Keep Children Covered Act of 2006 - Amends title XXI (State Children's Health Insurance Program) (SCHIP) to: (1) establish a special rule for redistribution of unspent FY2004 allotments; (2) provide for additional allotments to eliminate FY2007 funding shortfalls remaining after redistribution of unspent FY2004 allotments; and (3) extend authority through FY2006 for qualifying states to use certain SCHIP funds for Medicaid expenditures.