The Department of Health and Human Services (HHS) recently promulgated restrictions on the State Children’s Health Insurance Program (SCHIP), which insures nearly six million children by offering matching funds for states’ health care programs. Most significantly, the restrictions prohibit states from expanding SCHIP eligibility until they meet an inflexible benchmark: ninety-five percent coverage for children whose families’ income is below twice the federal poverty level (FPL). By stifling states’ efforts to expand SCHIP coverage, these new restrictions will have adverse consequences for access to health care for low-income children. And the promulgation of stricter federal requirements has implications not only for SCHIP, but for other federally-funded health programs administered by states, including Medicaid. In order to protect state health policy initiatives from these and other harmful federal restrictions, I propose a legal strategy for advocates to (1) force federal agencies to follow more democratic processes and (2) combat the traditional deference accorded to agency interpretations in the health care context.

The Bush Administration’s policy has a straightforward rationale: the government, with equity in mind, should ensure that low-income children are covered before taxpayer money is spent on subsidizing privately insured higher-income children. In practice, however, the ninety-five percent requirement is highly problematic for three reasons: (1) it is an unreasonable benchmark that could paralyze state-led innovation in health care coverage; (2) its retroactive applicability would result in the rollback of state health care plans that currently insure thousands of low-income children; and (3) it fails to accomplish the Bush Administration’s goal of higher enrollment in SCHIP. This goal is better achieved through additional outreach and recruitment efforts, both of which were features of the SCHIP reauthorization bill vetoed by the White House.

First, the ninety-five percent requirement is an unreasonable prerequisite because it is unattainable: no state has ever reached that “effectively impossible” threshold level. The National Association of State Medicaid Directors estimates that the majority of states cover between seventy and eighty percent of eligible children. The impact of the restrictions was immediately visible as the Bush Administration rejected a New York proposal to expand SCHIP eligibility from families of four making $51,000 to those making up to $82,000; New York has one of the nation’s highest rates at eighty-eight percent. The administration’s insistence on covering families below two hundred percent of the FPL is misplaced because it does not take into account varying costs of living. Unsurprisingly, the states that have attempted to cover the “wealthiest” of the low-income families are California, New Jersey, and New York, where studies have shown that an income that is three hundred percent of the FPL is insufficient to cover basic necessities and health care. The regulations, in demanding ninety-five percent coverage, ignore the fact that SCHIP is a voluntary process requiring eligible families to come forward and enroll. The inherent inefficiencies in information dissemination make near-complete awareness and enrollment unrealistic. Even if a state was determined to achieve one hundred percent enrollment for children under two hundred percent of the FPL, state expansion of eligibility does not have a clear causal relationship with deterring eligible individuals from enrolling. It is more likely, as discussed below, that enhanced outreach and recruitment provisions would help bolster enrollment rates.

Second, the ninety-five percent requirement would have the counterproductive effect of causing the rollback of existing state plans targeting children above the two hundred percent FPL level. Such a rollback would revoke health care coverage for thousands of children. For example, New Hampshire and Massachusetts currently cover, respectively, 2000 and 4500 children above two hundred percent of the FPL, who will now be uninsured. Further, the restrictions mark a reversal of previous administration policy, which had encouraged states to experiment with health care innovation. Using section 1115 waivers, fifteen states have been authorized to pursue broad expansions of their SCHIP programs to include adults, caretaker guardians, pregnant women, and even childless adults. The future of these programs is now in doubt.

Third, the fundamental concern of the Bush Administration—that an insufficient number of children living under two hundred percent of the FPL are enrolled in SCHIP—is better addressed through legislation similar to the vetoed SCHIP reauthorization bill rather than through the new restrictions. Enrolling a higher proportion of low-income children is not mutually exclusive with expanding coverage to higher-income uninsured children. As mentioned above, since SCHIP is a voluntary enrollment program, achieving the maximum enrollment rate requires a new approach: investing in SCHIP recruitment and outreach. The reauthorization bill addresses the concerns of both health care advocates and the administration: (1) it increases SCHIP funding and encourages the expansion of coverage beyond the highest income eligibility; and (2) it attempts to bolster enrollment by providing funding for outreach programs and removing onerous procedures, such as in-person application requirements and proof of asset tests.

Although these criticisms are specific to the recent SCHIP restrictions, similar regulation of state health care programs threatens other dual federal-state programs, such as Medicaid. In order to protect such programs, states need a legal strategy to combat restrictive agency regulations. I suggest two methods: first, an incremental approach that protects these programs by strengthening procedural safeguards already in place, and second, a broader strategy that questions the applicability of Chevron deference in the health care context.

Stricter enforcement of existing procedural requirements could make it more difficult for the federal government to chip away at state discretion under SCHIP and similar programs by requiring HHS to follow conventional codification procedures. For example, the Administrative Procedure Act (APA) governs rulemaking procedures by requiring adequate notice and challenge periods. HHS regulations explicitly prohibit informal and binding requirements, instead providing that states “need meet only Federal administrative or programmatic requirements for a plan that are in statutes or codified regulations.” Neither requirement was met in the SCHIP case, but courts could encourage HHS to follow these guidelines in the future by upholding procedural challenges to the restrictions brought by New York and other affected states and currently pending in federal courts. More rigorous judicial enforcement of the APA and HHS regulations constitute what Adrian Vermeule has called “democracy-forcing rules,” which, as the name suggests, would force greater deliberation and scrutiny of agency action.

A broader strategy to protect state-led health care initiatives is to limit the scope of administrative deference accorded to HHS restrictions. While a comprehensive treatment of the issues raised by deference is beyond the scope of my argument, there are strong arguments against deference to HHS on state-led health care programs. First, traditional Chevron deference requires courts to determine whether Congress intended to delegate the authority to interpret the statutory language at issue. Yet SCHIP unambiguously grants broad authority to states to determine income eligibility levels; even HHS admitted that it has “no authority to disapprove amendments solely based on income [levels].” Second, agencies have also been granted deference under the Skidmore standard which is based on the “specialized experience” of the agencies and need for uniformity in national programs. Yet, the statute explicitly emphasizes the need for state action to determine the particular costs and factors specific to the state; the relevant expertise here lies with the states, not federal agencies. Further, the uniformity rationale is undercut by the fact that SCHIP, by its very design, emphasizes state-by-state flexibility and thus is not meant to be nationally homogenous.

Government health care coverage has, in large part, been driven by jointly administered federal-state programs like Medicaid and SCHIP. State innovation and initiative has been both allowed and encouraged. Thousands of low-income children rely on programs like SCHIP to provide insurance. Administrative restrictions that chip away at the coverage provided by such programs threaten the well-being of both low-income children and other groups that states have made eligible for coverage. The HHS restrictions mark a reversal of course and threaten future state health care programs. As a result, states should adopt a legal strategy, either incremental or foundational, to protect their health care programs.

Manav Bhatnagar is a second-year student at Yale Law School.

Preferred Citation: Manav Bhatnagar, Overcoming Deference to Administrative Regulation: Expanding the State Children’s Health Insurance Program (SCHIP), 117 Yale L.J. Pocket Part 155(2008), http://yalelawjournal.org/forum/overcoming-deference-to-administrative-regulation-expanding-the-state-childrens-health-insurance-program-schip.