Distributing State Children's Health Insurance Program funds: a critical review of the design and implementation of the funding formula

The development of formulas to distribute federal funds to states based on demographic data continues to challenge data and policy analysts. Analysts must forward the best objective statistical analysis and data inputs to formula specifications while acknowledging the politics of the legislative process that authorizes federal funding formulas. This article evaluates the federal funding formula for the State Children's Health Insurance Program (SCHIP) using key formula components of need, effort, capacity, and performance. We also examine the operationalization and measure of the target population in the SCHIP funding formula. Legislative decisions on formulas are, by nature, based on compromises that balance competing policy objectives. The analyst's role is to continually review current research standards, data quality, and relevant formula inputs and make recommendations to refine federal funding formulas to better target resources to their intended populations.