Enactment of SCHIP sought a balance between increasing funds available for coverage and limiting total federal outlays. While SCHIP has had widespread support and success in helping to provide coverage for uninsured children, its capped financing system has also created challenges for states, including inequities among states and projected federal funding shortfalls. This issue brief explores three basic sets of issues associated with SCHIP’s funding structure: efforts to control and make federal spending more predictable limits the flexibility of a funding structure that responds to program needs; inequities and problems targeting funds are unavoidable when distributing capped federal funding to states through a pre-set formula; and while attempts to fix distributional problems can provide some help, they also make the funding system more complex and hard to manage. The analysis offers valuable lessons to consider when the program is up for reauthorization in 2007, but also with respect to efforts to redesign aspects of the Medicaid program.

 Issue Paper (.pdf)