Several states have sued the Bush administration over new policies governing the State Children's Health Insurance Program (SCHIP). The suits follow broad opposition from state public health experts and congressional Democrats and Republicans who urged the administration to abandon the new policies. The suits also come as Congress attempts to reauthorize SCHIP after a presidential veto.

On Oct. 1, New Jersey sued the Department of Health and Human Services (HHS) seeking relief from new administration policies regarding federal approval of SCHIP eligibility requirements. The state filed the complaint in the U.S. District Court in New Jersey.

On Oct. 4, four other states sued HHS in a joint suit. Those states — New York, Maryland, Illinois and Washington — filed their complaint in the U.S. District Court in Manhattan. Their complaint is similar to that of New Jersey.

The Center for Medicare and Medicaid Services (CMS), a division of HHS, announced the new policies in an Aug. 17 letter to state health officials. CMS issued the new policies to reduce the chance state plans would extend SCHIP coverage to individuals who may be eligible for private coverage. Opponents of extending SCHIP eligibility often refer to this as "crowd-out."

The SCHIP program and the CMS letter carry federalism implications. The SCHIP program grants states discretion in constructing plans most appropriate for their populations. SCHIP intends for states to maintain discretion over the eligibility level for citizens based on factors which may vary among the states, such as cost of living. However, SCHIP also grants CMS the authority to approve or disapprove state plans.

Currently, each state and the District of Columbia set their own eligibility requirements as a percentage of the poverty level. Children in families earning below or up to the set percentage are eligible for medical coverage under the SCHIP program.

The new CMS policies target those states that set their eligibility requirements above 250 percent of the poverty level. The new policies require those states to meet several criteria in order to obtain federal approval from CMS.

Among other things, states must now: prohibit SCHIP coverage for at least one year after individuals lose or withdraw from private coverage; assure at least 95 percent enrollment for eligible individuals whose family income is below 200 percent of the poverty level; and assure "children in the target population insured through private employers has not decreased by more than two percentage points over the prior five year period."

For states that have already received CMS approval for plans extending eligibility to children in families with incomes above 250 percent of the poverty level, the new policies require resubmission of plans that fulfill the new criteria. If states fail to do so, CMS "may pursue corrective action," according to the letter.

The states argue the new policies are overly burdensome and would reduce SCHIP eligibility. For example, CMS has approved SCHIP plans for New Jersey on eight occasions, yet the new policies may lead CMS to disapprove a revised plan. In its complaint, New Jersey finds the 95 percent enrollment criteria to be particularly burdensome: "Even under Medicare, which has nearly universal eligibility and automatic enrollment, the participation rate is less than 95 percent."

The states argue the new CMS policies outlined in the letter should be ruled to have no effect, citing violations of both the SCHIP statute and the Administrative Procedure Act (APA). In order to make its case, the states first argue the letter constitutes a "rule" as defined by the APA.

The APA requires rules to go through a prescribed process including the publication of a notice of proposed rulemaking in the Federal Register and an opportunity for public comment. If agencies violate these requirements for rules, as the states argue CMS has in this instance, a court may invalidate the rule.

The states make additional arguments as to why the new policies should be invalidated. Under the APA, a court shall "hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law."

Citing its arguments, the states ask the respective courts considering their cases to grant relief from the new policies and preclude CMS from pursuing "corrective action."

Since releasing the letter in August, CMS has been broadly criticized for its attempts to impose new requirements on states. Two national groups representing state healthcare professionals, the American Public Human Services Association and the National Association of State Medicaid Directors, have requested CMS abandon the new policies. A bipartisan group of 44 senators also requested CMS rescind the letter or, "at the very least," subject the new policies to the proper rulemaking procedures described in the APA. Senior Democratic members of the House Energy and Commerce Committee wrote to HHS Secretary Michael Leavitt expressing concern over the proposed changes and have requested further information from HHS.

Both the House and the Senate are considering legislation that would legally prohibit CMS from implementing the new policies. The two bills, S. 2049 and H.R. 3555, await consideration in their respective committees.

Another bill aimed at reauthorizing and expanding the SCHIP program would invalidate the new policies, according to a press release from the House Energy and Commerce Committee. That bill, which was passed by both chambers but vetoed by President Bush, will be reconsidered in Congress in the coming days. (For more, see a related story in this edition of the Watcher.) In its current form, the bill would prohibit CMS from enacting policies that would "Impose (or continue in effect) any requirement, prevent the implementation of any provision, or condition the approval of any provision under any State child health plan" based on the argument SCHIP programs may lead to decreased enrollment in private plans.