Short answer: For Medicaid, the IRS rules allow (but do not require) a plan to permit a prospective change to drop or reduce that person’s health coverage; CHIP is not named in that rule, so check the plan document and the other permitted-change rules.
Treasury rules let a cafeteria plan allow a prospective election change to cancel or reduce health coverage for an employee, spouse or dependent who becomes enrolled in Medicaid, and to start or increase coverage when that person loses Medicaid. The plan document must actually allow it.
Joining the plan is easier: a cafeteria plan may allow election changes that match HIPAA special enrollment rights, which include the 60-day CHIPRA events (losing Medicaid or CHIP, or becoming eligible for premium assistance).
Dropping children to move them to CHIP is the gray area, because the Medicaid change rule does not mention CHIP. Have the employer confirm with its plan administrator before the employee drops coverage, since Texas CHIP will not start while the child is still insured.