Good news on the effort to renew funding for the Children’s Health Insurance Program (CHIP) emerged this week when the nonpartisan Congressional Budget Office (CBO) estimated that funding CHIP will cost much less than originally projected. The CBO now estimates that renewing CHIP will cost $800 million over 10 years, rather than the $8 billion originally projected. There is broad bipartisan support for extending CHIP funding but finding pay-for mechanisms for the legislation was the sticking point between Republicans and Democrats.

The CHIP legislation is particularly critical as funding for all CHIP state programs will expire by the end of March 2018, at which point states will be forced to consider shutting down their programs and terminating health insurance coverage for nearly 9 million children around the country. CHIP insures children in families that earn too much to qualify for Medicaid.

One of the main factors attributed to the lower CHIP cost estimate is the repeal of the Affordable Care Act’s (ACA) individual health insurance mandate tax penalties in the tax reform law.  As a result of the mandate repeal, the federal government’s costs for ACA insurance exchange coverage will increase, and in contrast CHIP coverage will be cheaper. The Trump administration also recently changed ACA exchange plan regulations regarding premiums varying by age for children, which will also raise child exchange coverage. If Congress funds CHIP, more children could be covered under CHIP instead of the more costly exchanges, and the federal government will save money.

Now that the CHIP price tag is lower, it is likely that a CHIP funding restoration will be incorporated into the FY2018 government spending measure that must be passed by Jan. 19. Discussions are now occurring over how long CHIP will be renewed for, with Democrats favoring a ten-year renewal and Republicans favoring five- or six-year extensions.