Limits on plans to insure children illegal, GAO says

WASHINGTON — The Bush administration violated federal law last year when it restricted states' ability to provide health insurance to children of middle-income families, and its new policy is therefore unenforceable, lawyers from the Government Accountability Office (GAO) said Friday.

The ruling strengthens the hand of at least 22 states, including Washington, that provide such coverage or want to do so. It also significantly reduces the chance that the new policy can be put into effect before President Bush leaves office in nine months.

At issue is the future of the State Children's Health Insurance Program (SCHIP), financed jointly by the federal government and the states. Congress last year twice passed bills to expand the popular program, and Bush vetoed both.

State officials of both parties said the Bush policy, set forth in a letter to state health officials Aug. 17, has stymied their efforts to cover more children at a time the number of uninsured is rising and more families are experiencing economic hardship.

In a formal legal opinion Friday, the GAO said the new policy "amounts to a marked departure" from a long-standing, settled interpretation of federal law. It is therefore a rule and, under a 1996 law, must be submitted to Congress for review before it can take effect, the opinion said.

Jeff Nelligan, a spokesman for the federal Centers for Medicare and Medicaid Services, said, "GAO's opinion does not change our conclusion that the Aug. 17 letter is still in effect."

The letter told states what steps they needed to take to be sure the children's health program would not displace or "crowd out" private coverage under group health plans.

What happens next is not clear. Washington, New York and several other states filed lawsuits challenging the Bush administration policy. In addition, Congress may consider legislation to suspend the directive.

Under the Aug. 17 directive, states cannot expand SCHIP to cover children with family incomes over 250 percent of the federal poverty level ($53,000 for a family of four) unless they can prove they already cover 95 percent of eligible children below twice the poverty level ($42,400).

The legal opinion was requested by Sens. John Rockefeller, D-W.Va., and Olympia Snowe, R-Maine. In view of the new ruling, the senators urged the Bush administration to rescind the Aug. 17 directive.