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RENEE MONTAGNE, host:

When Congress returns next month, one of its top priorities will be to complete work on legislation to renew the popular State Children's Health Insurance Program known as SCHIP. But last week, the Bush administration went ahead and issued new guidelines for the program.

And NPR's Julie Rovner reports states affected by the changes are not pleased.

JULIE ROVNER: The SCHIP program, which turns 10 this year, was created to cover children in families with incomes that are too high to qualify for Medicaid but still too low to afford private insurance. In most states, that income cutoff is twice the federal poverty level or about $41,000 for a family of four.

But several states have chosen to set eligibility higher. New Jersey, for example, covers kids and families with incomes up to three and a half times the poverty level. Ann Kohler, the state's deputy commissioner of Human Services says that's because New Jersey is among the most expensive places in the country to live.

Ms. ANN KOHLER (Deputy Commissioner, Department of Human Services, New Jersey): And so a family at our level, 350 percent of the federal poverty level, may not be as well off as someone at 200 percent of the federal poverty level in another state.

ROVNER: But New Jersey may have to cut back its SCHIP program unless it meets strict new requirements. The new rules were laid out in a letter sent last Friday by Dennis Smith, who heads the Medicaid and SCHIP programs for the federal government.

Mr. DENNIS SMITH (Director, Center for Medicaid & State Operations): Really, the most important message was find those low-income kids first. They are your first responsibility and we want to make certain you have done that.

ROVNER: To that end, states can only expand SCHIP to include moderate income kids after they found and enrolled virtually all of the poorer kids - 95 percent. But state officials and analysts say the new requirements are so unrealistic that no state will be able to meet them.

Judith Solomon of the Center on Budget and Policy Priorities used to run the outreach program for Connecticut's SCHIP program. She says you couldn't get that enrollment rate up to 95 percent even if you knocked on every door in the state looking for eligible kids. There are language barriers, people who just don't want public assistance, and it's a population that's always influx.

Ms. JUDITH SOLOMON (Senior Fellow, Center on Budget and Policy Priorities): Children are born, children age out. They reach age 19 they're no longer eligible. Family income goes up, family income goes down. It's a very dynamic situation.

ROVNER: The Bush administration is also worried that families who can afford private health insurance will switch to SCHIP if it's available because it's cheaper. Administration official Dennis Smith says that's a concept known as crowd out and it undermines what SCHIP was designed to do.

Mr. SMITH: The goal is to increase insurance coverage. But in crowd out, you're not increasing it, you're simply substituting one type of coverage for another.

ROVNER: To help prevent that crowd out, the administration will now require families who previously had private insurance to go without coverage for a year before becoming eligible for SCHIP. States would also have to demonstrate that the number of children in the state who are covered by private insurance isn't declining. But New Jersey's Ann Kohler calls that part of the new rules particularly unfair.

Ms. KOHLER: I can't imagine any state being able to comply with that. There's lots of reason why people lose their private insurance, but it's not because of the SCHIP program. People are not dropping their private insurance to get on to SCHIP.

ROVNER: For now, these rules are in effect, but Congress is likely to try to change that. Both the House and Senate passed SCHIP bills a couple of weeks ago and neither contained these sorts of restrictions. Lawmakers are expected to send a final version of the bill to the president by the end of September. That's when the real fight will begin.

Julie Rovner, NPR News. Washington.

(Soundbite of music)

MONTAGNE: And you can find out more about the new SCHIP rules at npr.org.

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