.


Medicaid Dictionary

 New Terms from this lesson:

CHIP Children’s Health Insurance Program

PCP Primary Care Provider

MCO Managed Care Organizations

MLR Medical Loss Ratio. A percentage MCO pay toward beneficiary claims.

PMPM Per member per month

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