The Children’s Health Insurance Program (CHIP) is funded jointly by the federal government and individual states, with the federal government covering the large majority of costs. In fiscal year 2016, federal dollars paid for 92.5 percent of CHIP spending, while states and territories covered the remaining 7.5 percent. Total spending that year was $15.6 billion. The split between federal and state shares isn’t fixed, though. It varies by state and is recalculated every year.
How the Federal-State Split Works
The federal share of CHIP is determined by something called the enhanced Federal Medical Assistance Percentage, or E-FMAP. Every state already has a regular FMAP rate that determines how much the federal government pays for its Medicaid program. CHIP gets a boosted version of that rate, calculated by reducing the state’s share under regular Medicaid by 30 percent. So if a state normally pays 40 percent of its Medicaid costs, its CHIP share drops to 28 percent, and the federal government picks up the rest.
The underlying Medicaid rate is based on a formula comparing each state’s per capita income to the national average. Poorer states get a higher federal match. The statutory minimum is 50 percent for Medicaid (which translates to at least 65 percent for CHIP), and the maximum Medicaid rate is 83 percent. Once the 30 percent reduction is applied, wealthier states still see the federal government covering roughly two-thirds of their CHIP costs, while lower-income states can see federal coverage well above 90 percent.
Capped Funding, Not Open-Ended
One of the most important things to understand about CHIP funding is that it works differently from Medicaid. Medicaid is an entitlement program: if someone qualifies, the federal government pays its share no matter how many people enroll. CHIP is a capped program. Congress sets a total amount of money, and each state receives an annual allotment from that pool. Once a state’s allotment runs out, there’s no automatic guarantee of more federal dollars.
Each fiscal year, the Centers for Medicare and Medicaid Services (CMS) determines how much of the program’s costs it will cover and calculates each state’s share of the total allotment. States must then provide their own matching funds to unlock their federal dollars. If enrollment surges unexpectedly, a state could face a shortfall unless Congress steps in with additional funding or the state can redistribute unused allotments from other states.
Where States Get Their Share
States raise their matching funds the same way they pay for most government programs: primarily through general revenue, which includes income taxes, sales taxes, and other broad-based state taxes. Some states also use provider taxes (fees charged to hospitals and other healthcare providers) or tobacco tax revenue to help cover their portion. The specific mix varies widely. Because the federal match for CHIP is so generous, states pay a relatively small share compared to what they spend on Medicaid, which makes CHIP an efficient way for states to expand children’s coverage without absorbing the full cost.
Congressional Reauthorization
Because CHIP funding is capped rather than permanent, Congress has to periodically reauthorize it. The program was created in 1997 and has been renewed several times since, occasionally after tense political standoffs that left states uncertain about whether funding would continue. The most recent major extension came through the Bipartisan Budget Act of 2018, which secured federal CHIP funding through fiscal year 2027.
These reauthorization deadlines matter. When Congress delays action, states may freeze enrollment or send warning letters to families, even if funding hasn’t technically lapsed yet. The uncertainty itself can discourage eligible families from signing up. Between reauthorizations, states operate under their existing allotments and plan their budgets around the assumption that funding will continue, but there’s always a political dimension to CHIP that Medicaid’s entitlement structure avoids.
Who CHIP Covers
CHIP provides health coverage to low-income, uninsured children whose families earn too much to qualify for Medicaid but not enough to comfortably afford private insurance. Income eligibility thresholds vary by state, but most states cover children in families earning up to 200 percent of the federal poverty level, and many go higher. Some states also use CHIP funds to cover pregnant women. States can run CHIP as a standalone program, as an expansion of their Medicaid program, or as a combination of both, which affects how the funding flows but not the basic federal-state cost-sharing structure.