States provide health care coverage to about 40 million low-income uninsured adults and children largely through two federal-state programs-Medicaid and the State Children's Health Insurance Program (SCHIP). Medicaid generally covers low-income families and elderly and disabled individuals, while SCHIP provides health coverage to children in families whose incomes, while low, are above Medicaid's eligibility requirements. To receive federal funding, which covered on average about 57 percent of Medicaid expenditures and 72 percent of SCHIP expenditures in 2001, states must meet certain statutory requirements including providing a certain level of benefits to specified populations. Under section 1115 of the Social Security Act, the Secretary of Health and Human Services (HHS) can waive many of the statutory requirements in the case of experimental, pilot, or demonstration projects that are likely to promote program objectives. As part of their responsibility to protect the fiscal integrity of the programs, traditionally, HHS and the Office of Management and Budget (OMB) have had a policy that all approved waiver projects be budget neutral for the federal government-that is, the proposed project cannot result in federal expenditures that are higher than they would have been without the project.