CMS’s New Approach to SCHIP: Arbitrary and Capricious?

Here are some important stories of people who have been able to afford health insurance thanks to government programs. I found the stories of once-uninsured students like Elizabeth Geronikos both inspiring and troubling. As she explains:

Fortunately for my brother, sister and me, when [my family’s] income dropped to dangerously low levels, we qualified for a thing called CHIP [the Children’s Health Insurance Program]. Because of CHIP, I was able to go to the dentist, and get my eyes checked and get my allergy/asthma medicine for free. I had heard about CHIP in an assembly in my school when I was much younger, never thinking I would ever need it.

My parents were put on a waiting list for low income health insurance and had no health insurance for about a year. My father, who has high blood pressure and high cholesterol, had to go for a year without his medication.

But thanks to the big SCHIP veto, expect to hear fewer such stories in the future. One of the things that got SCHIP opponents angriest was its extension to the parents of qualified children, but they don’t need to fear–people like Mr. Geronikos will be more easily kept off their meds after today.

There are several perspectives one can take on President Bush’s veto of the SCHIP bill. Maybe there was a lot of concern about the survivors costs the program would generate, as our foreign policy commitments grow. As Sandy Levinson at Balkinization laments, our Constitution starts looking a bit frayed around the edges when such a popular initiative can be stopped in its tracks by a determined president and 1/3 + 1 of one (gerrymandered and polarized) chamber of Congress. It’s a bit ironic that the veto comes 2 days after the administration’s declaration of Oct. 1 “Children’s Health Day.”

But I’d like to examine an administrative law angle on a related controversy: namely, what is the status of CMS regulations that are now reining in existing state efforts to cover more uninsured children? Gov. Corzine of New Jersey has been at the vanguard of a group of governors objecting to the Administration’s limits on their efforts to enroll more uninsured children. Corzine in particular believes that the new regulatory approach is a sudden and unexplained departure from a pattern of pro-coverage decisions that CMS had been making as recently as 2005. I’ll excerpt some passages from his letter on the topic below the fold.

First, here is the change in policy Corzine is objecting to:

In an Aug. 17 letter to state health officials, the Centers for Medicare and Medicaid Services (CMS) “clarify” that states seeking State Children’s Health Insurance Program (SCHIP) expansions must adopt “reasonable procedures” to prevent the substitution of public coverage for private coverage (“crowd-out”). The clarification applies to any SCHIP plans or SCHIP-related 1115 demonstration waivers that extend eligibility beyond 250 percent of the Federal Poverty Level (FPL). CMS expects full state compliance within 1 year, “or CMS may pursue corrective action.”

According to the letter, such states must adopt “general crowd-out strategies” [that include]

* A minimum 1-year waiting period between private coverage disenrollment and SCHIP enrollment;

States must also “make assurances” that:

* At least 95 percent of eligible children under 200 percent FPL are enrolled in SCHIP or Medicaid;

* The number of potentially eligible but privately covered children does not drop by more than 2 percent over 5 years; and

. . .

The obvious “poison pill” here is the 95% requirement. I attended a conference on Medicaid in June, and virtually everyone I talked to there agreed that’s a virtually impossible number to meet. Families below 200% of the poverty line often have to move a lot to get cheaper rent, may be working two or more jobs just to make ends meet, or may not have the educational background to decipher complex governmental benefits applications. Getting coverage up to around 80-90% of those families is often a pretty big accomplishment for states. Moreover, what can possibly be the rationale for keeping kids uninsured for 1 year before they get to join a public program?

Here is some of the Corzine response:

I have made children’s health a top priority, and in the last year and a half we have already enrolled over 100,000 additional children in both the Medicaid and SCHIP program. In the letter, CMS indicates that you will deny State requests to extend eligibility under the State Children’s Health Insurance Program (SCHIP) to children in families with effective family income levels above 250 percent of the Federal poverty level (FPL). This is in direct opposition to the position that CMS has consistently taken in recent years.


