2009-10 Budget Analysis Series: Health

HFP—SCHIP Reauthorization, Rule Changes Expected Very Soon

In the “Background” section of this analysis, we discussed SCHIP, a federal program to provide health coverage for children that is the source of funding for HFP. Federal authority and funding for SCHIP expires March 30, 2009. At the time this analysis was prepared, the House of Representatives and the Senate appeared to be close to agreement on federal legislation that would reauthorize SCHIP for four and a half years, through September 2013. This reauthorization, funded through a 61–cent increase in federal excise tax on cigarettes and tobacco products, would approximately double federal funding for SCHIP.

In its current form, the legislation under consideration contains several provisions which may have a fiscal impact on California. These provisions are summarized in Figure 12 and include the following:

Figure 12

Fiscal Impacts of State Options and Requirements
Under Federal SCHIP Reauthorization

(In Millions)

Options for Modifying
Healthy Families Program

General Fund Impact

Expand coverage to 300 percent of
federal poverty level


Draw down federal funds for legal
immigrant children


Net effect of adopting both options shown above




Collect identification documentation

Unknown (Not likely to exceed
 $5 million)

Enhanced data collection on children's health

Unknown (Some federal funding available)

New Rules Bring Benefits, Choices for California

Overall, we find that the federal legislation to reauthorize SCHIP contains several provisions that will benefit California: an increased federal appropriation, increased stability of federal funding, and the opportunity to expand coverage to higher income levels at the state’s discretion. Notably, California could eventually draw down some additional federal funds without increasing General Fund support, resulting in General Fund savings. At the very least, this legislation will allow MRMIB to maintain HFP at current levels of eligibility and caseload growth.

If the Legislature wishes to expand eligibility for coverage under HFP, increased federal support for this purpose will be contingent on providing matching General Fund or other state support. Considering the success of HFP in providing health insurance to currently eligible low–income children and the favorable federal matching rate available for covering children, we believe that expanding the program to 300 percent of the FPL has merit on a policy basis. However, in light of the state’s current fiscal situation, we recommend against an eligibility expansion of HFP at this time.

Federal Tax Increase to Fund SCHIP Will Reduce State Tobacco Tax Revenues

The federal government proposes to pay for the SCHIP reauthorization with a 61–cent increase in federal excise tax on cigarettes and tobacco products, which could go into effect as early as April 1, 2009. The new tax is predicted to decrease consumption of tobacco products, which would reduce the revenues collected under current state tobacco taxes for various special funds and the General Fund.

Overall, we estimate that the new federal tax would reduce state tobacco tax revenues for various special funds by approximately $60 million in 2009–10. This estimate includes a reduction of about 7 percent for each of these programs, or about $21 million in Proposition 99, $38 million in Proposition 10, and $1.4 million for breast cancer research.

However, the imposition of the increased federal excise tax will also result in a net increase in General Fund revenues of about $9.3 million. The net increase in General Fund revenues is a combination of (1) a reduction in revenues collected through the General Fund portion of the tobacco excise tax of $7.1 million (because tobacco sales will have declined), coupled with (2) an increase in sales tax revenues of $16.4 million (because the federal excise tax would increase the price of cigarettes subject to the sales tax).

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