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March 13, 2001, that limited the amount of federal Medicaid funds that states could get throughthese methods. The Congressional Budget office estimated that without the new rules, federalMedicaid UPL spending would have been $160 billion from 2001-2010, and even thoughpayments will be significantly less after the regulations, $36.6 billion is still expected to be spentfrom fiscal years 2001-2005. Medicaid DSH payments to states are projected to be $42.3 billionover this same five-year period. 39Two aspects of Medicaid allowed UPL arrangements to propagate before March 2001. Onewas intergovernmental transfers between localities to states, which was and is a legitimatesource for a state’s matching funds for Medicaid. The other was allowing the amount ofMedicaid payments to public hospitals or nursing homes to exceed the costs of treatingMedicaid patients at these facilities, as long as the UPL to all such providers in the state was notexceeded. After the repeal of the Boren Amendment as part of BBA 1997, the federalgovernment no longer required that Medicaid payments to hospitals and nursing homes be“reasonable.” The problem is that before the 2001 law, UPLs were imposed on all hospitals asa group, all nursing homes, all state-operated hospitals, and all state-operated nursing homes,but no limits were applied to aggregate payments to county-operated hospitals and nursinghomes. 40 The March 2001 regulations established more UPL groups that include countyoperatedhospitals and nursing homes, but there are transition periods up to eight years (withreductions each year) for states that already had UPL plans in place. 41The law that took effect in March 2001 also established two tiers of UPL payment limits, areasonable estimate of 100 percent of what costs would have been under the Medicare programfor the same services for the same people applicable to nursing facilities and state and privatehospitals, and a limit of 150 percent reimbursement of this estimate for local public hospitals.The 150 percent tier only lasted one year—it was changed to 100 percent in rules that tookeffect in March 2002. 42State Children’s Health Insurance Program BackgroundThe State Children’s Health Insurance Program (SCHIP) was created as part of the BalancedBudget Act of 1997 and codified into Title XXI of the Social Security Act. It is administered bythe Centers for Medicare and Medicaid Services. It was established to offer health insurance tothe large number of uninsured children with family incomes too high to qualify for Medicaid, butwho cannot afford private insurance. Every state (plus Washington, D.C., and the five U.S.territories) has implemented SCHIP plans. SCHIP is a grant program with limited funds and notan entitlement program like Medicaid, so states can place caps on the number of childrenenrolled or enact other restrictions that are not legal in Medicaid.Eligibility and BenefitsTo qualify for SCHIP, children must be younger than 19, a U.S. citizen or legal resident, noteligible for Medicaid or state employee coverage, not have private insurance, and have a familyincome below 200 percent of the federal poverty level or below 50 percentage points above thestate’s Medicaid eligibility, whichever is greater (some states have expanded coverage above200 percent FPL). 43 Families pay premiums, deductibles, and co-payments that vary accordingto their income levels.The BBA gave states three options for designing their SCHIP programs: they could expandcoverage for children under Medicaid (43 percent chose this option), establish a separate childhealth program (27 percent), or do a combination of these two strategies (30 percent). 44 If astate implements SCHIP by choosing to expand Medicaid, it must offer the new beneficiariesthe same benefits package that current Medicaid enrollees get. If a state establishes a separateB-10