Although the letter purports to clarify existing requirements, the simple fact is that it sets forth entirely new and unreasonable conditions for the SCHIP program. Not only are these onerous conditions contrary to the existing statutory and regulatory framework, but there can be no doubt that the imposition of these conditions will curtail the ability of New Jersey to design and operate health care programs to best serve our children. Although the letter was issued under the guise of preserving employer sponsored insurance, the practical effect of the new policy would be that thousands of innocent children will lose or be denied health insurance coverage and will be forced to join the growing ranks of the uninsured.

The letter imposes specific conditions that would harm our children and that would make the administration of the program practically impossible, including:

* the requirement that children lack coverage for at least one year before enrollment in the program without allowing any exceptions – a harsh and unnecessarily long wait that is four times longer than our current “crowd out” requirement, which was approved by your CMS in November 2005;

* the condition that would bar the provision of coverage to children in families above 250 percent of the FPL, unless there has been less than a 2 percent decrease in employer-based coverage over the past five years – an unreasonable and unattainable requirement given the current negative national trend in employer-based coverage; and,

* the condition that SCHIP expansion is allowed only where the State has been able to enroll 95 percent of all eligible low-income children in SCHIP or Medicaid – a requirement that no state will be able to meet. These restrictions will effectively gut our successful FamilyCare program and will only increase the ranks of the uninsured.

And here’s the kicker: Corzine’s decision that CMS new regulations (cloaked as “clarifications”) are so shoddly and legally groundless that he is entitled to defy them:

Since the conditions imposed by the letter contravene the fundamental objectives underlying SCHIP, violate the terms of its statutory and regulatory framework, and overstep CMS’s authority by altering regulations without utilizing appropriate procedural safeguards, New Jersey will continue to provide health care to children in families with income up to 350 percent of the FPL in accordance with terms of its State Plan Amendments and Waiver approved by the federal government in 1998, 2005 and 2006.

From an administrative law perspective, here is what I think is going on (though I’d have to see relevant filings to be sure). The Administration realized that its sudden changes to the SCHIP program may not have been merely interpretations of existing rules, but actually amounted to a new set of rules that could only be put into place via notice and comment rulemaking. The Administration has a track record of departing suddenly from existing legal frameworks. So Corzine suspects that this attempt to clarify SCHIP regs via an interpretation of existing regulations and the statute amounts to an effort to force a substantive (or legislative) rule through without going through the formalities required either by the organic act or the APA.

Perhaps one key question here is the extent to which the Alaska Hunters decision will lead courts to conclude that CMS’s prior solicitude for SCHIP expansion amounted to a settled approach to the program that could only be changed via more robust means than the 2-page letter CMS came up with in August. As Richard Murphy notes:

Some years ago, in Alaska Prof. Hunters Ass’n v. FAA (APHA), the D.C. Circuit held that an agency must use notice-and-comment rulemaking to change regulatory interpretations that have hardened into “administrative common law.” The court was concerned that, absent such a requirement, agencies would enjoy excessive power to shift among plausible regulatory interpretations, thus sandbagging regulated parties. Administrative law scholars have roundly condemned APHA, but it is firmly embedded in the D.C. Circuit and has spread to others.

Admittedly, in Guernsey Memorial Hospital, the Supreme Court was not eager to force onto CMS an accounting scheme it had not explicitly adopted. But as Murphy notes, “Where an agency cannot offer a strong justification for overruling a precedent, it [it should] need to use legislative rulemaking to do so. . . . [my] proposed ‘administrative common law’ model might enhance agency interpretive consistency while at the same time preserving agency discretion to change course quickly and cheaply where there is a pressing need to do so.” Given Corzine’s eloquent refutation of the stated basis of CMS’s policy shift, this certainly may be a case where the agency isn’t justifying itself in a publicly acceptable manner–there appears to be an “[a]bsence of a rational connection between the facts found and the choice made.”

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