How much will Texas CHIP in?
Cartoon image of a boy and girl with stacks of coins.

Many federal programs require the states to contribute some percentage of the total amount needed for to fund state-level operations. This ensures that each state is a committed and capable partner in a particular program, rather than a passive recipient of federal money.

But commitment and capability in the states is necessary for such a system of incentives to work according to design.

Sometimes states (or their political leadership) do not respond to the opportunity for new federal funds in the manner anticipated. The pursuit of additional federal monies expended within the state can be derailed as a result of numerous forces, both anticipated and unanticipated. These may include bad timing, political ideology, economic recession in the state, competition within the state over sources of funding, or other infrastructural limitations.

The experience of the Children's Health Insurance Program (CHIP) in Texas provides a good example of how a series of impediments can reduce the scope and overall success of federal programs when they involve matching state funds.

Created in 1997, CHIP offered states considerable additional matching funds--a minimum of 130 percent match (or $1.30 for every $1.00) for every dollar the states paid--for health insurance for poor children. Some estimates for Texas put the federal match at over $1.40 for every state dollar expended, adding up to hundreds of millions of new federal dollars spent annually in the state.

CHIP was designed to provide health insurance primarily to the so-called working poor, who earned too much to qualify for Medicaid, but who could still not afford health insurance. States had some flexibility in determining how much they wanted to spend, and implicitly how many children they wanted to cover. The initial CHIP program offered to pay for health insurance for children of families earning up to 200 percent of the federal poverty level (FPL), but states could choose any level of family income up to the limit. They also have wide latitude in how the funds are distributed, including funding local health clinics.

In Texas, the state government was slow to act. Part of this was just bad timing: the legislature had already adjourned in 1997 when federal CHIP funds first became available. Still, some critics argue, Governor Bush could have started the program on his own without calling a special session of the legislature. When the legislature finally reconvened in 1999, it agreed to fund the CHIP program for children in households earning up to 150 percent of the FPL (or about 500,000 Texas children) despite the opposition of legislators who wanted lower limits on family income and less generous benefits.

By the end of 2000, problems in the launch and administration of the Texas CHIP program caused the state to fall well short of its goal in providing health insurance coverage to poor children. As a result, Texas (among some 40 other states) was faced with having to give back considerable sums to the federal government. Part of the problem in the program was that the state Health and Human Services Commission had lost hundreds of personnel in the previous two years due to efforts by the governor and the legislature to reduce overhead in the state bureaucracy.

These problems were cited in 2003 when the legislature was looking to fix a record $10 billion shortfall in the state budget resulting from recession-induced declines in tax revenues. Legislators eventually cut CHIP funding by $200 million. The cuts included a variety of administrative and eligibility changes, including: eliminating dental and vision benefits, increasing premiums and co-payments, instituting a ninety-day delay in coverage taking effect, and requiring re-enrollment every six months instead of twelve months. The net effect? From September 2003 to September 2004, the CHIP program in Texas covered some 151,000 fewer children.

As difficult as the cuts were for beneficiaries and supporters, they stung even more because during the same period in which the legislature was finalizing its biennial budget amidst an unprecedented budget shortfall, it added $295 million for the governor's brand new Texas Enterprise Fund. This program was designed to encourage growth and development in the state, dedicating more than two-thirds of its budget to a "deal-closing" fund to encourage businesses to set up facilities in the state. Perhaps a noble goal, critics argued, but not at a time when the state is trying to plug a record hole in the budget.

The irony, supporters of CHIP contend, is that the economic impact of the program cuts were much higher than the economic impact of the Texas Enterprise Fund. The budget cuts to CHIP meant a net loss of approximately $500 million in federal spending throughout the numerous countries and cities in the state, money that is thought to produce a circulatory effect that would produce even higher levels of economic activity. Of course, supporters of the governor and the legislative leadership argued that tens of thousands of jobs have been created with the help of the Enterprise Fund and that CHIP suffered from waste and outright fraud. Some but not all of the cuts in the program were subsequently restored in the 2005 legislative session, when state coffers were under less financial stress.

In the end, ideology certainly seems to be at work in the ongoing debate. The Republican leadership (and perhaps Texas culture in general) generally tries to limit government aid to the poor, even if most of the aid comes from the federal government's coffers. On the other side of the aisle, the opposition often seeks to link the cuts in CHIP with what they see as corporate giveaways in the form of the Texas Enterprise Fund, as they did again without much success in the budget debates of the 2005 legislative session.