California will not comply with the federal SCHIP directive scheduled to go into effect on Aug. 18 because, according to state health officials, "key requirements articulated in the directive are inconsistent with current California law," CQ HealthBeat reports (Johnson, CQ HealthBeat, 8/13). According to guidelines issued by CMS in August 2007, before expanding SCHIP eligibility to children in families with incomes greater than 250% of the federal poverty level, states first must demonstrate they have enrolled at least 95% of eligible children with family incomes below 200% of the poverty level (Kaiser Daily Health Policy Report, 7/18).

California's Healthy Families is the country's largest SCHIP program, receiving 16% of all federal SCHIP funds. In a letter sent Tuesday to Herb Kuhn, deputy administrator of CMS and acting administrator of the Medicaid program, California Managed Risk Medical Insurance Board Executive Director Lesley Cummings wrote, "MRMIB ... is constitutionally obligated to follow state law and cannot unilaterally change HFP operating rules that are embodied in state law." At least four other states have legally challenged the directive, but the Bush administration maintains that the directive was not a regulation. However, according to a Government Accountability Office report, the directive was an illegally issued rule.

Cummings wrote, "At present, California will continue to operate the HFP, including eligibility, benefits and cost-sharing, in conformance with CMS-approved Title XXI state plan and will continue to claim federal funds accordingly."

According to Peter Harbage, author of a California HealthCare Foundation report on ways in which the state can proceed, some states hope not complying with the directive will eventually be beneficial under a new administration. However, the states could face the prospect of not receiving any federal money for the program, Harbage said. The report stated, "If other complex program changes are any indication ... there is every reason to suspect that the states will be able to continue to claim federal dollars for covered children while efforts to achieve compliance are negotiated."

In a statement, CMS spokesperson Jeff Nelligan said, "We are determining whether the relevant states are in compliance with the existing requirements, as also clarified in the Aug. 17, 2007, letter. Moreover, we will continue to assist the states in developing policies that will ensure that the most vulnerable, low-income children are covered first, without moving them from private to public coverage." Nelligan added, "At this time, we are not taking compliance action" (CQ HealthBeat, 8/13).