States Forfeit Unspent U.S. Money for Child Health Insurance

By ROBERT PEAR

ASHINGTON, Oct. 13 — Large amounts of federal money intended to provide health insurance to children are going unused, federal officials say, even though 8.5 million children are uninsured.

On Oct. 1, states lost $1.2 billion that had been appropriated by Congress to provide health coverage for low-income children. The money, unclaimed after four years, reverted to the Treasury and can now be used for other purposes — anything, including law enforcement, military pay, farm subsidies or the fight against terrorism.

Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, said he hoped that Congress would pass legislation to restore the money to the Children's Health Insurance Program.

"States should find some way to use that money to cover the uninsured," Mr. Scully said. "If you don't use it, you lose it."

President Bush foresaw the problem. In his budget, issued in February, he asked Congress to let states keep the money until 2006. Several senators have introduced bills to extend the deadline for use of the money, while redirecting some of it to states most likely to spend it.

Congress has not taken action on any of the proposals, even though lawmakers often lament that millions of children are uninsured according to the Census Bureau.

State officials, struggling with severe budget problems, are pleading with Congress to extend the deadline for them to use the federal money.

Gov. Frank L. O'Bannon of Indiana, a Democrat, said he and other governors feared that "if this money is lost, the federal government's growing budget deficit will make it difficult to recover it at a later date."

Jason Cooke, director of the Children's Health Insurance Program in Texas, which provides coverage for 510,000 youngsters, said: "It would be most unfortunate if the money stays in the federal Treasury. There is still lots of unmet need."

The Bush administration estimates that states will lose $1.6 billion more next year if Congress takes no action, in addition to the $1.2 billion lost in the current year.

The recession has increased the number of people without insurance and cut revenue collections in most states, which need every dollar of federal aid they can find.

The Children's Health Insurance Program, created in 1997 with bipartisan support, has been extremely popular and is widely viewed as a success. More than four million youngsters are enrolled. Many come from working families with incomes too high to qualify for Medicaid, but too low to afford private health insurance.

The Bush administration and advocates for children estimate that enrollment in the child health program will drop by 600,000 if Congress does nothing to restore federal money.

Twenty-five states forfeited money at the beginning of this month. New York lost more than any other state, $397 million, about one-third of the total.

Gov. George E. Pataki of New York, a Republican, has strongly supported the program, which serves more than 500,000 children in the state. New York spent all its initial allotments and therefore received unspent money from other states in each of the last two years, but New York could not spend it all.

Indiana and North Carolina each lost $100 million of federal money on Oct. 1. South Carolina lost nearly $90 million. Arkansas lost $44 million, and Washington State lost $35 million.

While the purpose of the program is straightforward, the bookkeeping is complex. States have three years to use the money they receive for a particular year. If a state fails to use its full allotment in the three-year period, the federal government redistributes some of the unused money to other states that spent all the money they got. Any money that remains unused must eventually be returned to the Treasury.

The money that reverted to the Treasury on Oct. 1 was originally earmarked for 1998 and 1999.

Why does money remain unspent? In many states, the program got off to a slow start.

"States could not spend the money fast enough," said Mr. Cooke, the director of the Texas program.

Texas received an allotment of $502.8 million for the fiscal year 2000, Mr. Cooke said, but $285 million remains unspent and would, under current law, be redistributed to other states.

Jana L. Thomas, the program director in Georgia, said her state received more money than it could use in the early years and would have less than it needs in the next few years. That kind of mismatch is common.

Several members of Congress have tried to restore money for the children's health program, but they have been stymied by disagreements over how to divide the money among various states.

President Bush's proposal would allow states to keep the money they received for 1998, 1999 and 2000. Senators John D. Rockefeller IV, Democrat of West Virginia, and Lincoln Chafee, Republican of Rhode Island, want to redirect a large share of the unused money to states with greater needs.

Edwin C. Park, a policy analyst at the Center on Budget and Policy Priorities, a liberal research institute, said the president's proposal "leaves large sums in states that cannot use them, rather than redistributing money to other states that will need it to avert sharp cutbacks in their programs."

Governor Pataki placed the onus on Congress, particularly the New York senators, Charles E. Schumer and Hillary Rodham Clinton, both Democrats.

Robert R. Hinckley, a spokesman for Mr. Pataki, said, "We really expect our senators to ensure that New York's children are not left behind."

Mrs. Clinton said it was imperative for Congress to act this year. But she added, "I am very concerned that the administration's proposal would tie up money in states that can't spend it, while children in other states like New York, where we spend our full allotment, will lose coverage for lack of funds."